The drought is already hitting the economy hard: incomes and exports have fallen

The impact of the drought has already started to hit the economy, even harder and sooner than expected. The recent official figures published yesterday reflect a severe blow to the collection in January and also to the level of imports, which should not be reversed in the following months. The data reveals that the problem Argentina faces in 2023 goes far beyond difficulties in maintaining the level of reserves and the accumulation commitment in the agreement with the IMF.

In this way, January signified the return of the twin deficits, as the fiscal position and the trade balance ended in significant reds.

The decline in exports meant that in January the trade balance ended in a deficit of 484 million dollars, while last year the surplus had reached nearly 300 million dollars.

“Exports have reached the lowest level in the last two years, you have to go back to February 2021 to find a lower value. They have not shown such a significant drop in annual terms since June 2016, excluding 2020, in the midst of a pandemic “, indicates a report prepared by the consulting firm Abeceb.

According to the values ​​reflected by INDEC, the quantities exported fell by no less than 13.3% in interannual terms, although this drop was partially compensated by prices, which showed an increase of 1.6%. Exports of primary products fell 42.5% year-on-year, while within this group, grain sales contracted 51.6%.

Lower exports also impacted revenues, with a sharp drop in withholdings. The situation was recognized by the Ministry of Finance itself. Public sector revenues “have been affected by the severe drought which strongly impacts the yield of the main exportable products, causing a sharp drop in collection associated with national state foreign trade taxes”, he said. .

The end result showed an increase in collection of 92%, lower than inflation, while expenses increased by 111%.

The primary deficit topped $200 billion and the financial red, which includes debt interest payments, came in at $537 billion. This fiscal hole can be financed in two ways: more debt issued by the Treasury or direct monetary issuance. This deterioration in the public accounts further complicates the plans of the Ministry of the Economy to reduce the budget deficit.

Along with the sharp drop in withholding tax revenue, economic subsidies also continued to rise, increasing by 133%, while energy subsidies increased by 119%. This clearly shows that the rate increases are still less than half the reduction in the burden on public coffers.

The decline in grain complex exports does not only affect the Central Bank’s ability to accumulate reserves. It also has a negative impact on the trade balance and the budget result.

Besides the reappearance of the twin deficits, it is expected that the drought will also impact economic activity. The “multiplier effect” that the field has in 2023 will work in reverse. There will be a decrease in the harvest, a reduction in the sale of fuels, less tire changes and less freight.

The fall in foreign exchange earnings generated by the decline in exports of the grain complex throughout 2023 is not yet fully measured. Preliminary calculations agree that about $10,000 million less will come in compared to the previous year.

During February, the Central Bank already has a selling balance close to 900 million dollars, which implies a difficult start to the year. Reserve accumulation would come almost exclusively from international lending, greatly reducing the ability to generate foreign exchange from commercial activity.

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