Argentina Eyes Wider Budget Deficit to Boost Economy in 2017by and
Inflation expected to slow to a range of 12 to 17 percent
Public debt may increase by 32 percent to $17 billion
Argentina’s President Mauricio Macri will prioritize economic growth in 2017, boosting debt levels to finance government spending before elections despite his promise to be more fiscally conservative.
Argentina expects to post a primary fiscal deficit, which excludes debt interest payments, of 4.2 percent of gross domestic product in 2017, wider than the 3.3 percent gap it had pledged earlier this year, according to the budget that Finance Minister Alfonso Prat-Gay presented to Congress on Thursday.
Macri is trying to open up Argentina’s economy by reversing the protectionist policies of his predecessors while avoiding social unrest and keeping unions at bay. With mid-term elections in the second half of 2017, he is increasing spending to pull the economy out of a recession that started in mid-2015. The government expects GDP to grow 3.5 percent in 2017 after an estimated 1.5 percent contraction this year, according to the budget proposal.
The new budget target won’t add pressure on the economy, which is showing a “budding recovery,” and takes into account what Argentina needs to do to “generate jobs and tackle poverty,” Prat-Gay told lawmakers on Thursday. The government would have to impose “a fiscal adjustment we don’t want to do” if it continued to pursue the previous goal, he added.
Prat-Gay said the wider deficit target was due to the government’s decision to settle decades-long legal disputes with pensioners and to the injunction by the Supreme Court that halted efforts to reduce subsidies on gas tariffs. The government has proposed a more gradual increase in tariffs following the ruling.
As the government invests in infrastructure, social security spending will increase 35 percent and capital expenditure will rise 32 percent next year, according to the budget.
Annual inflation will slow to the range of 12 to 17 percent in 2017, according to estimates included in the bill, down from a high of 47 percent in the capital city of Buenos Aires. The peso is also expected to weaken 16 percent to 17.9 per dollar, and public debt is slated to increase 32 percent to 248 billion pesos ($17 billion).
The government expects the primary deficit to narrow to 4.8 percent of GDP this year from 5.4 percent in 2015. It sees the economy growing 3.5 percent in 2018 and 2019.
The government will present an income tax adjustment bill to Congress by the end of the month which will seek to raise the tax floor and extend tax brackets, Prat-Gay said. Raising the floor this year cost the government 50 billion pesos ($3.3 billion), he said.
Macri’s government will also propose adjustments to the fiscal powers the government has on discretionary budget spending, Prat-Gay said.
Macri assumed office pledging to overhaul Argentina’s economic statistics after the country was censured by the International Monetary Fund for reporting inaccurate data. The IMF said it might lift that motion in November. Prat-Gay said the 2017 budget will be the first in many years based on reality.
“It’s important that lawmakers and legislators understand that they’ll be debating something that’s absolutely realistic,” Prat-Gay said. “We’re not hiding anything.”