## 1argea2022001

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### Executive summary and medium-term context
- A decade of declining per-capita income and high inflation created impediments to sustained growth and low and stable inflation.
- Key policy priorities:
  - Promote net exports and mobilize domestic saving to finance investment.
  - Reverse high financial dollarization through durable commitment to tackle fiscal dominance and strengthen debt sustainability.
  - Address budget rigidities and reorient public spending towards investment and innovation.
  - Build sustained political and social consensus for policy predictability while balancing financing of a large social welfare system with incentives for private investment and formal employment.
- Recent developments:
  - Economy contracted by 15 percent during 2017-20; expanded by over 10 percent in 2021.
  - Unemployment fell to 8 percent (from 13 percent peak in mid-2020).
  - Inflation unanchored at 50 percent.
  - International reserves precariously low; no access to international capital markets.
  - Poverty: more than 40 percent of the population below the poverty line.
- Contextual timeline: Executive Summary dated March 10, 2022.

### Program objectives and modalities
- Program aims:
  - Credibly improve public finances and debt sustainability by reducing primary fiscal deficits and improving spending targeting.
  - Start reducing persistent high inflation via:
    - elimination of monetary financing of the budget;
    - strengthening the monetary policy framework and operations, including positive real policy rates;
    - other measures to support peso demand.
  - Strengthen balance of payments and support reserve accumulation, trade surpluses, and long-term capital inflows.
  - Reforms to mobilize domestic saving, improve public investment, promote labor and gender inclusion, strengthen governance, and encourage development of strategic tradable sectors.
- Authorities’ request:
  - 30-month extended arrangement under the Extended Fund Facility (EFF).
  - Requested access: SDR 31.914 billion (1001.3 percent of quota, exceptional access).
  - Disbursement schedule frontloaded to bolster low international reserves.

### Macroeconomic baseline, projections, and scenarios
- Real GDP growth:
  - 2021: over 10 percent.
  - 2022: around 3½–4½ percent.
  - Medium term: 1¾–2¼ percent.
- Inflation:
  - End-2021: headline inflation 50.9 percent y/y; core inflation 55 percent y/y.
  - Projected 2022: in the 38–48 percent range.
  - Projected decline: by 5 percentage points per annum thereafter under the baseline.
- Fiscal path:
  - Federal primary fiscal deficit assumed to narrow by an average of 0.7 percent of GDP per annum over the program period.
  - Fiscal consolidation to reach zero balance by 2025 and converge to a surplus of 1.3 percent of GDP by 2027.
  - Program quantitative target: federal primary fiscal deficit of 2.5 percent of GDP in 2022.
- External buffers and reserves:
  - Current account surplus projected to stabilize around ¾ percent of GDP over the medium term.
  - Projected buildup in international reserves of about US$5 billion per annum on average to around 100 percent of the ARA metric by 2025.
  - Program reserve accumulation target of US$15 billion during 2022-24 (quantitative performance criteria).
- Alternative and stress scenarios (selected outcomes from DSA/stress tests):
  - Historical scenario: debt-to-GDP rises toward around 90 percent by 2026 (70 percent excluding intra-public debt).
  - One standard deviation growth shock, sustained real interest rate shock of 200bps, or partial fiscal slippage: debt could rise to around 70 percent of GDP by 2027 (50 percent excluding intra-public debt).
  - 100 percent real depreciation shock (25 percent pass-through): debt-to-GDP rises to 120 percent in 2023, declining to around 100 percent by 2027 (70 percent excluding intra-public debt).
  - Combined macro-fiscal shock: debt could rise to over 155 percent of GDP over the medium term.

### Fiscal policy, revenues, and expenditure reorientation
- Key fiscal measures and targets:
  - Federal primary fiscal deficit: -3.0 (2021), -2.5 (2022), -1.9 (2023), -0.9 (2024) — change 2024-21: 2.2 (% of GDP).
  - Revenues (excludes revenues coparticipated with provinces): 18.2 (2021), 18.2 (2022), 18.6 (2023), 19.3 (2024).
  - Primary spending: 21.2 (2021), 20.7 (2022), 20.5 (2023), 20.2 (2024).
  - Capital spending: 1.4 (2021), 2.2 (2022), 2.2 (2023), 2.1 (2024).
- Revenue measures:
  - One-off Solidarity Levy (½ percent of GDP) aided 2021 outcomes.
  - Recent measures: increased progressivity of the personal wealth tax, raised fuel excises, begin to boost property taxes (end-September structural benchmark).
  - Estimated yields: 0.1 percent in 2022; rising to 0.3 percent of GDP over the medium term.
  - Potential cumulative administrative gains: build to a cumulative 1 percent of GDP at the federal level over the medium term (subject to implementation).
- Expenditure measures:
  - COVID-support unwinding: 0.5 percent of GDP aid to consolidation in 2022.
  - Energy subsidies reductions: program envisages 0.6 percent of GDP reduction in 2022 and cumulative 1 percent of GDP over 2022-24.
    - Effective March 1: wholesale electricity prices for residential users and standard commercial users updated by 28 percent and 42 percent respectively.
    - Additional increases expected June 1 following a public hearing (end-April structural benchmark).
    - Plan Gas lowered guaranteed gas price at new auctions from around US$7.5 per MMBTU to US$3.5 per MMBTU.
  - Pension spending: historically around 8½–9½ percent of GDP since 2015; projected to increase by around 1½ percent of GDP over the medium- to long-term under the new indexation formula.
  - Social assistance: floor on flagship programs (AUH, Tarjeta Alimentar, Progresar) (indicative target); comprehensive assessment of social protection programs (end-December 2022 structural benchmark).
  - Federal government capital spending target: raise to around 2 percent of GDP.

### Financing strategy and public debt management
- Financing targets and projections:
  - Requested net IMF financing assumed: 1.2 percent of GDP in 2022 (program assumption).
  - Net MDB financing assumed: 0.4 percent of GDP per annum during program life.
  - Net official external financing expected to reach 1.7 percent of GDP in 2022.
  - Net peso financing from the private sector projected near 2 percent of GDP per annum with rollover rates around 130 percent.
- Federal Fiscal Net Financing (% of GDP):
  - Overall: -4.5 (2021), -4.0 (2022), -3.4 (2023), -3.2 (2024).
  - IMF: 0.1 (2021), 1.2 (2022), -0.3 (2023), -0.3 (2024).
  - Domestic (net): 0.6 (2021), 1.3 (2022), 2.9 (2023), 3.2 (2024).
  - Memo: Domestic rollover rate: 142% (2021), 118% (2022), 139% (2023), 130% (2024).
- Debt management objectives:
  - Prepare a medium-term debt management strategy (end-December 2022 structural benchmark).
  - Average maturity of peso debt projected to rise from less than a year in 2021 to 2.5 years in 2028.
  - Domestic real interest rates projected to rise from 2 percent in 2022 to 4.5 percent by 2028.

### Monetary, exchange rate, CFMs, and central bank balance sheet
- Monetary stance and actions:
  - By end-2021, base money fell from 9.0 percent of GDP (end-2020) to 7.9 percent of GDP (end-2021).
  - Stock of BCRA remunerated liabilities at end-2021: 10.9 percent of GDP (140 percent of base money).
  - Quasi-fiscal deficit exceeded 3¼ percent (source phrasing).
  - Policy tightening: central bank raised effective policy rate by 365 bps (prior action) and cumulative 650 bps since end-2021; later noted additional 300 bps on March 22 (bringing cumulative large increases noted in supplement).
  - Targets: maintain positive real effective policy rate based on model framework; eliminate monetary financing by 2024 (baseline).
  - Quantitative caps and instruments: gradually lift cap on 28-day LELIQ; new 180-day LELIQ to absorb structural liquidity.
- Exchange rate and reserves:
  - Crawling peg regime maintained and to be recalibrated; reserve accumulation target US$15 billion during 2022-24 (quantitative performance criteria).
  - Net international reserves (excluding swaps and reserve requirements on FX deposits) at end-2021: US$2.3 billion; fell near zero by mid-March 2022 (mainly due to sovereign debt service).
  - Intervention guidance: limit intervention in securities market (CCL); limit intervention in NDF market to specific circumstances; MULC interventions consistent with quarterly reserve accumulation goals.
- CFMs and roadmap:
  - CFMs necessary in near/medium term to complement macro policies; roadmap for easing CFMs to be prepared and published by end-December 2022 (structural benchmark).
  - Prior action: redundant regulations limiting trading in the FX securities market were eliminated.
  - Legal/penalty improvements: submit Foreign Exchange Criminal Law to Congress by end-December 2022 (structural benchmark).
- BCRA balance sheet strengthening:
  - BCRA equity estimated negative under IFRS: somewhat negative (5–7 percent of GDP).
  - Projections: BCRA securities projected to fall from over 10 percent of GDP to around 8 percent by medium term; quasi-fiscal cost projected to decline from around 3.3 percent of GDP to 1.0 percent by 2027.
  - Safeguards Assessment to be completed by first program review.

### External sector, external debt, and reserves dynamics
- External debt and GEFNs:
  - End-2021 external debt estimated at 58 percent of GDP (US$261 billion); public sector owed bulk (72 percent).
  - Gross external financing needs (GEFNs) 2021: US$63 billion (14 percent of GDP).
  - Baseline projects external debt to decline from 58 percent of GDP (2021) to around 50 percent by 2026 and 41 percent by 2030.
  - GEFNs projected to stabilize around 12 percent of GDP over the medium term.
- Fund obligations and EFF access implications:
  - Arrangement would be used to meet very large balance of payments needs, including obligations from the 2018 SBA and Fund repurchases during 2022–23 (US$40.9 billion from March 2022 referenced).
  - Requested EFF access: SDR 31.914 billion (1,001.3 percent of quota), equivalent stated about US$45.5 billion (supplement).
  - Proposed purchases by date (SDR millions): 7,000 (Mar-2022), 3,000 (Jun-2022), 3,000 (Sep-2022), 4,500 (Dec-2022), 4,000 (Mar-2023), 3,000 (Jun-2023), 2,500 (Sep-2023), 2,500 (Dec-2023), 800 (Mar-2024), 800 (Jun-2024), 814 (Sep-2024).
- External sector assessment:
  - IMF staff judged the external position in 2021 weaker than implied by fundamentals and desirable policies due to elevated external debt vulnerabilities, low reserves, and lack of market access.
  - NIIP positive at 25.4 percent of GDP in Q3-2021; gross assets 85.5 percent of GDP; gross liabilities 60.2 percent of GDP.
  - Current account in 2021: 1.3 percent of GDP; staff near- to medium-term CA norm estimated around 1.0 percent of GDP.

### Debt sustainability, sovereign risk, and Fund exceptional access assessment
- DSA headline: public debt sustainable but not with high probability.
- Selected DSA figures and indices:
  - Federal gross public debt projected decline: over 80 percent of GDP (end-2021) to around 63 percent by 2027 and 57 percent by 2030.
  - GFNs average 14½ percent of GDP over 2022-27 (SRDSF/GFN module).
  - Initial bank claims on government: 13.4 percent of banking system assets.
  - Banking sector total assets: 40 percent of GDP.
  - Debt Fanchart (5-year): probability of debt stabilization 93 percent; institutions-adjusted median debt in 2026: 44 percent of GDP; fanchart width: 76.6 percent of GDP.
  - Medium-Term Index (MTI): 0.37 (false alarm probability 16 percent; missed crisis probability 27 percent).
  - 10-year fanchart probability of stabilization ending in 2032: 70 percent.
- Exceptional access criteria assessment (staff):
  - CRITERION 1: Met.
  - CRITERION 2: Met (debt sustainable but not with high probability; adequate safeguards judged in place).
  - CRITERION 3: Met (prospects of regaining market access in 2025 subject to strong implementation).
  - CRITERION 4: Not yet met (pending congressional consideration at time of reporting); later sections indicate congressional approval steps in supplement.
- Fund exposure and repayment profile (supplement figures):
  - Proposed EFF would peak Fund exposure at SDR 34.2 billion (Dec 2022/Mar 2023).
  - Peak projected payment obligations to Fund: SDR 14.6 billion in 2023.
  - Projected outstanding GRA credit path (SDR millions): 34,215.9 (2022), 32,912.5 (2023), 31,914.0 (2024), declining thereafter to 0 by 2034 per schedule shown.

### Structural reforms, growth, inclusion, and governance priorities
- Growth and resilience-enhancing reforms:
  - Boost investment, productivity, and exports; improve energy sector sustainability; promote formal employment and labor inclusion (women, youth, low-skilled); develop capital markets; strengthen governance and transparency.
- Specific initiatives:
  - Incentives for strategic sectors including hydrocarbons, mining, agro-industry, automotive, knowledge economy with conditional tax and FX exemptions (subject to cost-benefit and limits on fiscal costs).
  - Medium-term energy plan to be published by end-September 2022 (structural benchmark).
  - Labor market: unwind pandemic-era protections; expand Potenciar Trabajo to one million beneficiaries; new programs Te Sumo and Argentina Programa; expand childcare and formalization incentives.
  - Financial inclusion plan: promote digital payments, SME finance, financial literacy, and consumer protection; discourage crypto-currencies.
  - Climate and green initiatives: Electro-Mobility Law, hydrogen sector framework, Green Productive Development Plan; Argentina among top 25 GHG emitters; energy emissions around 53 percent.
- Governance and AML/CFT:
  - AML/CFT action plan ahead of FATF evaluation in July 2023; national risk assessment steps and submission of amended AML/CFT legislation to Congress by end-May 2022 (structural benchmark).
  - Transparency of COVID spending: publish ultimate beneficial owners of companies awarded COVID contracts by end-December 2022; ex-post external audits on COVID spending by end-June 2023 (structural benchmark).

