The recent fiscal surplus recorded by the public sector marks a turning point in Argentine economic policy and consolidates progress towards macroeconomic stability. After a decade marked by persistent deficits, high inflation and monetary financing, the appearance of the financial surplus, accompanied by a primary surplus that already reaches 1.4% of GDP accumulated in the year, represents much more than an accounting figure: opens a window of opportunities to strengthen reserves, reduce monetary emission, lower taxes and increase the credibility of the economic program.
The anatomy of the surplus. The fiscal result for October results from the combination of two simultaneous movements: collection that continues to grow and public spending that, in real terms, is declining. This dynamic allowed us to achieve a financial surplus of more than $500,000 million in the month of October.
On the revenue side, the State collected close to $12 billion in the month, driven by a solid performance of the taxes most sensitive to economic movement. Profits and VAT grew strongly, as did contributions related to formal employment. Import duties also showed a very significant year-on-year jump, reflecting both greater commercial activity and more efficient collection.
In parallel, primary spending was around $11 billion. Social benefits continue to be the category that weighs the most and continue to grow. Meanwhile, other areas show a more moderate dynamic, for example, public sector salaries increased below inflation, helped by the reduction of the employee base and more prudent salary agreements. Along the same lines, current transfers, both to the private sector and to provinces and public organizations, grew less than the price level.
In summary, the anatomy of the surplus shows a State that collects more, spends more prudently and, for the first time in a long time, manages to make that gap wide enough to cover interest and still close with a favorable balance.
The macroeconomic relevance. Talking about fiscal surplus in Argentina is not a minor fact. The absence of issuance to finance the Treasury is one of the central pillars of the current program. For years, dependence on monetary financing generated inflation, loss of confidence in the currency, and a dynamic where any shock led to instability. Fiscal consolidation reverses this logic, allowing us to aspire to an economy that does not depend on printing money to function, that recovers its currency and that reduces inflationary inertia.
Furthermore, a sustained surplus offers the possibility, until recently unthinkable, of reducing tax pressure. With less need to finance spending, the State gains room to reduce taxes, especially those that are distortive and hinder employment and investment. In a country where the tax burden on the private sector is one of the highest in the emerging world, the prospect of tax relief is one of the most positive signs left by the new fiscal reality.
Finally, spending less than what you earn frees up the capacity for the Government to purchase foreign currency with genuine fiscal solvency. This improvement in external dynamics is essential to avoid episodes of exchange tension, stabilize expectations and reduce country risk.
The impact on debt and investor confidence. The primary surplus also strengthens the sustainability of public debt. When the current resources of the State are enough to cover primary expenditure and interest, the dynamics of the debt becomes more predictable and less dependent on forced refinancing or placements at high rates. In turn, a country that demonstrates the ability to organize its accounts improves its position vis-à-vis creditors, multilateral organizations and financial markets. Not only could it refinance its debt on better terms in the future, but it also makes the return of investment flows that require macroeconomic stability more likely.
This credibility has a political and an economic component. From the first, the government shows the capacity to execute an adjustment that for decades was seen as unviable. From the second, it consolidates a path that allows projecting disinflation and an economic rebound based on stability.
The potential of the surplus. The appearance of a fiscal surplus opens up a range of opportunities whose magnitude depends on whether discipline can be sustained over time. A part of the surplus can be directed towards the accumulation of reserves, a key element for the Central Bank to move towards the normalization of the exchange system. Another part could be used to alleviate taxes, which would have a direct impact on economic activity. There is also the possibility of increasing public investment with high social return, such as energy or transportation infrastructure.
The surplus should not be seen only as an arrival point, but as a starting point. The result not only improves the present, but opens up numerous concrete opportunities for the government. The challenge now is to sustain this trend and use it to build a more stable, competitive and integrated economy. If this discipline is maintained, the surplus will not be just a figure in a monthly report, but a turning point in the country’s recent economic history.
* Economist, director of Ingeco and Stockbroker in the United States.
by Sergio Rodríguez Glowinski
