The government started the year spending more in some areas and less in others: what will happen to fiscal discipline

Deciphering the real performance of public finances in Argentina has always been complex, due to the way the figures are presented, some on a cash basis: the difference between what was received and what was actually paid for expenditure ; other accrual basis, but not fully paid; and an aggregated monthly report, and another through daily updates on the Central Administration component web page.

Usually all the figures “roll” in the same direction, and therefore the trajectory of the final result, in cash or in regularization, coincides, since the main thing corresponds to the social component: pensions, AUH, family allowances and other help for people , provinces and municipalities.

But this did not happen in January, because compared to the expectation of a surplus balance, the first month of the year was extremely unbalanced, closing with a negative balance multiplied by more than 12 compared to that recorded a year earlier, with various elements that they have easily exceeded the acceleration of inflation to 98.8% in the last 12 months.

“To explain the three-digit increase in public spending, there are two central elements. On the one hand, there is a purely accounting effect related to cash management. In several previous reports, we mentioned that part of the fiscal improvement in the second half of last year did not respond to real savings resulting from public expenditure reforms, but rather to a short-term strategy of slowdown in payments”, underlines a report by the Invecq firm, the economist Esteban Domecq.

And he adds: “One of the budget items that is most subject to this type of control is that of economic subsidies (those intended to subsidize the price of public services), for example, through the delay in transfers from the Treasury to Cammesa , the electricity market concentration company. Thanks to this mechanism, it was possible that in the last months of last year, the evolution of tariff subsidies was well below inflation. An additional factor that had contributed to this momentum was a temporary reduction in the cost of power generation due to the good flow of (very cheap) hydro generation which is now normalizing. After several months with this account under stress, transfers normalized in January, leading to a 133% year-on-year rebound in subsidies (between September and December, the average rate had been 27% year-on-year)” .

The Invecq analysis concludes: “Another item that had been overtaken and is now beginning to rebound is the current transfer to the provinces, and it is to be expected that in an election year the national government will not want to return governors against what Few savings could be expected in this way.Moreover, after increasing at a rate of 35% in the last four months of 2022, it rose to 117% at the start of 2023.

Thus, in the presentation by the Ministry of Finance of the result of the cash base of the Non-Financial Public Sector (SPNF), various items with increases above the inflation rate of 98.8% between January 2022 and the same month of January 2022 were observed .of the new year, and others that developed at a slower pace: family allowances, non-contributory pensions, pensions and PAMI pensions and benefits, among others.

However, the budget execution of the component which represents well over 80% of total expenditure has been more homogeneous: central administration, which has decreased since the start of the Frente de Todos government by almost 5 percentage points compared to the total, has gone from 88.2% in the 2019 budget to 83.3% today.

On the contrary, public enterprises as a whole widened their incidence, from 2.7% to 6.2% of the aggregate – mainly due to the subsidy policy that prevailed during the three-year period, which required transfer fees to finance accumulated losses – and trust funds which rose from 1.9% to 3.5% of the total. The “Other Entities” aggregate recorded a minimal increase.

The daily presentation of the budget execution of the Central Administration on an accrual basis, with data as of February 22, accumulated a surplus of $477.135 million, which contrasts with the financial deficit of the SPNF in January of $537.970 million. of dollars. A difference of no less than 1.02 trillion negative dollars which would have originated from the sum of the results in red of all public companies, trust funds and other entities.

If we take into account the fact that as of February 22, 14.52% of the 365 days of the year have passedand comparing it with the degree of budgetary execution of the main areas of the state by function, it appears that on this date only the interest payments of the public debt were exceeded – due to the increase in the rate of international interest and inflation in the local order which gravitates on commitments with an adjustment clause, “Insurance and Finance”, also associated with these variables.

The rest of the major budget items, on the contrary, recorded clear budgetary discipline, in some cases, and the decision to cut sharply, beyond what was planned, in sensitive areas such as drinking water and electricity. sanitation; Agriculture (affected by widespread drought); Health; Education and Culture; in even Social Security (pensions and pensions), among others.

With similar variances in budget execution, and the effect of accelerating inflation, economic council economists will be watching the pace of day-to-day central government spending and the outcome of the cash flow of the non-financial public sector corresponding to February, which will be carried forward to the March closing, to see whether the gap observed between these two sources is closing and in what direction, or, on the contrary, is tending to widen.

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