### Program conditionality, monitoring, and safeguards (selected)
- Monitoring framework: quarterly reviews, performance criteria, continuous performance criteria, and structural benchmarks detailed in TMU.
- Selected quantitative performance and indicative targets (examples):
  - Cumulative floor on federal government primary balance (ARS, selected test dates): end-Mar: -222.3; end-June: -566.8; end-Sept: -912.3; end-Dec: -1,758.6.
  - Cumulative floor on change in NIR of BCRA (US$bn): end-Mar: 1.2; end-June: 4.1; end-Sept: 4.4; end-Dec: 5.8.
  - Cumulative ceiling on central bank financing of federal government (millions of pesos): end-Mar: 236.8; end-June: 438.5; end-Sept: 613.3; end-Dec: 705.2.
  - Ceiling on BCRA stock of NDF (US$bn): end-Mar: 6.0; end-June: 7.0; end-Sept: 9.0; end-Dec: 9.0.
- Prior actions (met) and near-term structural benchmarks (selection):
  - Prior action: raise effective annual policy rate by 365 bps (bringing cumulative increases noted).
  - Prior action: ease certain regulations limiting securities trading in foreign exchange.
  - Structural benchmarks: modify current budget law (April 15, 2022); public hearing on wholesale energy tariff update (April 2022); submit amended AML/CFT legislation to Congress (May 2022); publish reserve requirement reform plan (Jun-2022); publish investor relations presentation (Jul-2022); publish medium-term plan to reduce energy subsidies (Sept-2022).
- Safeguards:
  - A Safeguards Assessment and a Fiscal Safeguards Review to be completed by the time of the first program review.
  - Authorities requested all Fund purchases be disbursed into Argentina’s SDR holdings account.

### Major risks, contingency planning, and staff appraisal
- Overall risk profile: exceptionally high due to pandemic context, decade-long imbalances, low reserves, large concentrated Fund repurchases, geopolitical risks (war in Ukraine), climate shocks, tighter external conditions, and complex political/social environment.
- Enterprise risks to the Fund: major financial, budgetary, and reputational risks from exceptionally large and concentrated repurchases associated with the 2018 SBA; risk of arrears not insignificant given 2022–23 repayment schedule.
- Mitigation and contingency:
  - Realistic, credible program meeting Fund policy requirements would help stabilize economy and mitigate some enterprise risks.
  - Contingency planning and understandings on broad outlines to recalibrate policies if downside risks materialize; cannot fully mitigate high program risks.
- Staff appraisal:
  - Staff supports the authorities’ request for a 30-month EFF with SDR 31.914 billion, subject to full financing and EA4 assessment.
  - Strong and sustained policy implementation critical; success not guaranteed given high uncertainties and political economy constraints.

*Source: EXECUTIVE SUMMARY (1argea2022001) — March 10, 2022*

### EXECUTIVE SUMMARY

### 1argea2022001 - EXECUTIVE SUMMARY

### Medium-term context
- Argentina experienced a decade of declining per-capita income and high inflation, creating underlying impediments to sustained growth and low and stable inflation.
- Policy priorities identified:
  - Promote net exports and mobilize domestic saving to finance investment.
  - Reverse high financial dollarization over time through durable commitment to tackle fiscal dominance and strengthen debt sustainability.
  - Address budget rigidities to improve resilience to shocks.
  - Reorient public spending towards investment and innovation to support productivity and reduce intergenerational inequities.
  - Build sustained political and social consensus for policy predictability while balancing financing of a large social welfare system with incentives for private investment and formal employment.

### Program context and recent developments
- Economic trajectory:
  - After contracting by 15 percent during 2017-20, the economy expanded by over 10 percent in 2021.
  - Unemployment fell to 8 percent (from a peak of 13 percent in mid-2020).
  - Inflation remains high and unanchored at 50 percent.
- External and financial position:
  - International reserves are precariously low.
  - No access to international capital markets; strict capital flow management measures remain in place.
  - Large balance of payments needs, including concentrated Fund repurchases over 2022–23 and the need to bolster international reserves.
- Social and structural conditions:
  - More than 40 percent of the population lives below the poverty line.
  - High labor informality, especially for women and young low-skilled workers.
  - Narrow and undiversified export base, significant dollarization, thin domestic capital market, and barriers to investment constrain growth potential.
- Political environment:
  - Fragmented political landscape with no broad consensus yet in support of authorities’ economic program.
- Contextual timeline:
  - Executive Summary dated March 10, 2022.

### Program objectives
- Program aims (pragmatic, realistic, credible; recognizing many challenges require years beyond the program period):
  - Credibly improve public finances to strengthen debt sustainability by reducing primary fiscal deficits, while improving targeting of spending and addressing deep infrastructure gaps.
  - Start reducing persistent high inflation through a multi-pronged strategy involving:
    - elimination of monetary financing of the budget,
    - strengthening of the monetary policy framework and operations, including positive real policy rates,
    - and other measures.
  - Strengthen the balance of payments and support reserve accumulation, trade surpluses, and long-term capital inflows, paving the way to eventual re-entry into international capital markets.
  - Enhance sustainability and resilience of growth via reforms to mobilize domestic saving, improve effectiveness of public investment, promote labor and gender inclusion, strengthen transparency and governance, and encourage development of strategic tradable sectors.

### Program modalities
- Authorities request a 30-month extended arrangement under the Extended Fund Facility (EFF).
- Requested access: SDR 31.914 billion (1001.3 percent of quota, exceptional access) to meet very large balance of payments needs while beginning to address imbalances and structural impediments to growth and net exports.
- Disbursement schedule includes some frontloading to bolster current low international reserves.
- Adequate safeguards are built in to support achievement of program objectives and safeguard Fund resources.

### Program risks
- Overall risk profile:
  - Program subject to exceptionally high risks due to global pandemic context, decade-long imbalances, and complex social and political environment.
  - Geopolitical risks—associated with the war in Ukraine—have risen significantly and could have serious implications (e.g., sharp rise in global commodity prices could challenge disinflation goals).
  - Additional downside risks include intensification of the pandemic, tighter external financial conditions, and adverse climate shocks.
  - Policy implementation risks amid complex social and political landscape and open hostility from some quarters towards the Fund.
  - Risk that the program may fail to engender confidence and strengthen stability.
- Enterprise risk to the Fund:
  - Major financial, budgetary, and reputational risks from exceptionally large and concentrated repurchases associated with the 2018 SBA and a highly complex Argentine context.
  - Given large repayments to the Fund during 2022–23 and high implementation risks, the risk of arrears to the Fund is not insignificant.
  - Reputational risks if the program fails to engender confidence, especially following the 2018 SBA that did not meet its objectives.
  - Countervailing enterprise risks in the absence of a program include near-term financial risks and institutional risks from failing to assist a member facing a large balance of payments need.
- Mitigation:
  - A realistic and credible program meeting Fund policy requirements would help stabilize the economy and begin addressing longstanding challenges, mitigating some enterprise risks in the near term.
  - Contingency planning can facilitate prompt recalibration of policies but cannot fully mitigate high program risks.
  - Finely balanced judgements will be needed to assess tradeoffs likely to arise during the program’s life (including political risks ahead of the October 2023 Presidential election).

### Background and trajectory since end-2019 (key developments)
- Pre-pandemic weaknesses:
  - A decade of disappointing macroeconomic performance culminated in a full-blown balance of payments crisis in 2019 despite unprecedented Fund support.
  - Real GDP per capita trended downward due to weak investment and declining total factor productivity.
  - Swift, premature capital account opening in late 2015 led to rapid rise in external indebtedness and vulnerability to capital flow reversals; by mid-2018 concerns prompted a Fund Stand-By Arrangement (SBA).
  - Many 2017 Article IV recommendations were not implemented (see Annex I referenced in source).
- Crisis dynamics:
  - August 2019 balance of payments crisis prompted re-introduction of capital controls, reprofiling of domestic-currency debt, and initiation of foreign-currency sovereign debt restructuring.
- Pandemic impacts:
  - Argentina entered the COVID-19 pandemic from an already extremely weak economic and social position: economy contracted by 5 percent since 2017; poverty rate near 36 percent before pandemic; unemployment around 9 percent; real wages had fallen by over 20 percent between 2017 and 2019.
  - In 2020 fiscal deficit and public debt rose to protect households and firms; large-scale monetary financing contributed to rising inflationary and depreciation pressures and led to tighter capital controls.
  - In 2021 economic activity rebounded strongly recovering much of 2020 losses; efforts to reign in fiscal deficit and monetary financing included unwinding COVID support, yet inflation rose to over 50 percent and net reserves fell to precarious levels despite record trade surpluses.
- Rationale for Fund-supported program:
  - Authorities seek Fund support to meet large balance of payments needs (including obligations from the 2018 SBA), strengthen macroeconomic stability without undermining recovery, and begin addressing bottlenecks constraining productivity, investment, formal employment, export capacity, and domestic saving.
  - Program draws on Ex-Post Evaluation (EPE) recommendations for a realistic macroeconomic baseline, policies tailored to Argentina’s economic and social situation, and contingency planning.

*Source: EXECUTIVE SUMMARY (1argea2022001) — March 10, 2022*

### 7.      The impact of the pandemic is gradually receding on the back of a very successful

### 7. The impact of the pandemic is gradually receding on the back of a very successful vaccination rollout

### Pandemic, vaccination, and public health measures
- Initial impact of the pandemic in Argentina was among the most severe in Latin America and other emerging economies despite some of the strictest early containment measures in the region.
- Rapid rollout of vaccines limited mortality and hospitalizations, including following Omicron in early 2022.
- "To date, close to 90 percent of the population has received at least one vaccine dose, and 80 percent of the population has now received both doses."
- Mobility restrictions have not been reinstated and efforts are being made to make testing more widely available.

### Economic activity and sectoral recovery
- Real GDP:
  - Contracted by nearly 10 percent in 2020.
  - Estimated to have expanded by over 10 percent during 2021.
- Recovery drivers:
  - Favorable external conditions, unwinding of mobility restrictions, and supportive policies.
  - Investment up 42 percent y/y through Q3-2021.
  - Export volumes up 13 percent y/y through December 2021, with industrial manufacturing exports expanding at a much faster pace.
- Status:
  - Economic activity has reached pre-pandemic level but has not returned to pre-crisis (2017) level, especially in services where recovery has lagged.

### Labor market and social conditions
- Unemployment rate:
  - Reached 8.2 percent in Q3:2021, down from 13 percent peak in Q2:2020.
- Labor force participation:
  - Rose to 47 percent, near pre-pandemic levels.
- Underemployment:
  - Remains high at over 12 percent and above pre-pandemic levels.
- Employment composition:
  - Over half of all workers are independent or informal salaried workers.
- Poverty:
  - National estimate of the poverty rate stood above 40 percent in mid-2021 (up over 5 ppts since end-2019).
  - Nearly 54 percent of children under the age of 14 living below the poverty line.

### Fiscal developments (Federal Government Balance, 2019–21)
- Federal primary fiscal deficit:
  - Widened to 6½ percent of GDP in 2020.
  - Narrowed to 3 percent of GDP in 2021—below the original budget target of 4½ percent of GDP.
- Drivers of 2021 fiscal outcome:
  - Unwinding of COVID support and revenue mobilization efforts, including the one-off Solidarity Levy (½ percent of GDP).
  - Spending (after adjusting for COVID support) grew by 13 percent in real terms, reflecting increases in untargeted energy subsidies and capital spending.
- Structural context:
  - Primary fiscal deficit remains about 2½ percent of GDP above 2019 levels.
  - Higher primary spending due to COVID-related expenditures, higher energy subsidies (energy wholesale prices largely frozen between March 2019 and December 2021), and expansion of social protection programs.
- Notes from source:
  - Energy subsidies overruns (0.6 percent of GDP) were broadly matched by an underexecution of the capital budget.
  - New pension indexation formula adopted in 2020 delivered short-term gains but at the expense of higher costs in the medium-term.
  - Understandings with the Paris Club avoided a declaration of default on obligations worth US$2.4 billion due in May 2021, contingent on a Fund-supported program being in place by end-March 2022.

### Financing, domestic debt placements, and central bank financing
- Net domestic debt placements by the treasury:
  - Reached 2.3 percent of GDP in 2021 (compared to 1¼ percent in 2020).
- Monetary financing of the fiscal deficit:
  - Fell to 3.7 percent of GDP in 2021 (from 7.4 percent of GDP in 2020).
- Net disbursements from official creditors:
  - Relatively small during 2020–21, largely focused on pandemic support and project loans.
- Market access:
  - Argentina remains locked out of international capital markets, although the FX debt restructuring with private bondholders in September 2020 pushed back debt service payments.

### Inflation dynamics and central bank balance sheet
- Inflation:
  - Headline inflation reached 50.9 percent y/y at end-2021 (compared to 36 percent y/y at end-2020).
  - Core inflation rose at an even faster pace (55 percent y/y).
- Contributing factors:
  - Revival in domestic demand, higher world commodity and manufacturing prices, and substantial monetary financing, devaluation expectations, and unanchored expectations amid policy uncertainty.
- BCRA balance sheet and monetary aggregates:
  - Base money fell from 9.0 percent of GDP at end-2020 to 7.9 percent of GDP at end-2021.
  - By end-2021, stock of BCRA remunerated liabilities was 10.9 percent of GDP (140 percent of base money).
  - Quasi-fiscal deficit exceeded 3¼ percent.
- Monetary policy stance:
  - Under the crawling peg, monetary policy was generally accommodative through much of 2021; policy rates were kept unchanged resulting in negative real policy rates during much of 2021.
  - Policy tools focused on slowing rate of crawl of the exchange rate, intervening in securities market, and limiting certain price adjustments.
  - Real effective exchange rate appreciated by roughly 20 percent between end-2020 and end-2021.
  - Since end-2021, the central bank raised its effective policy rate by a cumulative 650 basis points, accelerated the rate crawl (from an average monthly rate of 1 percent during October/November 2021 to over 2½ percent by end-February), and modified liquidity management instruments.

### External position, reserves, and exchange rate gaps
- Current account and trade:
  - External current account moved from a deficit of 0.8 percent of GDP to a surplus during 2020–21, reflecting trade surpluses (3.2 percent of GDP) and sharply lower interest payments.
  - Export volumes and prices rose sharply in 2021; import volumes up 30 percent.
  - Average REER in 2021 consistent with long-term historical average; staff-estimated REER gap near zero.
- International reserves and financial account:
  - Despite current account surpluses, SDR allocation in 2021 and strict capital controls, international reserves have fallen since 2019 due to financial outflows and amortization payments.
  - At end-2021, net international reserves (excluding swap lines and reserve requirements on FX deposits) fell to US$2.3 billion and declined to near zero by mid-March mainly on account of sovereign debt service payments (including to the Fund).
  - Financial account deficit mainly reflects private sector net debt repayments and formation of external assets by residents.
- Exchange rate gaps and market indicators:
  - Exchange rate gaps fluctuated significantly over 2020–21, trading in the 100–110 percent range in the runup to November mid-term congressional elections.
  - Following recent policy rate increases and the announcement of the staff-level agreement, exchange rate gaps have fallen to around 85 percent.
  - Sovereign spreads stand near 1,900bps and restructured bond prices trade around 30–35 cents on the dollar.

