IMF - Argentina is unlikely to meet fiscal deficit targets

With social tensions on the rise, the agreement’s credibility is falling

Firms should closely monitor rising social unrest and tensions within the ruling coalition, as these factors could disrupt the government’s current economic policy direction. A key matter to watch is the unwinding of long-standing energy subsidies, a cornerstone of the IMF agreement, but a third-rail issue for the Argentine public that could disturb the current balance of power between Fernandez and Fernandez de Kirchner in favor of the far-left Kirchneristas.


Argentina’s first quarterly IMF agreement review was held during late May, with staff-level approval confirmed on June 8. It is pending IMF executive board approval, expected on June 24, after which Argentina will gain access to a US$ 4 billion disbursement.

This was a pivotal review, as it aimed to adjust the terms of the agreement to new global conditions stemming from the war in Ukraine. While the IMF stated that none of the main annual objectives would be altered, including primary fiscal deficit goals, limits for monetary financing, and its US$ 5.8 billion target for net international reserve accumulation, the IMF has hinted that it will allow Argentina to restructure quarterly goals for the primary fiscal deficit and reserves amid the impact of the Ukraine war.

While it is not yet clear what this revision will look like, the IMF is also likely to revise the inflation assumptions within the agreement, given that the 38–48% target prior to the review is now out of reach amid a 58% YOY increase in prices.

Our View

Global conditions have moderately altered our view on the likelihood of the IMF agreement’s implementation. While accumulating reserves may be facilitated by 2022 export revenues and additional IMF liquidity, it will be challenging to sustain net reserves at targeted levels, particularly considering still-high import demand and the central bank’s plans to gradually devalue the ARS. As inflation soars, the government will be under increasing pressure to expand spending, which could derail the agreement’s existing primary deficit goals. Furthermore, if adhered to, the agreement’s cap on monetary emission will keep the government from financing the deficit by printing pesos. With social tensions already on the rise, the agreement’s credibility is falling. As the 2023 presidential election approaches, the power struggle between President Alberto Fernandez and his Vice President Cristina Fernandez de Kirchner will worsen. It is likely that social unrest will weaken the Fernandez administration, resulting in increased power for the far-left Kirchnerista faction, a shift that could derail the agreement and push Argentina to the brink of another debt and currency crisis this year or in early 2023.

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