Cracks emerging in Argentina’s economic growth are now threatening one of President Javier Milei’s signature achievements: the fiscal surplus.
In a country known for chronic deficits, Milei’s chainsaw-style spending cuts became a central pillar from the start of his government in December 2023. “Fiscal balance is non-negotiable,” he repeatedly proclaimed. The open question is – 18 months before the next presidential election – how much more austerity Argentines are willing to endure.
The problem is that tax revenue hasn’t kept up with inflation for seven straight months, including a 10 percent drop just in February when adjusted for price increases, according to the Argentine Institute of Fiscal Analysis. Slower growth, rising unemployment and sluggish retail sales are all putting Milei’s hard-fought fiscal anchor under pressure.
“Absolutely – the economic slowdown threatens the fiscal anchor, and the recent tax collection data suggest it could be a challenging year,” said Todd Martinez, co-head of Americas sovereigns at Fitch Ratings.
Stagnation in parts of the economy is now seen as the main drag on the fiscal accounts as consumer spending fails to recover to pre-Milei levels. Banco Mariva estimates that lower sales tax collection – both domestic and customs-related – explains at least a third of the real decline in revenue. Higher unemployment is also weighing on social security contributions.
“Some of the weakness could be offset by one-off revenues like privatisations, but the government may still need additional spending cuts. Given its strong commitment, we believe it will take the necessary measures,” Martinez said.
In 2026, Milei is making moves that have already hit a nerve. His administration is reducing subsidies for energy and public transit, translating into higher utility bills and more expensive commutes. The relatively easier spending cuts – public works, government jobs and federal funding to provinces – have already been done, making every additional peso of austerity more socially and politically expensive.
Milei’s approval rating dropped to 36.4 percent in March, the lowest of his Presidency, down from 44 percent at the end of last year, according to Latam Pulse, a survey conducted by AtlasIntel for Bloomberg News.
Moody’s Ratings analyst Jaime Reusche sees Milei’s government “likely” losing its fiscal anchor this year, although the firm believes the slippage would be “manageable.” In fact, it could be better for Milei, he argues.
“Tolerating some fiscal deficit may make sense, especially if it helps avoid political or social shocks,” Reusche said in an interview. “But if there were a limited deviation into a small deficit, it would not materially change our base case,” because Milei’s government “has already built fiscal credibility.”
Argentina’s economy is still growing, yet it’s increasingly uneven. Agriculture, energy and mining are driving growth while more labor-intensive industries like manufacturing, construction, tourism and retail are hit by slower consumer spending and an appreciated currency.
The slowdown across most sectors is not only undermining the government on the fiscal front. It’s also complicating monetary policy. Since early March, the Central Bank has allowed a faster expansion of pesos that suddenly pushed local interest rates lower. The shift also exposed the need to give more breathing room to an economy beginning to show signs of strain, analysts say.
“The slowdown in activity will leave the government with less room on the revenue side,” said María Minatta, director of local consultancy Map Latam. “Since the fiscal anchor remains a key policy banner, this drop in activity and tax collection may become an incentive to adjust monetary policy.”
Analysts still forecast a primary surplus of 16.1 trillion pesos (US$11.7 billion) this year, according to the Central Bank’s latest market expectations survey. The 2026 Budget was built on the assumption that revenue would grow enough to sustain a primary surplus of about 1.5 percent of gross domestic product and a financial surplus of 0.3 percent. But those projections now look less comfortable than they did only a few months ago.
If March confirms the same pattern – weaker activity, weaker revenue and tighter fiscal accounts – Milei will have to decide whether the fiscal anchor is something to defend at any cost, or something that needs to be reinterpreted before the economy does it for him.
by Ignacio Olivera Doll, Bloomberg
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