### Financial sector and corporate balance sheets
- Banking sector:
  - Bank credit to the private sector is about 30 percent of assets or 15 percent of GDP.
  - Limited FX and maturity mismatches and modest exposure to the government in line with prudential regulations.
  - Bank exposure to government rose to near 14 percent of total assets (from 9 percent at end-2019) but remains well below the regulatory limit (75 percent of equity).
  - Holdings of BCRA securities now represent 28 percent of all banking system assets.
- Asset quality and provisioning:
  - As of end-2021, real private credit was weak (down 5.7 percent y/y).
  - Overall NPLs at 4.3 percent (compared to 5 percent during the pandemic).
  - System-wide provisions remain high (114 percent of NPLs; 4.9 percent of private credit).
- Profitability and corporate sector:
  - Bank profitability has weakened somewhat due to rise in net funding costs and higher interest income taxes.
  - Corporate sector balance sheets generally sound, with limited and declining leverage, especially in foreign currency.

### Program baseline, macroeconomic projections, and policy priorities
- Program objectives:
  - Reduce macroeconomic imbalances while securing continuation of recovery through growth-friendly fiscal consolidation and upfront reduction in monetary financing.
  - Prudent and active monetary and FX policies to ensure peso demand, real exchange rate competitiveness, continued trade surpluses, and buildup in reserves.
  - Mobilize domestic saving, investment, formal employment, and exports.
- Key baseline projections and assumptions:
  - Real GDP growth:
    - 2021: over 10 percent.
    - 2022: around 3½–4½ percent.
    - Medium term: 1¾–2¼ percent (consistent with Argentina’s 20-year average).
  - Fiscal path:
    - Federal primary fiscal deficit assumed to narrow by an average of 0.7 percent of GDP per annum over the program period.
    - Fiscal consolidation to reach zero balance by 2025 and converge to a surplus of 1.3 percent of GDP by 2027.
  - Inflation:
    - Projected in the 38–48 percent range in 2022.
    - Decline by 5 percentage points per annum thereafter as fiscal consolidation proceeds and real interest rates remain sufficiently positive.
    - Base money assumed to stabilize at about 7½ percent of GDP.
  - External buffers:
    - Current account surplus projected to narrow somewhat in 2022–23 and stabilize around ¾ percent of GDP over the medium term.
    - Projected buildup in international reserves of about US$5 billion per annum on average to around 100 percent of the ARA metric by 2025, when small initial re-access to international markets is assumed.
    - Baseline assumes gradual easing of capital controls and modest rise in formation of net foreign assets over the medium term.
  - Reforms:
    - Promote investment in key sectors (including energy), labor and gender inclusion, capital market development, governance and transparency.
    - Avoid intensification of administrative measures (price and export controls, import restrictions).

### Risks, uncertainties, and contingency planning
- Major risk factors:
  - Geopolitical tensions associated with the conflict in Ukraine could lead to prolonged spike in energy and other commodity prices, lower global growth, and retrenchment of capital flows; could undermine disinflation goals and program support.
  - Intensification of the COVID pandemic that could lead to reintroduction of tighter mobility restrictions.
  - Faster-than-anticipated tightening in global financial conditions with negative effects on trading partner growth and commodity prices.
  - Climate-related shocks that could sharply reduce agricultural exports and foreign currency inflows.
- Program implementation risks:
  - Program may not engender recovery in confidence; implementation slippages could adversely affect macroeconomic stability.
  - Designing a program amid a global pandemic, balance of payments crisis, persistent high inflation, and complex social and political environment is challenging.
- Contingency planning:
  - Understandings reached on broad outlines of contingency plans to ensure achievement of program objectives if downside risks materialize.
  - Authorities recognized need to recalibrate macroeconomic policies and avoid reliance on coercive and administrative measures.
  - To strengthen debt sustainability, slippages in fiscal consolidation should be avoided; new revenue measures and lower priority expenditure cuts will need consideration if shocks materialize.
  - Limiting second-round effects from higher global commodity prices may require more active monetary policy and targeted social assistance to protect the vulnerable.
  - Contingency planning improves readiness but cannot fully mitigate program risks; finely balanced judgments will be needed when assessing tradeoffs during the program.

*Source: IMF staff estimates and national authorities as presented in the document.*

### 19.      The authorities recognize elevated uncertainties, especially those associated with rising

### 19. The authorities recognize elevated uncertainties, especially those associated with rising geopolitical tensions, and the challenges they will imply for reducing inflation and the subsidy bill, although higher world agricultural prices will help mitigate external and fiscal effects.

### Overview and program objectives
- Authorities view an inclusive recovery as feasible by steadily addressing imbalances while encouraging net exports and FDI so that external constraints to growth do not become binding.
- Upside risks stem from Argentina’s large natural resources (including untapped energy and mining reserves) and human capital potential.
- Program aims:
  - credibly improve public finances and debt sustainability, enhance spending targeting, and deepen the domestic debt market;
  - start to reduce persistent high inflation through elimination of monetary financing of the budget and strengthening the monetary policy framework to encourage peso demand;
  - support reserve accumulation and eventual re-entry into international capital markets, including by securing real exchange rate competitiveness;
  - promote sustainability and efficiency of key sectors (including energy) while strengthening transparency and governance.

### Medium-term priorities beyond the program period
- Sustain fiscal consolidation by improving efficiency, fairness, and sustainability of tax and spending policies.
- Adapt monetary and capital flow management frameworks to continue reducing inflation, encourage long-term inflows and boost reserve accumulation.
- Strengthen the central bank’s balance sheet and internal governance framework.
- Tackle high barriers to productivity, investment, exports, and formal employment; secure a more predictable regulatory framework.

### A. Fiscal policies — targets and early actions
- Program targets:
  - federal primary fiscal deficit of 2.5 percent of GDP in 2022;
  - overall consolidation of 2.2 percent of GDP during 2022-24.
- Early actions to lend credibility to the 2022 primary fiscal deficit:
  - commitments to raise wholesale energy prices by June;
  - following congressional approval of the Fund-supported program, modify the current budget law in line with the 2022 fiscal targets (mid-April 2022, structural benchmark).
- Adherence to fiscal targets will require agile fiscal policy recalibration if downside risks materialize.

### Revenues and revenue measures
- Near-term revenue support from catch-up of deferred pandemic tax payments and cyclical recovery in employment and wages (notably social security contributions).
- Recent measures: improve progressivity of the personal wealth tax, raise fuel excises, begin to boost property taxes (end-September, structural benchmark).
- Estimated yield from these measures:
  - 0.1 percent in 2022;
  - rising to 0.3 percent of GDP over the medium term.
- Revenue administration action plan (with Fund technical support) to improve compliance risk management and identify compliance gaps (end-August 2022, structural benchmark).
- Potential cumulative gains from tax and customs administration reforms: build to a cumulative 1 percent of GDP at the federal level over the medium term (subject to implementation and uncertainty).
- Avoid tax amnesties and intensification of distortive taxes (e.g., financial transaction tax; continuous structural benchmark).

### Expenditure measures and reorientation
- COVID-support unwinding: 0.5 percent of GDP will aid consolidation in 2022.
- Reductions in energy subsidies and discretionary transfers to provinces and state-owned enterprises necessary to free space for social and infrastructure spending and higher formula-mandated pension outlays.
- Energy subsidies:
  - program envisages a 0.6 percent of GDP reduction in the energy subsidy bill in 2022 and further reductions during 2023-24, taking cumulative savings to 1 percent of GDP;
  - baseline assumes achievement via: (i) lowering energy production and transport costs; (ii) new tariff segmentation eliminating energy subsidies to top 10 percent of urban residential consumers; (iii) increases in wholesale electricity prices (PEST) and gas prices (PIST) to align the weighted average overall price with average inflation.
  - Effective March 1: wholesale electricity prices for residential users and standard commercial users updated by 28 percent and 42 percent respectively.
  - Additional increases in wholesale energy prices expected to go into effect June 1 following a public hearing (end-April, structural benchmark).
  - Wholesale price principles:
    - residential users (not part of segmentation): tariffs rise by 80 percent of the average wage growth (coeficiente de variación salarial);
    - poor households receiving tarifa social: increase will be 40 percent of the average wage growth;
    - large commercial users (GUDIs): wholesale energy prices reflect full cost recovery.
  - Risks requiring close monitoring: (i) challenges to hydroelectricity production (drought); (ii) high LNG prices from geopolitical tensions; (iii) implementation difficulties of tariff segmentation scheme.
  - Note: The latest Plan Gas lowered guaranteed gas price at new auctions from around US$7.5 per MMBTU to US$3.5 per MMBTU.
- Pension spending:
  - historically around 8½–9½ percent of GDP since 2015;
  - projected to increase by around 1½ percent of GDP over the medium- to long-term under the new pension-indexation formula (based on assumed evolution of formal sector wages and social security revenues).
  - Authorities committed to conduct and publish a study on sustainability and equity of the system, including options to reform special regimes and encourage longer working lives (end-December 2022, structural benchmark).
  - Discretionary increases in pension outlays should be avoided.
- Wages and current spending:
  - wage bill envisaged to remain near 3.0 percent of GDP (0.1 percentage point above 2015 trough) through prudent wage and hiring policies;
  - discretionary transfers to provinces and state-owned enterprises expected to fall by 0.3 percent of GDP during the program period;
  - programmed savings on goods and services (excluding COVID-support) expected to reach 0.2 percent of GDP by end-2024.
- Social assistance:
  - gradual rationalization and reorientation of social transfers towards employment programs to encourage participation of women and low skilled workers.
  - comprehensive assessment of fragmented social protection programs in collaboration with development partners (end-December 2022, structural benchmark).
  - program includes a floor on social assistance spending focused on flagship programs (Universal Social Protection Allowance including AUH, Tarjeta Alimentar, Progresar) (indicative target).
  - enhancements in gender budgeting envisaged.
- Infrastructure spending:
  - raise federal government capital spending to around 2 percent of GDP, nearly double the average during 2018-20.
  - scaling up accompanied by measures to strengthen planning, selection, monitoring, and ex-post evaluation of projects, drawing on PIMA recommendations.

### Key fiscal numbers (Federal Government Balance, 2021-24, % of GDP)
- Revenues 1/: 18.2 (2021), 18.2 (2022), 18.6 (2023), 19.3 (2024); change 2024-21: 1.1
- Primary spending: 21.2 (2021), 20.7 (2022), 20.5 (2023), 20.2 (2024); change 2024-21: -1.0
- COVID-related: 0.8 (2021), 0.3 (2022), 0.0 (2023), 0.0 (2024); change 2024-21: -0.8
- Current: 19.0 (2021), 18.2 (2022), 18.3 (2023), 18.1 (2024); change 2024-21: -0.9
- Wages: 2.9 (2021), 2.9 (2022), 2.9 (2023), 3.0 (2024); change 2024-21: 0.1
- Pensions: 8.0 (2021), 8.5 (2022), 8.9 (2023), 9.2 (2024); change 2024-21: 1.2
- Subsidies: 3.0 (2021), 2.2 (2022), 1.9 (2023), 1.5 (2024); change 2024-21: -1.5
- Other: 5.2 (2021), 4.6 (2022), 4.6 (2023), 4.4 (2024); change 2024-21: -0.8
- Capital: 1.4 (2021), 2.2 (2022), 2.2 (2023), 2.1 (2024); change 2024-21: 0.7
- Primary balance: -3.0 (2021), -2.5 (2022), -1.9 (2023), -0.9 (2024); change 2024-21: 2.2
- 1/ Excludes revenues coparticipated with provinces.

### Fiscal consolidation beyond the program
- An additional 2 percent of GDP improvement in the primary balance required to reach a steady state surplus of 1.3 percent of GDP and bring public debt (excluding debt held by the central bank and FGS) down to around 40 percent of GDP by 2030.
- Measures needed: reduce compliance gaps, strengthen progressivity and efficiency of tax system, reduce reliance on distortive taxes, rationalize public spending, tackle budget rigidities, improve revenue-sharing with provinces.
- Sustained political and social consensus required.

### Intergenerational equity and reallocation
- Close to 40 percent of all federal spending oriented to pensions; only 5 percent goes to flagship social assistance programs (AUH, Tarjeta Alimentar, Progresar).
- Social outcomes vary across generations: 54 percent of children under age 14 live in poverty, compared with 14 percent of the elderly.
- Argentina’s old age dependency ratio projected to rise from 18 percent to 27 percent between 2020 and 2050.
- Need to reallocate spending (including at provincial level) to equip the young with skills and human capital; strengthen sustainability of pensions via better links between contributions and benefits and measures encouraging labor formality and longer working lives.

### Public financial management reforms
- Public investment management:
  - strengthen monitoring and governance via enhanced reporting by entities of the national public sector other than the National Administration (end-June 2022, structural benchmark);
  - improve project selection with clear criteria for inclusion in the 2023 Budget (end-June 2022, structural benchmark);
  - enhance procurement legal framework via new regulations to strengthen selection, awarding, execution and sanction processes (by end-September 2022).
- Budget process improvements:
  - pre-budget statement for FY2023 to include macroeconomic and fiscal outlook, qualitative assessment of risks and measures supporting achievement of fiscal framework.
- Cash management:
  - consider strengthening Treasury Single Account (TSA) and develop plan to improve management of excess liquidity held by other public sector entities to limit unintended reliance on monetary financing; actions may follow recommendations of the Fund’s Fiscal Safeguards Review.
- Federal-provincial fiscal coordination:
  - consider revamping Fiscal Responsibility Legislation to better define escape clauses, review Fiscal Council role, and limit future foreign-currency borrowing by provinces;
  - strengthen data-sharing agreements to ensure timely quarterly fiscal reports by all provinces.

### Authorities’ views
- Fiscal policy should continue to play an active role with spending growing in real terms to support recovery and the social situation.
- Scope for improving tax compliance and strengthening government role to address social and infrastructure gaps via higher and more efficient infrastructure and innovation spending.
- Acknowledge importance of reducing energy subsidies and challenges from large social welfare system including pensions.
- See merits in reviewing very generous special regimes; sustainability requires measures to expand formal employment and voluntary extension of working lives.

