Argentina's First Budget Deficit Since 2002 Forecast

by Mike Godfrey, Tax-News.com, Washington

24 July 2009

In a Morgan Stanley report, economist Daniel Volberg has forecast that Argentina will have a primary budget deficit (before debt payments) this year for the first time since 2002. The budget surplus had been monitored closely for reassurance on Argentina's ability to service its debt after a huge default on sovereign debt in 2002, which has severely limited the country's access to international financial markets.

The primary surplus was reduced to ARS909m (USD235m) in June from ARS2.65bn (USD685m) in June 2008. After debt service, a fiscal deficit of ARS1.64bn (USD425) was recorded in June compared with a surplus of ARS1.26bn (USD325m) for the same month in 2008.

The Morgan Stanley report stated that the big change in the first five months of this year was that tax revenue growth at 10% had failed to keep up with expenditure growth (22.5%) - President Kirchner had stepped up spending on highways and schools prior to the June elections. As the economy slowed, provincial governments also required ever higher federal government support while their deficits grew. The government is facing a USD3bn gap between available financing and scheduled debt payments of USD19bn in 2010, according to the report.

Despite the higher spending, recently appointed Finance Minister Amado Boudou said that a fiscal surplus will be maintained throughout 2009. Morgan Stanley's present forecast for Argentina's primary balance at the end of the year is -0.6% of GDP and -0.9% for 2009, compared with earlier forecasts of a broad balance in 2009, and -0.4% of GDP for 2010.

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