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ECONOMY | 23-01-2021 09:59

Pandemic costs sent primary fiscal gap to 6.5% of GDP

Fiscal deficit skyrocketed last year to highest since 1993, as the pandemic forced increase in social spending.

Argentina's fiscal deficit skyrocketed last year to its highest since at least 1993, as the pandemic forced the government to increase social spending.

The primary deficit, which excludes interest payments, rose to 6.5 percent of gross domestic product in 2020 from 0.4 percent a year earlier, the government said on Wednesday. With debt payments included, the deficit was 8.5 percent of GDP.

With the government without access to international credit markets after last year’s default, the Alberto Fernández administration financed the deficit by printing just over two trillion pesos (US$23 billion) last year. The monetary emission has fuelled expectations that inflation will accelerate in 2021 to an annual rate of around 50 percent, according to a Central Bank survey of economists.

The government reported a primary deficit of 307.6 billion pesos for December. Spending increased 53 percent, income increased 21 percent.

How quickly the government will cut spending and move closer to a primary fiscal balance is at the centre of negotiations right now with the International Monetary Fund. The Fernández administration hopes to reach an agreement with the IMF in March or April, ahead of a key debt payment in May to the so-called Paris Club group of creditors.

 

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by Patrick Gillespie, Bloomberg

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