Argentina Raises Gas Prices in Bid to Close Bulging Deficit

  • Gas prices raised up to 300% in bid to balance the budget
  • Cutting subsidies may save government about $4 billion a year

Argentina raised prices for natural gas that should save the government $4 billion a year as part of its drive to cut subsidies that were the main cause of the largest fiscal deficit in almost two decades last year.

Government-controlled gas prices for residents, businesses, transport and power plants were raised, according to a resolution published Friday in the Official Gazette. The average increase in prices for residents and businesses will be 174 percent, according to an Energy and Mining Ministry spokesman. Also on Friday, car drivers filling up their tanks began paying about 6 percent more for their gasoline. The government is also planning to raise water prices by up to 500 percent, La Nacion reported.

President Mauricio Macri, who took office in December, has already reduced subsidies on electricity and transport as he seeks to cut the budget gap by 1 percentage point this year and to virtually zero by the end of his term. Low prices have prevented companies from investing in production and forced Argentina to supplement demand with imports despite the country’s abundant natural resources, Energy and Mining Minister Juan Jose Aranguren said Friday.

“Due to the low tariffs, demand has risen and we haven’t been able to meet that with local production,” Aranguren said in an interview on Radio Mitre.

Economy’s Rebalancing

An average residential gas user in Buenos Aires will now pay about 131 pesos ($8.93) a month, according to a slideshow provided by the ministry. Consumers who reduce consumption of natural gas will pay lower bills and the government will offer a special rate for low-income families.

The price for compressed natural gas used in vehicles will jump 220 percent to 3.20 pesos per cubic meter.

Argentina’s primary fiscal deficit widened to 5.4 percent of gross domestic product in 2015 from 3.8 percent in 2014, according to the Finance Ministry. The primary deficit shrank 16.4 percent to 17.93 billion pesos in January and February as spending rose at a slower pace than revenue.

The government in January raised electricity bill prices by as much as much as 500 percent in a move it said will save the treasury $6 billion a year. Argentines previously paid as little as 25 pesos a month as the government footed most of the bill.

The government says the system of subsidies has drained $51 billion, almost double its current foreign reserves, from the Treasury over 13 years.

Before it's here, it's on the Bloomberg Terminal.