Argentina’s Spending Continues to Grow

RGE anticipates Argentina’s tax revenues to increase by 38% y/y to ARS36.5 billion in October (37% y/y three-month moving average, 3MMA). Argentina’s economic recovery and elevated inflation, together with a low base, are likely to continue to drive up income (25% y/y) and VAT revenues (39% y/y). Moreover, income captured from the nationalized pension system (31% y/y) should continue to contribute considerably to fiscal revenues, while international trade taxes should have grown at a strong pace (62% y/y) on the back of high grain prices and import growth.

However, as stated before, as long as fiscal spending continues to grow at rates above 30%, which has been mostly due to the upcoming presidential election in October 2011, strong tax revenues will have a limited effect on Argentina’s primary fiscal standing. Needless to say, large transfers from the central bank are making fiscal accounts look better than they actually are.

Editor’s Note: This post is excerpted from a much longer analysis available exclusively to RGE Clients, LatAm Focus: Week Ahead (Week of November 1, 2010)

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