### B. Financing strategy — key elements and projections
- Full unwinding of monetary financing envisaged, underpinned by strengthening domestic debt placements and additional external support.
- Net peso financing from the private sector projected to remain near 2 percent of GDP per annum with rollover rates around 130 percent, supported by positive real interest rates and a fiscal consolidation and disinflation path that would:
  - reduce reliance on inflation-linked instruments;
  - introduce benchmark securities;
  - lengthen maturity profile of domestic debt.
- Debt management reforms: enhance predictability of auctions; streamline instruments; limit minimum auction pricing; build benchmark bonds; expand eligible pool in market makers program; strengthen investor relations via semi-annual report (end-July 2022, structural benchmark).
- Net official external financing expected to reach 1.7 percent of GDP in 2022 to help rebuild reserves and sharply reduce monetary financing to no more than 1 percent of GDP.
  - Program assumes net IMF financing of 1.2 percent of GDP in 2022.
  - Assumes net MDB financing of 0.4 percent of GDP per annum during the life of the program.
  - Only minor net contributions expected from bilateral creditors.
  - Resumption of access to international capital markets would start in 2025 with modest initial placements assumed.

### Key financing numbers (Federal Fiscal Net Financing, 2021-24, % of GDP)
- Overall: -4.5 (2021), -4.0 (2022), -3.4 (2023), -3.2 (2024)
- External (net): 0.2 (2021), 1.7 (2022), -0.1 (2023), 0.0 (2024)
- IMF: 0.1 (2021), 1.2 (2022), -0.3 (2023), -0.3 (2024)
- Other official: 0.2 (2021), 0.4 (2022), 0.4 (2023), 0.4 (2024)
- MDBs: 0.3 (2021), 0.4 (2022), 0.3 (2023), 0.3 (2024)
- Bilateral: -0.1 (2021), 0.1 (2022), 0.1 (2023), 0.1 (2024)
- Amortization: -0.4 (2021), -0.3 (2022)
- Domestic (net): 0.6 (2021), 1.3 (2022), 2.9 (2023), 3.2 (2024)
- Private: 2.3 (2021), 1.8 (2022), 2.0 (2023), 2.0 (2024)
- Other 1/: -1.7 (2021), -0.5 (2022), 0.9 (2023), 1.2 (2024)
- BCRA: 3.7 (2021), 1.0 (2022), 0.6 (2023), 0.0 (2024)
- Memo: Dom. rollover rate: 142% (2021), 118% (2022), 139% (2023), 130% (2024)
- 1/ Includes gov't deposits (-) and placement with public entities.

*Source: IMF staff and authorities (text provided).*

### 28.      Beyond the program period, a further strengthening of debt management will be

### 28.      Beyond the program period, a further strengthening of debt management will be

### Debt management and medium-term strategy
- Strengthening debt management is essential beyond the program period, alongside adhering to the projected fiscal consolidation path (see ¶23).
- Key objectives:
  - Continue improving the maturity profile of domestic debt.
  - Expand the investor universe.
  - Prepare a medium-term debt management strategy (end-December 2022, structural benchmark).
- Rationale and risks:
  - Growing stock of domestic private peso debt reached 12 percent of GDP at end-2021.
  - Need to secure projected rollover rates as capital controls are gradually eased and obligations on the restructured foreign-currency debt begin to fall due.
- Projections from DSA Annex 1 (as explained in source):
  - Average maturity on peso debt is projected to rise from less than a year in 2021 to 2.5 years in 2028.
  - Domestic real interest rates gradually converge to international market rates—rising from 2 percent in 2022 to 4.5 percent by 2028.

*Authorities’ Views on debt management*
- The authorities consider development of the peso market essential for anchoring stability and reducing reliance on monetary financing.
- They generally agreed with staff’s DSA analysis.
- They emphasized that re-entry to capital markets must be orderly and at favorable interest rates to keep FX debt service consistent with export and FX generation capacity.
- They will seek to mobilize additional external concessional financing to support development goals and rebuild international reserves.

### Monetary and exchange rate policies — overall guidance
- Monetary and FX policies are critical to securing macroeconomic stability and tackling high inflation.
- These policies must support buildup in international reserves and gradual reduction in inflation under the crawling peg regime.
- Key challenges: low reserves, high and unanchored inflation, relative price misalignments, sizeable exchange rate gaps, and rising global commodity prices.
- Prompt recalibration of monetary and FX policies will be required to protect reserves and contain second-round effects from commodity price shocks.
- Strong coordination with fiscal policies is essential; voluntary incomes policies may play a supportive role in the context of high inflation inertia.
- Coercive approaches (involuntary price controls, export bans, higher export taxes/quotas) should be avoided; protect households from food and energy price shocks through existing well-targeted social protection programs.

### Crawling peg regime and reserve accumulation targets
- The crawling peg regime remains appropriate but requires strengthening and recalibration.
- The rate of crawl should ensure a competitive real exchange rate that supports continued trade surpluses and the program’s reserve accumulation target of US$15 billion during 2022-24 (quantitative performance criteria).
- Intervention guidance:
  - Intervention in the official market (Mercado Unico y Libre de Cambio, MULC) should be consistent with quarterly reserve accumulation goals, accounting for seasonal variability and temporary excessive volatility.
  - Refrain from intervening in the securities market (CCL).
  - Limit intervention in the non-deliverable forward (NDF) market only to circumstances when forward guidance on monetary policy may be required (indicative target).
  - Consider tightening these limits as the new monetary framework is implemented.

### Monetary policy framework and instruments
- Recent policy tightening:
  - Effective annual policy interest rate raised by 365 bps (prior action).
  - Cumulative 650 bps increase since end-2021.
- BCRA commitment:
  - Maintain positive real effective policy rate based on a model-based framework using coincident and forward-looking inflation indicators updated monthly in consultation with Fund staff.
- Objectives and measures:
  - Positive real policy interest rates essential to support demand for peso assets (particularly deposit rates) and narrow exchange rate gaps.
  - Improve signaling of monetary policy and streamline central bank securities to reduce recourse to the overnight facility.
  - Gradually lift quantitative cap on the standard monetary policy instrument (28-day LELIQ), with newly created 180-day LELIQ absorbing structural liquidity.
  - The 180-day LELIQs were recently introduced at fixed and floating rates (the latter indexed to the 28-days note).

### Transparency, reserve requirements, and BCRA balance sheet
- Further steps required:
  - Gradually ease regulations on bank interest rates to amplify transmission of policy rates, while addressing bank competition and financial inclusion via other targeted policies.
  - Simplify the reserve requirement, including phasing out unremunerated reserve requirements for small banks and streamlining special regimes.
  - BCRA to publish a time-bound plan for reforming the reserve requirement regime by end-June 2022 (structural benchmark).
- BCRA balance sheet:
  - Baseline framework should strengthen BCRA balance sheet supported by unwinding monetary financing.
  - Stock of central bank paper projected to fall from over 10 percent of GDP to around 8 percent of GDP over the medium term.
  - A comprehensive analysis of BCRA's balance sheet will be undertaken under the Fund's Safeguard Assessment (to be completed by the First Program Review) and subsequent IMF technical assistance.
  - Staff’s recommendations will be used to develop and publish a medium-term strategy for durably improving the BCRA financial position (end-December 2021, structural benchmark).
  - The medium-term strategy will consider options for:
    - strengthening the BCRA’s financial relationship with the Treasury;
    - enhancing the BCRA's governance framework;
    - ensuring the gradual adoption of IFRS accounting standards.

### Capital Flow Management (CFM) regime
- CFMs are necessary in the near to medium term to complement monetary policy; not a substitute for appropriate macroeconomic policies.
- CFMs introduced during 2019-21 addressed policy constraints and severe outflow pressures but will need recalibration as circumstances evolve while not hindering current account transactions.
- Program envisages specific actions to:
  - Strengthen transparency and reduce compliance costs by streamlining the FX regulatory framework. As a first step, redundant regulations limiting trading in the FX securities market were eliminated (prior action).
  - Boost surveillance and enforcement of CFM measures through:
    - better data collection and upstream monitoring of operations;
    - improved coordination among relevant agencies (BCRA, AFIP, Customs) to enhance fraud detection.
  - Improve the penalty framework by introducing the use of administrative fines to make sanctioning more efficient and reduce incentives for circumvention.
  - Submit relevant legislation—Foreign Exchange Criminal Law—to Congress by end-December 2022 (structural benchmark).
- Roadmap for easing CFMs:
  - A more efficient CFM framework will enhance capacity to safeguard near-term financial and external stability and pave the way for an eventual phased, conditions-based easing of CFMs.
  - The roadmap will consider international experiences and Argentina-specific factors, including the country’s public debt profile and high dollarization.
  - The roadmap will be prepared in consultation with Fund staff and published by end-December 2022 (structural benchmark), providing guidance on conditions for converging towards a new framework supporting stable and sustainable capital flows and encouraging repatriation of resident assets abroad.
- Contextual fact:
  - At Q3-2021, Argentina’s net international investment position was positive (US$123 billion), with gross external assets of private residents reaching US$370 billion.

### Banking supervision, regulation, and credit provision
- Objectives:
  - Safeguard banking system risk cushions while facilitating credit to the private sector.
- Current situation and priorities:
  - Argentine banks are far more liquid and capitalized than regional peers.
  - Continued efforts needed to avoid unhedged exposures or excessive build-up of risks.
  - Close monitoring of NPLs required, especially in smaller and state-owned banks where credit quality is somewhat weaker.
  - Overall profitability (measured as the Return on Equity or Interest Margin to Gross Income) remains below peers.
- Policy recommendations:
  - Design regulations that allow banks to restore an intermediation margin, including by easing unremunerated reserve requirements and regulated interest rates.
  - Address bank competition concerns through targeted consumer protection and competition policy measures rather than administrative limits and caps (¶33).
  - Facilitating private sector credit will be critical to support growth and investment as idle capacity fades and fiscal consolidation proceeds.

*Authorities’ Views on monetary and exchange rate policies*
- Authorities committed to strengthening the crawling peg regime by maintaining positive real policy rates, improving monetary policy transmission, and ensuring competitiveness of the real exchange rate.
- They argued interest rates play a partial role in anchoring inflation and supporting money demand and cautioned about destabilizing effects from rising quasi-fiscal deficits.
- They prioritized strengthening the central bank’s financial position but noted pace constrained by fiscal space considerations.
- CFMs will remain part of the toolkit in the near-to-medium term; eventual easing of controls to be carefully sequenced to avoid the damaging experience of 2016–19.

### Growth and resilience-enhancing policies — priorities and reforms
- Objective: Address long-standing structural bottlenecks to set the basis for more sustainable, resilient, and inclusive growth.
- Focus areas:
  - Strengthen investment, productivity, and exports, especially in higher value-added sectors.
  - Improve sustainability and efficiency of the energy sector.
  - Enhance formal employment and labor inclusion, especially of women and young unskilled workers.
  - Develop capital markets.
  - Take into account Argentina-specific factors and climate change challenges.
  - Strengthen efficiency and transparency of government spending (see ¶25) and improve governance, including tackling tax avoidance and money laundering.

### Specific reform initiatives under the program
- Incentives for strategic sectors:
  - Legislation and regulations being advanced to encourage investment and exports in hydrocarbons, mining, agro-industry, automotive, and knowledge economy.
  - Proposed incentives include partial exemptions from FX surrender requirements and lower export and corporate taxes (mainly via accelerated amortizations and tax credits for intermediate and capital goods), conditional on improved production or export performance.
  - Initiatives must limit fiscal costs, be subject to cost-benefit analysis, avoid overburdensome regulations, maintain consistency with trade law obligations, and ensure evenhanded application (state-owned companies should not receive favorable treatment).
- Sustainability and efficiency of the energy sector:
  - Medium-term plan being prepared with World Bank technical assistance; to be made public by end-September 2022 (structural benchmark).
  - Plan actions include:
    - reducing inefficiencies in metering, billing, and collection;
    - enhancing efficiency of energy consumption and conservation;
    - strengthening the quality of energy service;
    - improving targeting of energy subsidies.
  - Plan will be anchored around clear cost-recovery objectives.
- Labor and gender inclusion:
  - Pandemic-era extraordinary employment protection measures are being unwound: ban on layoffs on the basis of unexpected circumstances or lack of work has been lifted; double severance pay for layoffs without fair cause will fully expire by end-June 2022.
  - Active labor market initiatives scaled up:
    - Potenciar Trabajo expanded to cover one million beneficiaries.
    - New job training programs created, including Te Sumo, and programs for indigenous groups in Northern provinces.
  - Emphasis on promoting female labor force participation through expansion of childcare facilities and social infrastructure, and schemes to encourage formalization of domestic employees.
  - Specific commitments in this area to be firmed up in future reviews.
- Financial inclusion:
  - A financial inclusion plan developed to support broader domestic capital market development by:
    - expanding and improving access to financial services;
    - promoting the use of digital means of payment;
    - enhancing financial literacy and financial consumer protection;
    - promoting SME and microcredits;
    - addressing geographic, gender, and socio-demographic gaps through targeted policies.
  - Steps to discourage crypto-currencies and prevent money laundering, informality, and disintermediation.
- Climate change and green initiatives:
  - Ongoing initiatives include:
    - preparation of a new Electro-Mobility Law to incentivize production and use of renewable energy-powered vehicles;
    - establishment of a new regulatory framework to support investment in the hydrogen sector;
    - implementation of a Green Productive Development Plan to promote environmental adaptation and energy efficiency by firms.
  - Context and needs:
    - Argentina is among the top 25 greenhouse gas emitting countries; share of energy emission stands around 53 percent with the rest mainly coming from agriculture and livestock.
    - The country is increasingly vulnerable to droughts and floods with adverse impacts on agriculture and poverty.
    - Efforts to reduce costly energy subsidies and transition to a cleaner energy matrix must be sustained and revamped.
  - Future policy commitments will draw on recommendations from the ongoing World Bank’s Climate Change and Development Report (CCDR) and the recently finalized PIMA (which included a climate module).

*Italic: IMF staff report excerpt (selected paragraphs).*

### 42.      Importantly, over the medium-term efforts will need to be revamped to address

### Importantly, over the medium-term efforts will need to be revamped to address

### Structural challenges and reform priorities
- Deep-seated structural challenges identified: decades of low (and highly volatile) productivity growth, limited investment, weak exports, high dollarization, and limited formal employment growth.
- Reform sequencing and mitigation:
  - Reforms will take time and require strong political and social consensus.
  - Reform efforts should be properly sequenced with offsetting measures to protect workers and firms from potential displacement costs.
- Product market focus:
  - Overburdensome regulations or red tape should be addressed, starting in the product markets (given limited short-term costs), where firm concentration lead to high investment and entrepreneurship barriers.
  - As a first step, a competition authority should be established, and the new competition framework clarified and brought in line with international best practices.
- Policy predictability:
  - Greater policy predictability, and consensus about the country’s development model, is essential to promote investment and attract the vast wealth of Argentines abroad.

