Argentina: To Finance The 2017 Budget, The Argentine Government Will Need To Issue Debt For Us $ 38 Billion

Last Updated: 20 September 2016
Article by Carlos E. Alfaro

The government will need next year to assume a net debt by about $38 Billion dollars. That is the conclusion of the 2017 draft budget presented yesterday by the Minister of Finance, Alfonso Prat-Gay, before the Congress, which includes a growth of current expenditure and capital of 22.1%, marking a real increase which is above inflation estimated 17% in the text. The initiative, which will begin to be debated in committee next Tuesday, could be signed into law in late October, if the official outlined schedule is met.

According to the statistics attached to the draft, net issuance of securities will amount to AR$ 720 billion, while net debt will reach AR$ 640 billion next year, equivalent to USD 38 billion. A relevant fact is that the draft envisages freezing BCRA assistance to the Treasury: AR$ 90 billion million net additional temporary advances and AR$ 70 billion profit. It is the same value of 2016, which implies a reduction in real terms.

According to sources of the Government, one third of the debt authorized in the bill is intended to cover an estimated deficit of 4.2%; another third would go to the rollover of existing debt; while the remaining third would be freely available to the Executive. Of the total 2017 budget, public debt represents 10.5% and is a value growing 32.4% compared with 2016.

Besides taking debt, other of the items that will increase compared to this year are the forecasts for public works and pension expenses. This last point is due to the Historical Reparation Act retirees, to which the draft allocate almost AR$32 billion.

As it had leaked out, the Macri administration projected a growth of 3.5% for 2017 and a dollar averaged AR $17.92. Furthermore, it admits that 2016 will close with a fall of 1.5% in the Gross Domestic Product (GDP).

As for inflation, it appears estimated in a range that goes from 12 to 17%; with a variation of implicit prices of GDP of 37.2% for this year; and of 19.4% for next year.

Before congressmen of the committee on Budget and Finance, chaired by Luciano Laspina, Prat-Gay also remarked that the government will seek "gradual elimination of superpowers, through an amendment to the Financial Administration Act to be limiting the edge of the Chief of Cabinet in reallocating budget items".

In estimating tax revenues, and while an amendment to the Income Tax is discussed, the bill includes an increase in revenue of 27.9% for that tax. Still, Finance Ministry sources claimed that in the estimations of the budget it is considered the fiscal impact of $25 billion that would mean the rise in the tax allowance (MNI) and changes in the scales that the government is designing. According to the draft that the Casa Rosada discussed with the governors, the MNI would rise between 15 and 17%.

In the message of the bill, the Government explains that the increase in revenue provided by Income Tax is based on the foreseen increases in the levels of economic activity, prices, wages and imports, but also notes in the inter-annual comparison the impact of "the compensation and refunds for payment on account of consumption abroad ", among others.

In addition, the initiative of the Executive expected that the revenue from the so-called Tax on Checks will grow 24.9% next year, which will be explained by "the increase in the amount of taxable banking transactions".

The draft also foresee that the trade deficit will grow strongly in the next three years, reaching US$ 4,900 million in 2019.

After listening to the minister, all the representatives of the Pro ratifies the trustfulness of the bill, while congressman from Frente Renovador party and economist Marco Lavagna considered that the macroeconomic guidelines "are achievable", although considered somewhat "optimistic" inflation forecast to 17%. In addition, the legislator questioned that Prat-Gay "made no reference to the issue of indebtedness and the impact of the tariff increase" during his presentation, an issue that will be at the center of debate next Tuesday, when the bill begins to be analyzed in committees.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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