“Data released last week showed that the primary federal government deficit fell to 2.7% of GDP in 2018 from 3.8% in 2017. This was in line with the target in Argentina’s IMF program, which also captures some capital spending that previously was not recorded in fiscal statistics. The improvement reflected lower growth in primary spending (22%) compared to revenues (30%). This offset a jump in interest payments and reduced the total deficit to 5.5% from 6.0%,” according to Fitch.

Argentina’s central bank has been active in attempting to stem the peso’s slide and curb inflation, fiscal challenges result from that tight monetary policy.

“Third, the central bank’s recent success in containing money supply and peso volatility could reduce inflation, but this poses fiscal challenges,” said Fitch. “The surprise surge in inflation in 2018 helped reduce the deficit by lifting revenues more quickly than spending. This lag effect will reverse as inflation falls. Social benefits, already 57% of primary spending, could grow in real terms as a result given their indexation to past inflation.”

For more information on the developing economies, visit our emerging markets category.

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