### Authorities’ views on structural model
- Authorities committed to exploiting Argentina’s potential in strategic sectors through more predictable regulatory settings to boost net exports and address external constraints to growth.
- Recognized priorities:
  - Addressing barriers to entry through a modified competition framework.
  - Boosting labor and financial inclusion.
  - Addressing informality via improved tax compliance and upgrading of worker skills.
- Authorities’ stance on the role of the state:
  - They argued past deregulation led to increased inequality, labor informality, and de-industrialization.
  - They favor a model of greater state involvement and protection to ensure growth is associated with employment and social gains (pointing to Argentina’s experience of the mid/late 2000s).

### Governance, financial integrity, and transparency measures
- AML/CFT action plan (in close consultation with Fund staff) targeting critical areas in preparation for the FATF evaluation scheduled for July 2023. The plan includes steps towards:
  - (i) Finalizing the national risk assessment on money laundering (ML), consolidating results with the already-finalized terrorist financing (TF) assessment, and disseminating results to all AML/CFT stakeholders.
  - (ii) Publishing a National AML/CFT strategy with recommendations to mitigate the risks, vulnerabilities, and threats identified in the national risk assessments (end-September 2022, structural benchmark).
  - (iii) Amending the current AML/CFT legislation to strengthen the sanctioning regime, the inventory of reporting entities and related AML/CFT obligations applicable to reporting entities, and requirements for legal entities and legal arrangements to obtain, maintain, and update the ultimate beneficial owner information within the company registry(ies). This draft legislation will be prepared with Fund technical support and be submitted to congress by end-May 2022 (structural benchmark).
  - Advancing implementing resolutions to facilitate prompt and full implementation of the amended legislation.
- Transparency of COVID-related spending:
  - Federal government to publish information on the ultimate beneficial owner(s) of companies awarded COVID contracts no later than end-December 2022.
  - Work with provincial governments to establish a reporting system to consolidate information and publish information of companies awarded COVID contracts by all provinces by end-March 2023.
  - The National Audit Office (AGN) will publish ex-post external audits on COVID-19 spending by end-June 2023 (structural benchmark).
- Authorities recognize the need to improve governance and transparency through strengthening public financial management (¶24), tackling high levels of tax avoidance, and improving the framework to combat money laundering and financing of terrorism.

### Program modalities, financing, and monitoring
- Requested arrangement:
  - Authorities are requesting a 30-month extended arrangement under the EFF with access to SDR 31.914 billion (1001.3 percent of quota, exceptional access) equivalent to about US$45.5 billion.
  - The arrangement would allow Argentina to meet very large balance of payment needs arising from important amortization obligations, cover remaining repurchases obligations under the 2018 SBA (US$40.9 billion from March 2022), along with small net financing (US$4.5 billion) to help boost international reserves and catalyze support from other official creditors.
  - The arrangement would expire in September 2024.
  - Access would be appropriately frontloaded given reserve needs and the authorities requested that all Fund purchases be disbursed in Argentina’s SDR holdings account.
- Budget support and safeguards:
  - Projected Fund purchases to be used as budget support to meet balance of payment needs, including repayment of Fund obligations and bolstering international reserves.
  - A new Fiscal Safeguards Review will be conducted by the time of the first program review.
  - A framework agreement between the BCRA and the government defines respective roles and responsibilities for servicing financial obligations to the Fund.
  - An update safeguards assessment of the BCRA will need to be completed prior to the first review of the program; progress in implementing the 2018 safeguards recommendations has been limited.
- Financing assurances and other official support:
  - Firm financing commitments are in the process of being secured from official creditors over the next 12 months with good prospects for the remainder of the program.
  - Net financing from MDBs (World Bank, IADB, CAF) is projected to reach US$2.2 billion this year through budget support and project loans.
  - Paris Club has signaled intention to engage regarding restructuring legacy debt (US$2.4 billion at end-July 2021).
  - Other official bilateral creditors have committed to provide net financing of around US$0.6 billion per annum during 2022-24.
  - Projected for the program period: cumulative trade surpluses (US$41 billion) and net FDI inflows (US$27 billion) expected to more than offset net external debt obligations and permit accumulation of international reserves of roughly US$15 billion, with FX controls playing a supportive role and limiting capital outflows.
- Arrears:
  - Private creditors: staff views Argentina as making good faith efforts under the Fund’s Lending into Arrears policy to resolve outstanding external arrears including:
    - External private creditors not participating in the 2005/10 exchange or not settled under 2016 terms (US$2.4 billion).
    - Claims from the 2001 default (US$0.1 billion).
    - Mobil Exploration negotiations underway on a repayment plan on principal claims (US$196 million).
    - Note: remaining claims by Spanish firm Teinver (US$321 million) are currently in litigation.
  - Official creditors: arrears unrelated to official sector involvement include:
    - Paraguay related to Yacyreta, expected compensation by end-2022 (US$76 million).
    - French export credit agency (US$30 million), awaiting Argentine Supreme Court decision.
- Capacity to repay:
  - Repayment capacity subject to very high risks and hinges critically on strong policy implementation.
  - Obligations to the Fund related to the 2018 SBA are large during 2022-23—20 percent of exports and 39 percent of gross international reserves.
  - Fund debt service obligations would remain very large over the medium term—around 6 percent of exports or 10 percent of gross reserves—and Fund credit outstanding will fall only gradually (from 8.5 percent of GDP in 2022 to 7 percent by 2026).
  - Adequate capacity to repay depends on policies enabling a rise in international reserves and eventual resumption of market access by the time repayments to the Fund begin falling due.
- Program monitoring and conditionality:
  - Monitored through quarterly performance criteria and reviews, and continuous performance criteria.
  - Quantitative conditionality focused on key policies: primary fiscal deficit, monetary financing, reserve accumulation (MEFP Table 1).
  - Structural benchmarks designed to: (i) help secure fiscal consolidation; (ii) strengthen monetary policy framework and operations; (iii) enhance transparency and governance, including public spending; and (iv) improve sustainability and efficiency of certain sectors, including energy (MEFP Table 2).
  - Given exceptional uncertainties, key parameters (growth, inflation) are expressed in ranges and frequent recalibration of program targets cannot be ruled out.
- Prior actions and near-term structural benchmarks:
  - Upfront measures adopted include:
    - Raising policy interest rates by 365 bps (bringing cumulative rate increases to 650 bps since 2021), in line with agreed monetary policy framework to secure positive real policy rates.
    - Easing of security market restrictions that distort effectiveness of capital controls.
    - Committed to raise wholesale electricity and gas prices effective June 2022 (in line with legal/administrative procedures) to ensure tariffs remain unchanged in real terms this year.
    - Modify the current budget following Congressional approval of the Fund-supported program so it is consistent with program targets and policies.

### Exceptional access assessment against EA criteria
- Staff assesses Argentina meets three out of four criteria for exceptional access, contingent on strong program implementation (subject to unprecedented uncertainties and very difficult judgments).
- CRITERION 1: Met.
  - Argentina is experiencing exceptional balance of payments pressures on the financial account, in the context of low and declining net international reserves, despite trade surpluses and tight capital controls.
  - Meeting very large debt service external obligations during 2022–24 will require Fund financing beyond normal limits and broader international support.
- CRITERION 2: Met.
  - Under the program’s baseline and policy framework, staff assesses Argentina’s public debt to be sustainable but not with high probability (see Annex II).
  - Adequate safeguards judged in place to meet EA2.
  - If adverse shocks materialize, staff assesses sufficient restructurable FX debt to the private sector potentially available after the program to improve debt sustainability and enhance safeguards for Fund resources.
  - Note: projected debt and debt service metrics under the proposed baseline are now above the indicative targets set out in the March 2020 Staff Technical Note on Public Debt Sustainability; margins to maneuver are extremely limited.
- CRITERION 3: Met.
  - Subject to strong program implementation and restoration of confidence, staff judges Argentina has prospects of regaining access to private capital markets in 2025 by the time obligations to the Fund fall due (beginning in late 2026) on a scale that would enable repayment to the Fund.
  - The financing plan assumes some support from other official creditors, allowing improvement in reserve coverage underpinned by sustained trade surpluses, increased FDI, and limited financial outflows, paving the way for gradual lifting of capital controls and re-access over the medium term.
  - High degree of uncertainty remains as shocks and policy slippages could compromise reserve accumulation and timely re-access.
- CRITERION 4: Not yet met.
  - Pending ongoing discussions and Congressional consideration of the EFF.
  - Authorities submitted the Fund-supported program to Congress; discussions are ongoing with expected broad support but political support may be fragile, especially ahead of the October 2023 Presidential elections or earlier if confidence is not rebuilt.
  - Technical assistance from the Fund and development partners will be critical to support capacity building and implementation in key areas including energy, revenue administration, and public financial management.
  - A final assessment of EA4 will be made by staff in a Staff Supplement ahead of the Executive Board meeting.

### Staff appraisal and macroeconomic context
- Historical context:
  - Argentina faced a decade of falling living standards, a 2019 balance of payments crisis, and the COVID-19 pandemic.
  - Entered the pandemic with a three-year economic recession, unsustainable debt burden, high and unanchored inflation, low external reserves, and a fragile social situation; the pandemic exacerbated vulnerabilities.
- Recent developments and fragility:
  - A nascent recovery underway; the economy expanded strongly during 2021, more than recovering ground lost during the pandemic, supported by favorable terms of trade and a notable pickup in private investment and exports.
  - Fiscal deficit and monetary financing narrowed sharply in 2021, with continued efforts to tap the domestic peso market.
  - The central bank raised effective policy rates by 650 basis points in recent months and adopted a new monetary policy framework ensuring positive real policy rates and improved transmission.
  - Situation remains extremely fragile:
    - Poverty rates still above 40 percent.
    - High levels of labor informality.
    - Macroeconomic imbalances: inflation stands above 50 percent, exchange rate gaps hover near 85 percent, and net international reserves are at precarious levels.
    - Argentine bond prices continue to trade at distressed levels as markets await policy implementation.

*Source: Extracted content from the IMF PDF chapter/section provided.*

### 58.      In this difficult context, Staff supports the authorities’ request for a 30-month

### 1argea2022001 - 58.      In this difficult context, Staff supports the authorities’ request for a 30-month

### Program approval, objectives, and design
- Staff supports the authorities’ request for a 30-month extended arrangement under the EFF with access to SDR 31.914 billion to support Argentina in strengthening stability and addressing large balance of payments needs, subject to the assessment that the program is fully financed and that EA4 is met.
- Program policy package:
  - Fiscal consolidation.
  - Reduced reliance on monetary financing.
  - A new monetary policy framework ensuring positive real positive rates.
  - Prudent FX management to engender a reduction in inflation, secure a competitive real exchange rate, and improve reserve coverage.
- Rationale:
  - Increase in reserves is critical to strengthen Argentina’s external position, which is deemed weaker than warranted by fundamentals and desired policies (see Annex IV).
  - Measures envisaged to secure proposed fiscal consolidation especially in tax compliance, energy subsidies, and public financial management.
  - Actions to tackle deep-seated vulnerabilities include measures to strengthen the domestic debt market and improve efficiency and sustainability of key sectors.
- Implementation caveat:
  - Strong and sustained policy implementation will be critical to ensure program success and rebuilding of confidence, which is expected to take time.
  - Financing from official creditors will help support overall program objectives.

### Program risks and contingency planning
- Staff recognizes program risks are extremely elevated and that prompt program recalibration will be necessary if risks materialize.
- Downside risks listed:
  - Intensification of the pandemic.
  - Tighter external financial conditions.
  - Other adverse shocks, including those related to climate change.
  - Rising geopolitical tensions—related to the war in Ukraine—affecting energy subsidies and inflation.
  - Policy slippages given the country’s complex social and political situation and open hostility from some quarters towards the Fund.
- Contingency measures:
  - Understandings on contingency plans will help boost readiness to recalibrate policies but cannot fully mitigate elevated program risks.
  - Finely balanced judgements will be needed when assessing difficult tradeoffs during the life of the program, and success cannot be guaranteed.

### Structural reforms and medium-term priorities beyond the program
- Key long-term priorities:
  - Secure debt sustainability and resumption of market access by sustaining fiscal consolidation through policies that improve budget structure, make it less susceptible to shocks, more growth friendly and intergenerationally equal, including by strengthening pension system sustainability.
  - Durably bring down inflation via continuous improvements in the monetary and foreign exchange regime coupled with reforms to strengthen the central bank’s balance sheet and governance framework.
  - Sustain growth by tackling barriers to productivity, investment, and formal employment.
  - Boost net exports and foreign direct investments through more predictable regulatory frameworks and a pathway on a conditions-based easing of capital controls.
  - Build broad political and social support for reforms.

### Institutional recommendation
- It is recommended that the next Article IV consultation with Argentina be held on the 24-month cycle, in accordance with Decision No. 14747–(1096) on consultation cycles.

### Box 1 — Ex-Post Evaluation of the 2018 Stand-by Arrangement (key findings and lessons)
- 2018 SBA details and outcome:
  - The 2018 Stand-by Arrangement amounted to SDR41 billion (equivalent to US$57 billion, or 1,227 percent of quota).
  - Approved in June 2018 and subsequently augmented in October 2018.
  - Only four out of the twelve reviews were completed with SDR32 billion being disbursed.
  - The program was canceled by the current authorities in July 2020.
- EPE conclusion:
  - EPE reviewed program design and performance and consistency with Fund policies; discussed by the Executive Board in December 2021.
  - Concluded that while Fund policies and procedures had been adhered to, the program had not achieved its objectives despite significant modifications.
- Key lessons:
  - Build the program using conservative yet plausible macroeconomic assumptions to provide a more robust baseline.
  - Tailor the program to country-specific circumstances, including fiscal-growth linkages and high degree of dollarization and exchange rate-inflation passthrough.
  - Sharpen the application of the exceptional access framework, while being clear about key assumptions and risks.
  - Engage in contingency planning to better prepare for inevitable changes in external and internal conditions.
  - Avoid accepting policy redlines (on debt restructuring and capital controls in the case of the 2018 SBA) that limit program robustness and policy adjustment options; understand ownership from a broader societal perspective.
  - Secure appropriate burden sharing from other official creditors.
  - Ensure effective communication strategy at all stages of program design and implementation to build public understanding of program policies and objectives.

