Wednesday, July 17, 2024

ECONOMY | 17-06-2024 12:39

IMF downgrades Argentina's economic outlook for 2024

International Monetary Fund downgrades estimate, forecasting that the economy will contract by 3.5% this year.

The International Monetary Fund has sharply downgraded its 2024 economic outlook for Argentina, forecasting that the economy will contract by 3.5 percent this year.

The prediction is a decline of 0.75 percentage points more than its previous projection. The IMF cited a "deeper contraction" in non-agricultural output and the series of wide-ranging economic reforms introduced by President Javier Milei.

However, it anticipates “a turnaround in activity is expected in the second half of this year as fiscal consolidation headwinds ease, real wages begin to recover and investment picks up in response to reforms," according to the staff report.

The updated forecasts were published a few days after the IMF executive board voted to approve a payment of almost US$800-million to Argentina under the nation’s existing loan agreement. It brings the total disbursements under the programme to more than US$41 billion.

A self-declared "anarcho-capitalist," Milei has vowed to halt Argentina's economic decline and reduce the budget deficit to zero. 

Since taking office in December, Milei has embarked on a programme to slash public spending and bring down inflation, which remained at an annual rate of more than 275 percent last month.

The IMF said Monday it now expects Argentina’s inflation to ease to an average annual rate of 232.8 percent this year, down more than 20 percentage points from its previous forecast in January.

"Monthly inflation is expected to fall further, converging to around four percent by end-2024,” said the Fund.

The easing inflation outlook is "supported by refinements in the monetary and FX [foreign exchange] policy framework and a recovery in peso demand from historically low levels," the IMF said in the report published Monday.

The IMF warned the government's "efforts" on the fiscal front "must be complemented by continued rationalisation" of energy subsidies.

Fund officials said the Milei government has "steered the economy firmly away from a full-blown crisis and hyperinflation" but warned of ongoing risks.

“External conditions may become less favourable and "the recession could be prolonged, fuelling social tensions and complicating programme implementation," they warned.

"Impressive progress has been made to achieve overall fiscal balance and priority should now be placed in further improving the quality of the adjustment," said Gita Gopinath, the IMF's number two.

“Efforts should continue to reform the personal income tax, rationalise subsidies and tax expenditures, and strengthen expenditure controls. Beyond this year, deeper reforms of the tax, pension, and revenue-sharing systems, including to unwind distortive taxes, will be critical,” she added.

Going forward, the Fund expects the government to issue a roadmap for the gradual lifting of exchange controls and, by the end of October, a plan for comprehensive tax reform.

It called for the Milei government to seek a “social consensus,” given the "fragile social and political landscape".



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