The Central Bank has become the main source of Treasury funding during the pandemic crisis, passing from three to 40 percent of the total in the past year, the CIPPEC (Centro de Implementación de Políticas Públicas para la Equidad y el Crecimiento) think-tankhas revealed.
The plunge in economic activity stemming from the coronavirus pandemic and the quarantine restrictions adopted against it are responsible for taking Central Bank transfers up from three percent of total Treasury financing in the quarter between March and May, 2019 to 40 percent in the same period this year, thus outstripping tax revenue for the first time in over a quarter-century.
“The Central Bank is the great protagonist of national state finances,” remarked economist José María Gasparín in this CIPPEC analysis, commenting on a context of “heavy falls in revenue with the access to markets closed.”
With the lower relative weight of tax revenue and social security contributions, this financing by the monetary authority has a weight rarely seen in recent years with transfers to the Treasury between March and May totalling 800 billion pesos.
Nevertheless, if the transitory advances which are not computed in the Budget as revenue are included, the total Central Bank assistance was 910 billion pesos, Gasparín points out.
“It is important to stress that these transfers were very low before the measures of isolation began and they were a direct response to the fiscal needs generated by the pandemic,” the CIPPEC economist underlined.
That sum was decisive in financing the public sector in the midst of the pandemic, considering that in the March-May period “national government revenues excluding Central Bank transfers fell by an annual 25 percent in real terms” with a tendency to accelerate given that last month the decline reached an annual 36 percent, continued Gasparin.
The economist indicated that according to his analysis “the slump in revenue was generalised” but differentiated by its “seasonal intensity and impact” according to tax sources.
Tax revenue thus explained “60 percent of the fall since March” and social security contributions a further 25 percent.
In this way tax revenue passed from representing 57 percent of total national government intake in the March-May quarter of 2019 to 35 percent in that period this year while in the same span social security fell from 30 to 19 percent.
In both falls the central factor was the slump in economic activity, measured at 11.5 percent for March and “considerably worse” for April and May, highlighted Gasparín.
Thus the fall in social security contributions was affected by “the reduced number of formal workers, the postponement of the contributions granted to PyMES small and medium-sized companies, the exemption extended to the health sector and the impossibility of paying for some sectors”, among other factors.