### Box 2 — Summary of Federal Fiscal Policies, End-2019 to End-2021 (major measures and impacts)
- December 2019 “Social Solidarity” measures raised revenues by 1¼ percent of GDP via:
  - Higher commodity export taxes (12 percent for most agriculture goods, except soy at 33 percent).
  - A new tax on FX purchases of 30 percent.
  - Higher personal wealth taxes, with rates raised to pre-2016 levels.
- Social support programs financed and targeted:
  - New food stamp program (Tarjeta Alimentaria) initially targeting 1.5 million recipients of the Universal Child Allowance (AUH) and lump-sum bonuses to low-income pensioners and beneficiaries of social programs.
- Pandemic support in 2020 (worth almost 4 percent of GDP) and targeted 2021 measures:
  - Channels included extraordinary allowances/bonuses, new emergency family income (IFE) for informal workers, Program for Work and Production (ATP) to help firms pay wages, and regulations prohibiting layoffs through end-2021.
  - Many emergency schemes (IFE, ATP) unwound by early 2021; targeted support continued via REPRO II and bonuses through pensions and flagship programs.
- 2021 revenue and spending measures:
  - One-off time solidarity levy on individuals with net worth over US$2.4 million yielding 0.5 percent of GDP.
  - Corporate income tax (CIT) flat 30 percent replaced with graduated scheme between 25 and 35 percent.
  - Non-taxable floor on personal income tax (PIT) doubled.
  - New threshold and rate in Monotributo regime; estimated to yield 0.1 percent of GDP.
  - Priority infrastructure spending up 0.3 percent of GDP.
  - AUH benefits 4.4 million children (up from 4.0 million in 2019); food stamp covers 2.4 million poor families.
- Fiscal trajectory note:
  - Primary expenditures (excluding pandemic-related) are up almost 2 percent GDP since 2019, while revenues are generally unchanged as a share of GDP with greater reliance on export and FX taxes.
  - Balanced fiscal consolidation required going forward, improving tax efficiency and progressivity and targeting spending toward growth-friendly components.

### Box 3 — Efforts to strengthen the domestic sovereign bond market (measures and results)
- Context:
  - Domestic sovereign debt market impaired by long history of crises; past domestic borrowing predominantly in USD.
  - Investors unwound peso-denominated debt in 2019; central bank issuance saturated the market and bifurcated investor base.
- Measures since end-2019:
  - FX-denominated domestic debt reduced through LMOs: US$7.8bn of USD-denominated/linked debt swapped into peso debt; US$8.2bn of short-term FX debt exchanged for longer-term FX debt.
  - Short-term FX debt obligations reduced from US$9.8bn in early-2020 to US$30 million by end-2020.
  - Peso yield curve generally stabilized through regular debt management operations, though policy uncertainties led to some steepening towards end-2021.
- Market financing and instruments:
  - Net domestic financing from private sector rose in 2021; market borrowing primarily in peso.
  - Cash proceeds from peso securities reached 9.3 percent of GDP, of which USD-linked bonds contributed 0.7 percent of GDP.
  - Reliance on inflation-linked bonds deepened with average time to maturity of inflation-linked bonds at 2.1 years vs 1.5 years for other bonds.
  - Average tenor fell by 3 months in Q4-2021, reflecting policy and political uncertainties.
- Debt management improvements:
  - Minimum pricing at auctions removed except for new instruments.
  - Auction calendars announced six months ahead and held on certain weeks.
  - A market makers program (MMP) established.
  - Key market information published; investor presentation forthcoming; regular consultation meetings with investors commenced.

### Box 4 — FX Debt Restructuring Operation During 2020–21 (sovereign and provincial outcomes)
- Sovereign restructuring:
  - September 2020 restructuring of US$82 billion in FX-denominated debt held by the private sector (US$65.5 billion foreign-law debt exchange).
  - Provided cashflow relief of roughly US$36 billion over 2020-30 via maturity extensions and lower interest rates.
  - Recovery value estimated at around 52 percent, assuming an exit yield of 10 percent.
  - Participation achieved 99 percent using legal techniques including two-limb CACs, redesignation, threat of “pac man,” and least favorable terms for non-consenting holders bound by CACs.
- Provincial restructuring:
  - By end-2021, twelve provinces restructured foreign-law debts totaling US$13 billion; US$7 billion belonged to the Province of Buenos Aires (PBA).
  - Estimated cash flow relief of US$6.5 billion over 2020-27; average recovery value around 75 percent (at exit yield of 10 percent).
  - Provincial exchanges generally used CACs; PBA used additional legal techniques similar to sovereign.
- Market reaction:
  - Despite cash flow relief, Argentina’s bond prices remained at distressed levels as markets awaited policy implementation.
  - Sovereign spreads remained well above those of other sovereign restructurings.

### Box 5 — Economic spillovers from the war in Ukraine (transmission channels and preliminary assessment)
- Main channels:
  - Volatility in global commodity prices and lower global growth and trade.
  - Higher global energy prices raise energy imports and the subsidy bill.
  - Higher agricultural commodity prices (soy, wheat, corn) likely partially buffer negative external and fiscal effects.
  - High passthrough implies substantial impact on domestic inflation.
  - Financial spillovers limited given Argentina’s lack of international market access.
- Preliminary assessments and figures:
  - Dutch TTF prices up over 160 percent since mid-February compared to over 25 percent for oil.
  - LNG prices stand around US$50-60 MMBTU compared to the US$17 MMBTU assumed in the baseline.
  - Agricultural prices projected to remain high (up an average of around 10 percent since mid-February).
  - Staff estimates that a 10 percent increase in global energy and food prices is associated with a 1 percent increase in inflation over 12 months.
  - Food and energy represent over 30 percent of the average consumption basket.
- Distributional and fiscal considerations:
  - Higher LNG prices will increase the subsidy bill; the fiscal impact depends on severity and persistence and could be partially mitigated by higher customs duties from agricultural exports (soy taxed at 33 percent; wheat and corn at 12 percent).
  - Absent increased targeted assistance, the impact on the poor will be especially large given the high share of food in their consumption basket.

### Box 6 — Options for strengthening revenue administration (diagnosis and priority actions)
- Diagnosis:
  - Argentina has weak tax compliance by international standards; tax effort near 75 percent in 2019.
  - VAT collections are only two-thirds of potential with foregone revenues estimated at 3½ percent of GDP.
  - Weak compliance reflects lack of comprehensive revenue administration risk management strategy, a highly complex tax system, moratorium history, and perceptions of spending inefficiencies.
  - Customs compliance reportedly weak; data to conduct a proper gap assessment are scant.
- AFIP strategy and IMF support:
  - AFIP finalized a new strategy for 2021-2025 and is developing a timebound action plan with quantitative compliance targets with IMF technical assistance.
- Priority areas and specific actions:
  - Adopt a Compliance Risk Management (CRM) Framework with specific compliance improvement plans for each control action.
  - Improve compliance in key taxes through detailed, time-bound action plans to identify compliance gaps and strengthen risk management for domestic taxes and customs duties.
  - Strengthen large taxpayer administration by increasing LTP unit coverage, improving database quality, and focusing risk assessment on large and complex firms (e.g., transfer pricing sectors).
  - Manage international tax risks by improving coverage, quality and use of tax information exchanged with other countries to address underreporting of overseas assets by internationally mobile and high-net worth residents; revamp risk models and audits.
  - Limit abuse of the Monotributo regime by using third-party information, periodic sector-specific controls, creating a dedicated unit, and stronger VAT controls on small taxpayers.
  - Strengthen property tax collections by updating real estate valuations and improving collection incentives with local governments.
  - Improve customs administration with a separate noncompliance diagnostic and a CRM strategy with quantitative targets to develop an integrated risk management approach.

*International Monetary Fund — Argentina: selected excerpts and boxes from the staff report.*

### Box 7. Argentina: Key Features of the Tax System

### Box 7. Argentina: Key Features of the Tax System

### Overview
- Argentina’s tax burden is among the highest relative to regional and EM peers, with heavy reliance on indirect taxes.
- Roughly three-quarters of all taxes are collected at the federal level.
- Composition is heavily tilted towards indirect taxes: 60 percent is in the form of taxes on goods and services (turnover, trade), while income/property taxes and social security contributions each represent the remaining 20 percent.

### Evolution
- The revenue to GDP ratio rose by over 7 percent of GDP to 35 percent during 2005-15, supported by a broad-based increase, with the provincial turnover tax and social security contributions (following the renationalization of the pension system in 2009) playing a key role.
- Between 2016-19, cuts to personal income tax and export taxes led to some declines in the revenue ratio, although it has bounced back more recently, reflecting higher export and FX transaction taxes, as well as a one-off wealth tax.

### Structural weaknesses (findings)
- Complexity and volatility:
  - Each of the three levels of government (federal, provincial, municipal) are entitled to establish, regulate, and enforce taxes.
  - The system features over 165 different taxes, many characterized by a great dispersion of rates and by special earmarking regimes.
  - Tax policy changes are frequent, adding to compliance costs.
- Low direct tax collection:
  - Revenues from taxes on labor income and immovable property are low compared to peers.
  - PIT collection underperforms, reflecting a high minimum income threshold (only the top 12 percent of formal workers’ pay the PIT) and high informality.
  - Taxes on immovable property are lower than regional and OECD averages, reflecting in part outdated valuations.
- Dependency on distortionary taxes:
  - High reliance on less efficient forms of taxation including:
    - the financial transactions tax (which distorts payment systems by generating incentives to settle payments in cash),
    - the provincial turnover tax levied on gross sales (tax paid by the final consumer depends on the number of transactions during the production process, not only on value-added or final value),
    - export duties (which affect competitiveness), although recent efforts have been made to reduce duties on value-added exports.
- Disincentives to formality and firm growth:
  - A high tax wedge between formal sector employees, informal workers, and the generous simplified tax regime for autonomous workers (monotributo) creates disincentives to formal employment and firm size growth.
  - Social security contributions for dependent work (excluding contributions to unions and work injury insurance) stand near 50 percent, which together with the current PIT scheme, impose a high tax burden on labor income (i.e., tax wedge).

### Tax statistics and indicators (exact figures as presented)
- Tax Revenue (% of GDP): 23.6
- Taxes and Social Contributions: 31.0
- General Government Tax Indicators (Argentina (2020); Latin America (2019); OECD (2019)) — selected components:
  - Income Taxes: 16.6 25.3
  - PIT: 2.3 1.7 8.3
  - CIT: 3.0 3.0 3.1
  - VAT: 6.8 6.0 6.6
  - Other Taxes on Goods and Services: 1.5 2.1 1.8
  - Property/wealth taxes: 1.4 0.3 1.0
  - Other Taxes: 8.5 2.7 1.6
    - o/w Turnover taxes: 3.8 0.3 0.0
    - o/w Financial Transaction taxes: 2.0 0.0 0.0
    - o/w Export Taxes: 1.4 0.0 0.0
  - Social Security Contributions: 7.4 4.3 9.1
  - Taxes and Social Contributions: 31.0 21.0 34.4
- VAT Standard Rate (%): 21.0 15.5 19.1
- VAT Non-compliance (% of potential): 33.6 31.2 4.9
- PIT minimum Rate (%): 5.0 7.0 9.2
- PIT Top Marginal Rate (%): 35.0 36.0 37.4
- CIT Standard Rate (%): 30.0 27.5 22.6
- CIT plus Dividends (%): 34.9 31.9 N/A

### Policy recommendations (priorities)
- Simplify the tax code.
- Improve tax policy coordination with subnational governments.
- Expand the tax base (including for personal income and property).
- Ease certain distortionary taxes as fiscal space considerations allow.
- Strengthen tax compliance measures.

*Source: Argentinian authorities (DNIAF); WEO; OECD; IBFD; and Tax Laws.*

### Box 10. Argentina: The BCRA’s Balance Sheet

### Box 10. Argentina: The BCRA’s Balance Sheet

### Recent evolution and current position
- The BCRA’s capital position has weakened since 2018 on account of:
  - (i) the downgrade of Argentina’s credit rating, which led to a significant markdown of its government securities holdings (US$18 billion) (letras intransferibles);
  - (ii) the negative cashflow related to the quasi-fiscal cost of the rising stock of central bank paper (LELIQs) and non-interest-bearing lending to the government; and
  - (iii) the important reserve losses, which were only partially offset by FX valuation gains.
- Realized and unrealized profits were not retained to improve BCRA’s equity, but instead transferred to the Treasury.
- Using IFRS accounting principles (in particular for the treatment of FX reevaluation gains and the fair valuation of security holdings), staff estimates the BCRA’s current equity position to be somewhat negative (5-7 percent of GDP).
- Note on accounting treatment: Starting end-December 2019, the BCRA abandoned IFRS accounting and re-valued the letras intransferibles at their book value, leading to a US$37 billion boost to its assets; for the purposes of this exercise the IFRS valuation is maintained to reflect the true economic value of these securities.

### Quasi-fiscal deficit outlook and central bank debt projections
- The BCRA’s quasi fiscal deficit is expected to gradually improve under the baseline.
- Key projected dynamics and convergence:
  - The large cost of sterilization—due to a sizable LELIQs stock (remunerated liability) in proportion of base money (unremunerated liability) reflecting the monetary financing of the budget—will converge to seigniorage revenues and valuation gains on reserves by 2025.
- Projections hinge on key assumptions:
  - (i) base money growth in line with nominal GDP;
  - (ii) declining monetary financing with full elimination by 2024; and
  - (iii) no dividend payments to the government starting in 2021.
- Quasi-fiscal cost and related indicators reported in tables:
  - BCRA quasi-fiscal cost: 3.2 percent of GDP (2020), 3.3 percent of GDP (2021), 3.3 percent of GDP (2022 est.), projecting down to 1.0 percent of GDP (2027 proj.).
  - BCRA securities (Leliqs and Pases): 10.7 percent of GDP (2020), 10.9 percent (2021), 9.3 percent (2022), with projected decline to 8.0 percent of GDP (2027).
  - Monetary base (percent of GDP): 9.0 (2020), 7.9 (2021), 7.5 (2022), projected stable at 7.5 (2027).

### Constraints and fiscal interactions
- Fiscal space will likely limit the pace at which the BCRA’s balance sheet can be strengthened.
- The report highlights the interaction between monetary financing and public debt dynamics:
  - Credit to the public sector (net) and non-marketable government bonds have grown substantially in nominal terms (tables show large ARS figures and percent-of-GDP shares), contributing to elevated central bank exposure to the sovereign.
- Combined public and central bank liabilities figures in tables underscore fiscal-monetary entanglement:
  - Combined Federal Government and BCRA (percent of GDP): 77.7 (2020), 60.5 (2021), 57.1 (2022), projecting 51.4 (2027).

### Policy alternatives and recommendations
- Alternatives to LELIQ issuance could be considered.
- Implementation of monetary operations through government securities to ensure some burden-sharing of quasi-fiscal cost could be required.
  - This strategy, alongside the strengthening of government debt management operations, is expected to provide positive externalities to the government debt market development.
- Elimination of monetary financing by 2024 is a stated baseline assumption and policy objective.

### Governance, accounting, and safeguards
- Efforts will be needed to strengthen the BCRA’s governance and accounting framework.
- The IMF’s Safeguards Assessment (to be delivered by the first program review) will be conducted to provide reasonable assurance that the BCRA’s legal structure, coupled with its control, accounting, reporting, and auditing systems are adequate.
- Historical safeguard findings:
  - The latest BCRA safeguards assessment conducted in October 2018 found high-risk to the legal structure of the BCRA and medium-high risk to internal audit and control functions of the central bank.

*Source: Box 10. Argentina: The BCRA’s Balance Sheet (IMF country report content).*

### Annex I. Implementation Status of the 2017 Article IV

### Annex I. Implementation Status of the 2017 Article IV Consultation Recommendations

### Fiscal Policies
- Main 2017 recommendation: A frontloaded reduction in general government spending that targets an elimination of the primary deficit by 2019.
- Current status and actions:
  - The COVID-19 pandemic interrupted the fiscal consolidation process.
  - Federal government primary deficit narrowed from 3.8 percent of GDP in 2017 to 0.4 percent of GDP in 2019, before rising to 6.4 percent of GDP in 2020 on account of pandemic-related spending.
  - In 2021, the deficit narrowed to 3 percent of GDP, aided by the unwinding of COVID-19-related support.
- Mitigate impact on poorest:
  - Social assistance programs strengthened since last Article IV consultation.
  - The 2018 SBA protected the most vulnerable, including through a program floor on federal government spending on social assistance, with a focus on programs covering children.
  - Social assistance scaled up since end-2019, especially during COVID-19, with new programs introduced such as Tarjeta Alimentar (food stamp), emergency family income (IFE) targeting informal workers, and Work and Production program (ATP) to help firms pay salaries.

### Public Financial Management
- Ensure compliance with the Fiscal Responsibility Law (FRL), including through a medium-term debt target.
  - Application of the FRL was suspended by Congress in 2020.
  - The role of the Federal Council of Fiscal Responsibility (FCFR) has been diminished.
  - Efforts underway to improve federal-provincial coordination and data sharing in the context of the new Fiscal Consensus.
- Strengthen the budgetary framework through three-year budget forecasts and fiscal risk analysis.
  - The approved 2019 budget was the last to contain multi-year objectives with details on macroeconomic assumptions.
  - The economic emergency and pandemic have complicated the budget process and implementation of multi-year frameworks during the last three years.
  - Multi-year forecasts and deeper fiscal risk analysis are envisaged by the authorities in forthcoming budget cycles.

### Monetary and FX Policies
- Recommendation: The BCRA should prioritize its inflation objectives which will require a continued restrictive monetary stance.
- Current status and actions:
  - Persistent high inflation remains a challenge.
  - A tight policy stance and strict zero limits on central bank financing did little to contain inflation during 2018-19.
  - The crawling peg regime adopted in late 2019 had some initial success, yet sizeable monetary financing of the deficit and negative real policy rates fueled inflation and weakened money demand.
  - Since end-2021, the central bank has raised the effective annual policy rate by 650 basis points, moving policy rates into positive territory.

### Structural Reforms
- Tax system distortions:
  - Recommendations: (i) lowering the tax wedge on labor income; (ii) reducing the tax burden on investment; (iii) reducing cascading taxes.
  - Progress: Economic instability and COVID-19 hampered progress. The 2017 tax reform and the 2018 Fiscal Pact lowered corporate income tax, turnover taxes, and the effective tax on labor income for lower-income workers. Implementation was delayed and reliance on the financial transactions tax and export taxes continued given fiscal needs. Efforts during 2020-21 focused on increasing tax progressivity and improving compliance.
- Labor market reforms:
  - Recommendation: Introduce greater flexibility and improve active labor market policies.
  - Status: Labor markets remain relatively rigid. Reforms have focused on reorienting social support to promote formal employment and inclusion, particularly for women and low-skilled young adults. Potenciar Trabajo scaled up for job training and employer incentives. New employment support programs target youth employment in SMEs and training for the knowledge economy. Extraordinary pandemic employment protections were unwound at end-2021.
- Trade, investment, and capital controls:
  - Recommendation: Reduce barriers to trade and foreign investment.
  - Status: Crisis setbacks; the Mercosur free-trade agreement has yet to be ratified. Export taxes and import tariffs remain in place. Capital controls were reestablished in August 2019 and strengthened during 2020-21, slowing capital outflows but introducing distortions that discourage trade and foreign investment.
- Competition policy:
  - Recommendation: Remove entry barriers and product market regulations that restrict competition and investment.
  - Status: Following congressional approval of a new Competition Law in 2018, progress stalled. An independent National Competition Authority (ANC) has yet to be established and modifications to the Law are now being considered.
- Financial deepening and intermediation:
  - Recommendation: Adopt policies to deepen the financial system and facilitate intermediation.
  - Status: Efforts underway to strengthen the domestic government bond market after the late-2019 rescheduling. Improvements in debt management include: (i) development of a market makers program; (ii) streamlining the number of instruments; and (iii) enhancement in auction predictability.
- Anti-corruption and AML/CFT:
  - Recommendation: Strengthen anti-corruption regime, focusing on effective implementation and institutional framework.
  - Status: A new framework strengthening the company registry (“Fortalecimiento del Registro Publico de Sociedades”) has been established. National risk assessment of terrorist financing completed; assessment on money laundering near completion with IADB support. Draft amendments to AML/CFT legislation (Law 25.246) are expected to be presented to Congress by mid-2022.

*Source: Annex I. Implementation Status of the 2017 Article IV Consultation Recommendations (Argentina, IMF).*

### Annex II. Public Debt Sustainability Analysis (DSA) — Background and Baseline

### Overall DSA judgment
- The DSA indicates that public debt is sustainable but not with high probability.
- Federal gross public debt is projected to decline from over 80 percent of GDP at end-2021 to around 63 percent by 2027 and 57 percent by 2030.
- FX debt service and GFNs remain relatively high over the medium to long term and above targets established in the March 2020 Technical Note on Debt Sustainability.
- Assessment subject to significant uncertainty, notably from the rapidly evolving conflict in Ukraine.
- Risks to the baseline are exceptionally high, reflecting Argentina’s exposure to shocks and policy implementation uncertainties.
- Policy priorities: sustained fiscal consolidation (including beyond the program period), deepen domestic capital markets, boost exports and productivity.

### A. Background — Key facts and developments
- 1. Gross federal public debt dynamics 2015-19:
  - Federal public debt in US$ terms rose by over US$90 billion between end-2015 and mid-2018 to US$340 billion and fell slightly thereafter to reach US$323 billion by end-2019.
  - Increase through mid-2018 reflected issuance of foreign-currency bonds in international capital markets (US$44 billion) and bonds in pesos and foreign currency domestically.
  - Official sector debt rose mainly due to Fund disbursements (US$45 billion) under the 2018 SBA.
  - Bulk of debt denominated in foreign currency; peso depreciation and contraction in activity led to steep rise in debt-to-GDP between 2017 and 2019.
- 2. End-2021 debt stock:
  - Since 2019, federal public debt rose to US$365 billion (end-2021), the equivalent of 81 percent of GDP.
  - Dynamics 2019-21: Public debt rose by about US$40 billion from 2019 to 2021, mainly due to a rise in domestic debt to finance fiscal deficits, including COVID-19 shock.
  - Decline in public debt as share of GDP from 89 percent in 2019 to 81 percent in 2021 driven largely by favorable interest rate/growth differential.
  - Composition at end-2021:
    - About 42 percent (US$152 billion) held by the private sector in 2021.
    - 20 percent (US$73 billion) held by official sector.
    - 38 percent (US$140 billion) held by public sector entities (BCRA and FGS).
    - Of private sector debt: about 65 percent (US$94 billion) FX-denominated debt issued under foreign and domestic law; remaining 35 percent (US$55 billion) peso-denominated domestic-law debt.
    - Official sector debt: IMF US$41 billion and other IFIs US$27 billion; bilateral creditors US$4.8 billion.
    - Share of public debt in foreign currency around 70 percent and held by nonresidents around 40 percent at end-2021.
- 3. September 2020 debt restructuring:
  - Restructuring involved US$82 billion in FX-denominated debt held by the private sector and provided liquidity relief of about US$33 billion over 2020-30 through maturity extensions and lower interest rates.
  - After limited payments during 2020-23, debt service on restructured FX debt projected to increase from an average of around US$5 billion (0.9 percent of GDP) during 2024-25, to an average of US$7 billion (1.4 percent of GDP) during 2027-28.
  - Footnote: During 2020-21, a large share of the overall fiscal deficit was financed by the central bank: 7.4 percent of GDP in 2020 and 3.7 percent in 2021. Central bank financing translated into a higher quasi fiscal cost and stock of central bank securities, which stood at 10.9 percent of GDP at end-2021, more than double the 2019 level.
- 4. Domestic market reliance since 2019:
  - Domestic peso debt held by private sector rose by US$17 billion, with average rollover rates rising to 130 percent during 2021.
  - Average maturity of peso instruments lengthened from less than 6 months in 2019 to about 10 months in 2021; increased reliance on inflation-linked instruments.
  - USD-linked bonds net placement of 0.65 percent of GDP in 2020-21 issued only during periods of market volatility.
- 5. Net financing from official creditors during 2020-21:
  - Argentina received US$4.3 billion (1 percent of GDP) from the Fund’s general SDR allocation in August 2021.
  - MDBs provided net financing of around 0.3 percent of GDP per annum during 2020-21.
  - Small net payments made to bilateral creditors.
- 6. Steps to address official obligations:
  - The requested EFF would provide financing to help meet balance of payments needs, including Fund obligations during 2022-24.
  - The Paris Club announced at end-June 2021 it would avoid declaring default on principal and interest obligations worth US$2.4 billion at end-July 2021, based on Argentina’s commitment to reach agreement on a Fund-supported program by end-March 2022; it indicated it would consider rescheduling arrears in the context of a Fund-supported program while respecting comparability of treatment.

### B. Baseline scenario — Key macro and financing assumptions
- The program's macroeconomic baseline assumes fiscal consolidation and reserve accumulation to allow eventual easing of capital controls and re-access to international capital markets.
- Key assumptions:
  - Real GDP growth:
    - Projected to slow to around 4 percent in 2022 and settle at 2 percent over the medium term as the output gap closes.
    - Assumed potential growth consistent with Argentina’s average real GDP growth over the past 20 years.
  - Inflation and exchange rate:
    - Inflation reached 51 percent in 2021 (eop).
    - Projected to fall by 5 percentage points per annum and stabilize around 10-15 percent over the medium term.
    - Inflation, capital controls, near-term use of CER-linked instruments, and low interest rates on external privately held debt (post-2020 restructuring) contribute to an overall negative effective real interest rate over the medium to long term.
    - Real effective exchange rate projected to stabilize around average 2021 levels, consistent with medium-term fundamentals.
  - Primary balance:
    - Primary fiscal deficit projected to decline from 3.0 percent in 2021 to a deficit of 0.9 percent of GDP by end of program in 2024.
    - Further consolidation required to converge to steady-state primary surplus of 1.3 percent of GDP by 2027.
  - Capital flow management measures:
    - Assumed to remain in place (with possible streamlining) through the program period.
    - Measures limit capital outflows and support balance of payments in near term.
    - Gradual easing envisaged over time as reserve coverage improves, consistent with return to international capital markets beginning in 2025.
  - Domestic financing:
    - Baseline assumes successful delivery of authorities’ plans to deepen domestic peso debt market.
    - Net domestic financing expected to average 1.7 percent of GDP during 2022-27, consistent with average annual rollover rates of around 130 percent.
    - Near term financing strategy assumes continued reliance on short-term fixed rate instruments and inflation (CER)-linkers.
    - Domestic real interest rates assumed to rise from around 2 percent in 2022, to 3 percent by 2025, and 4½ percent by 2028, consistent with Uncovered Interest Parity and international market access costs.
  - External financing and market access:
    - During 2022-24, EFF phasing will provide positive net financing for 2022 (0.8 percent of GDP), with zero net financing the following two years.
    - Net financing from MDBs projected to increase to 0.4 percent of GDP.
    - Net financing from official bilateral creditors dependent on Paris Club rescheduling agreement.
    - Beyond 2024, net non-IMF official financing projected to remain at 0.4 percent of GDP to cover interest obligations.
    - Debt service on FX-denominated debt assumed to follow post-restructuring schedule.
    - Modest new financing from international markets anticipated from 2025: US$2 billion in 2025, US$4 billion in 2026, and US$6 billion in 2027.

*Source: Annex II. Public Debt Sustainability Analysis (Argentina, IMF).*

### 8. Under  the baseline, public debt and debt  service are still projected  to fall to

### 8. Under  the baseline, public debt and debt  service are still projected  to fall to

### Baseline projections
- Public debt, excluding intra-public sector debt obligations, is projected to fall below 40 percent of GDP by 2030 (target in March 2020 Technical Note on Debt Sustainability).
- Including BCRA and FGS debt, gross public debt is projected to decline from 80 percent of GDP at end-2021 to around 63 percent of GDP by 2027.
- FX debt service, excluding intra-public sector debt obligations, is projected to decline and stabilize at around an average of 3.3 percent of GDP during 2025-30.
- The average FX debt service over the medium term is marginally higher (0.3 percent of GDP) than the targets in the March Technical Note on Debt Sustainability.
- Gross financing needs (GFNs), after excluding intra-public sector debt obligations, are projected to average around 7.5 percent of GDP during 2025-30, over 2 ppts higher than the March 2020 Technical Note targets.
- Large and sustained domestic financing in the program baseline implies a significant increase in debt service obligations and underlines the critical importance of strengthening domestic debt management.

### Key DSA financing assumptions and projections (selected figures)
- Official Disbursements (USD billions): 4.7, 4.7, 4.6, 4.6, 4.9, 4.7, 3.6 (for years 2022–2028 shown).
- Net financing (USD billions): 2.4, 2.3, 2.0, 2.1, 2.5, 2.7, 0.7 (2022–2028).
- Nominal Interest rate (percent): 3.0, 3.0, 3.0, 3.0, 3.0, 3.0, 3.0 (2022–2028).
- International markets issuance (USD billions) in later projection years: 2.0, 4.0, 6.0, 10.0.
- Market spread (basis points): 450 (for years shown).
- Real Interest Rate (percent) (selected): 2.0, 2.3, 2.5, 3.0, 3.5, 4.0, 4.5.
- Instruments (share) in Peso Market Financing (selected): Short-term (fixed rate) 50, 50, 40, 20, 15, 10, 10; CER-linked (2-year maturity) 45, 40, 30, 15, 15, 0, 0; Long-term (3/4-year maturity) 5, 10, 30, 60, 70, 90, 90.

### Risks and vulnerabilities
- Program baseline subject to exceptional uncertainty on macroeconomic and policy implementation front, including the rapidly evolving conflict in Ukraine and history of large growth and inflation projection errors in Argentina.
- Other risks: intensification of COVID-19 pandemic, sudden tightening in global financing conditions, worsening drought conditions.
- Policy implementation slippages could undermine confidence, place pressure on international reserves, the currency, rollover of domestic peso debt, and re-access to international capital markets.
- Structural vulnerabilities: (i) low and undiversified export base; (ii) thin domestic capital markets; (iii) high shares of foreign currency and non-resident debt; (ii) contingent liabilities from provinces’ FX debt and central bank balance sheet weaknesses.
- Some mitigating factors: over 40 percent of FX debt is held by IFIs; a large share of overall debt is held by the intra-public sector, reducing rollover risks.
- GFNs projected to average around 11 percent of GDP during 2025-30 after including intra-public sector debt.

### Alternative scenarios and stress tests — main outcomes
- Historical scenario: debt-to-GDP would gradually rise from 81 percent of GDP (50 percent of GDP, excluding intra-public sector debt) in 2021 to around 90 percent of GDP by 2026 (70 percent of GDP, excluding intra-public sector debt). GFNs would remain around 20 percent of GDP (15-16 percent excluding intra-public sector debt).
- Constant primary balance scenario: debt-to-GDP would fall initially but gradually rise back to 80 percent of GDP (60 percent excluding intra-public sector debt). GFNs would remain elevated relative to baseline.
- One standard deviation growth shock, sustained real interest rate shock of (200bps), or a primary balance shock with only half the planned fiscal consolidation implemented (1.9 percent of GDP less cumulatively):
  - Debt would rise to around 70 percent of GDP by 2027 (50 percent of GDP, excluding intra-public sector debt).
  - GFNs would rise to around 12 percent of GDP by 2027 (9 percent of GDP, excluding intra-public sector debt).
- Real exchange rate shock (100 percent real depreciation – the maximum over a 10-year period), with 25 percent pass-through:
  - Debt-to-GDP rises to 120 percent of GDP in 2023, declining to around 100 percent of GDP by 2027 (70 percent excluding intra-public sector debt).
  - GFNs peak at 21 percent of GDP and decline to 16 percent of GDP by 2027 (12 percent excluding intra-public sector debt).
- Combined macro-fiscal shock:
  - Debt rises to over 155 percent of GDP over the medium term (around 115 percent of GDP excluding intra-public sector debt).
  - GFNs rise to over 27 percent of GDP by 2027 (over 20 percent excluding intra-public sector debt).
- Contingent liability shock (illustrative one-off materialization of 5 percent of GDP):
  - Fiscal deficit would rise in 2023-24 to around 8 percent of GDP.
  - Debt would fall to only 74 percent of GDP by 2027 (56 percent excluding intra-public sector debt).
  - GFNs would remain at around 13 percent of GDP by 2027 (around 10 percent excluding intra-public sector debt).
- Central bank weak balance sheet highlighted as key contingent liability, particularly if monetary financing is not scaled back and money demand wanes.

### Overall assessment and policy implications
- Staff assesses debt to be sustainable but not with high probability.
- The 2020 FX debt restructuring provided significant liquidity relief; the new EFF program would help anchor adjustment and reform while meeting balance of payments needs from bunching of Fund obligations in 2022-23.
- With projected debt and debt service metrics now above the March 2020 Technical Note targets, buffers are limited.
- Critical policy priorities implied by the analysis:
  - Steadfast implementation of policies to reduce fiscal imbalances, rebuild reserves, tackle high inflation, and encourage holdings of peso assets.
  - Further strengthening of domestic debt management.
  - A strategy to gradually strengthen the finances and governance of the central bank to address contingent liabilities.

*Source: IMF staff.*

### 1.      Staff’s assessment based on the new sovereign risk and debt sustainability tools is that

### 1argea2022001 - 1.      Staff’s assessment based on the new sovereign risk and debt sustainability tools is that

### Sovereign risk and DSA headline
- Overall assessment: overall risks of sovereign stress are high, and debt is sustainable but not with high probability.
- Basis: assessment draws on both medium-term and long-term risk analyses and the new Sovereign Risk and Debt Sustainability Framework (SRDSF) tools.
- Mechanical signals:
  - Medium-term: Moderate (close to borderline high) risk.
  - Fanchart (medium-term tool): High risk.
  - GFN (Gross Financing Needs) tool: Moderate risk of debt distress.
  - Long-term: High risk.
- Staff judgment: Despite moderate medium-term mechanical signal, exceptional current uncertainty and risks around re-entry to international markets imply overall high sovereign stress risk.
- Conclusion: Debt is assessed as sustainable but not with high probability.

### Medium-Term Risk Analysis (core tools and results)
- Core tools: GFN Financeability Module and Debt Fanchart.
- Threshold design:
  - Lower thresholds associated with a 10 percent missed crisis rate.
  - Upper thresholds associated with a 10 percent false alarm rate.
- GFN Financeability Module — results and drivers:
  - Mechanical signal: Moderate risk.
  - Baseline gross financing needs: GFNs for Argentina average 14½ percent of GDP over the 2022-27 period.
  - Initial bank claims on the government: At 13.4 percent of the Argentine banking system’s assets.
  - Banking sector size: total assets are 40 percent of GDP.
  - In a generalized stress scenario, the domestic banking sector may have to devote an extra 13 percent of its assets to absorb residual issuance.
  - Mitigating factor: lack of debt issuances to foreign private creditors and dependence on the domestic central bank and other domestic creditors in absorbing debt issuances.
- Debt Fanchart Module — results and drivers:
  - Mechanical signal: High risk, largely due to past volatility.
  - Metrics used:
    - Probability of debt stabilization at end of 5-year projection.
    - Median debt level in 2026 interacted with an institutions index.
    - Fanchart width (upper bound minus lower bound).
  - Probability of debt stabilization under the 5-year baseline: 93 percent.
  - Projected institutions-adjusted median debt level in 2026: 44 percent of GDP.
  - Fanchart width: 76.6 percent of GDP (very high uncertainty).
  - Note: high probability of stabilization may be influenced by negative real interest rates projected over the 5-year horizon.
- Medium-Term Index (MTI):
  - MTI value for Argentina: 0.37.
  - Interpretation:
    - 0.37 is just below the high-risk threshold and well above the low-risk threshold.
    - At this level, predictions of stress events would be false alarms with 16 percent probability.
    - Predictions of tranquility (no crisis) would be missed crises with 27 percent probability.
  - Trend: improving recently, reflecting effects of the 2020 debt restructuring and assumed program implementation.
  - Caveats: diverging signals from underlying modules and uncertainty around the baseline.

### Longer-Term Risk Analysis (10-year horizon)
- Rationale: to account for refinancing at market rates after Argentina re-accesses external debt markets and shocks to real interest rates and other debt drivers.
- Context: Argentina will need to refinance maturing debt obligations from the 2020 restructuring and its Fund repurchases.
- Dependency: capacity to repay will depend critically on successful IMF program implementation and re-accessing international private credit markets.
- 10-year Debt Fanchart results:
  - Under the baseline, debt would continue to decline.
  - Probability of debt stabilization in a fanchart ending in 2032: 70 percent.
  - Interpretation: 70 percent is sufficiently high to be consistent with debt sustainability, although with substantial risks.

### Assessment of Debt Sustainability (SRDSF synthesis)
- Final DSA assessment: “sustainable, but not with high probability”.
- Tools informing the assessment:
  - Debt Fanchart (prospects for debt stabilization).
  - GFN Financeability module (rollover risk assessment).
  - Crisis prediction model (probability of unsustainable debt such as sovereign default and restructuring).
  - Staff judgment, incorporating the 10-year fanchart results and risks underlying the 10-year baseline.
- Other important debt drivers noted: real GDP growth, primary balances, and real exchange rates.
- Staff conclusion: Argentina’s debt is sustainable but not with high probability.

### Key numerical facts and table excerpts (preserve source figures)
- GFNs for Argentina average 14½ percent of GDP over 2022-27.
- Initial bank claims on the government: 13.4 percent of banking system’s assets.
- Banking sector total assets: 40 percent of GDP.
- Domestic banking sector may need to devote an extra 13 percent of its assets in a generalized stress scenario.
- Debt Fanchart (5-year):
  - Probability of debt stabilization (5-year baseline): 93 percent.
  - Median debt level in 2026 (institutions-adjusted): 44 percent of GDP.
  - Fanchart width: 76.6 percent of GDP.
- Medium-Term Index (MTI): 0.37.
  - False alarm probability at MTI=0.37: 16 percent.
  - Missed crisis (missed tranquility) probability at MTI=0.37: 27 percent.
- 10-year Debt Fanchart:
  - Probability of debt stabilization ending in 2032: 70 percent.
- Selected debt stock totals (excerpt from Table 1, end of period; values as reported):
  - Total debt (US$ bn): 361.99
  - External (US$ bn): 144.32
  - Multilateral creditors (US$ bn): 68.03
  - IMF (US$ bn): 40.95
  - Domestic (US$ bn): 217.67
  - Nominal GDP (US$ bn): 453.04

*Source: IMF staff estimates and SRDSF analysis as presented in the provided content.*

### Annex III. External Debt Sustainability Analysis

### Annex III. External Debt Sustainability Analysis

### A. Background
- At end 2021, Argentina’s external debt is estimated to have reached 58 percent of GDP (US$261 billion), with the public sector owing the bulk (72 percent).
- Dynamics 2019–21:
  - External debt is estimated to have fallen by USD15 billion since 2019, reflecting a reduction in public sector FX exposure and continued deleveraging by Argentine private firms.
  - Some movements reflect currency valuation effects.
- Composition (end-2021 estimates):
  - Public sector obligations: US$191 billion
    - Federal government: US$147 billion
    - BCRA: US$30 billion
    - Provincial governments: US$15 billion
  - Private sector external debt: US$72 billion (US$63 billion by nonfinancial corporates)
- Federal government creditors and holdings:
  - Private sector nonresidents: US$69 billion in FX-denominated restructured bonds (predominately foreign-law)
  - Additional domestic-law peso-denominated bonds held by nonresidents: US$5 billion
  - IMF: US$41 billion (single largest creditor)
  - Other IFIs: US$27 billion
  - Official bilateral creditors: US$4.8 billion
  - Paris Club creditors: around US$2 billion
  - Remaining official bilateral debt mainly to China: US$2.7 billion
  - Notes: Reduced IMF exposure reflects repurchases made during 2021, largely offset by the SDR allocation (shown as BCRA debt). Figures include sovereign arrears to creditors that did not participate in the 2005/10 exchange (US$2.4 billion) and outstanding debt from the 2001 default that was not eligible for exchange (US$0.1bn).
- Central bank (BCRA) external liabilities:
  - Mainly bilateral swap agreements with People’s Bank of China (renewed for 3 years in July 2020) and BIS, equivalent to about US$23 billion in total.
- Provincial governments:
  - Total provincial external debt: US$15 billion
  - Bondholders: US$13 billion
  - MDBs and official creditors: US$1.2 billion
  - Restructurings of foreign-law FX debt completed in 2021: US$12.7 billion, with total cash-flow savings estimated around US$4.2 billion for 2021–27.
- Nonfinancial corporates:
  - External debt: around US$63 billion, composed of:
    - Intercompany loans related to FDI: US$29 billion
    - Trade credits: US$12 billion
    - Loans/bonds: US$22 billion
  - Regulations (from September 2020) required firms to refinance at least 60 percent of their external debt maturing.
  - Excluding intercompany loans and trade credits, external debt of nonfinancial corporates is around 4-5 percent of GDP in 2021.
- Financial entities:
  - External debt small: US$9 billion.
- Gross External Financing Needs (GEFN) in 2021:
  - GEFNs reached US$63 billion (14 percent of GDP)
  - Debt service obligations: US$76 billion, partially offset by non-interest trade surplus: US$13 billion
  - Amortizations: US$70 billion, including:
    - Short-term credit: US$22 billion (mainly trade credits and intercompany loans)
    - Medium-term instruments: US$48 billion (intercompany lending US$27 billion; public debt amortization US$9 billion, including Fund repurchases for US$3.8 billion; private sector amortization US$11 billion)

- Table summary (selected figures, 2019–2021 estimates):
  - Total External Debt (US$ billions): 2019: 278.5; 2020: 271.4; 2021 (est.): 263.8
  - Total External Debt (percent of GDP): 2019: 76.5; 2020: 83.1; 2021 (est.): 58.3
  - By debtor (US$ billions, 2021 est.): Public sector 191.4; Federal government 146.8; to IMF 41.0; to other official sector 31.8; to private nonresidents 74.0; BCRA 29.7; Provinces 15.0; Private sector 72.4
  - By maturity (US$ billions, 2021 est.): Long-term 212.4; Short-term 51.4
  - Memorandum: External bonds and loans (federal, provinces, and PS) 115.5

### B. Baseline scenario
- Key assumptions and projections:
  - Trade balance (goods and services) projected to improve to around 3 percent of GDP by end of projection period.
  - Current account converges to a small surplus of around ¾ percent of GDP.
  - External interest payments averaging about 3 percent of GDP.
  - Retained earnings stabilizing around ½ percent of GDP.
  - Financing assumptions by sector:
    - Federal government:
      - Domestic-law debt held by nonresidents assumed to fully rollover and interest payment reinvested, consistent with rollover rates of 130 percent.
      - Amortizations on foreign-law bonds assumed to be repaid as they begin to come due in 2025, with resumption of international market access starting in 2025 (USD 2 billion or 0.4 percent of GDP).
      - Financing from IFIs and other official bilateral creditors as discussed under the public DSA.
    - Central bank:
      - Undrawn central bank swap lines from PBOC and BIS assumed rolled over every year.
    - Provincial governments:
      - Assumed to pay off existing (already restructured) debt as it comes due and not to tap international capital markets (minor net official concessional financing assumed).
    - Private sector:
      - Nonfinancial corporates assumed to pay off around 40 percent of maturing debt in 2022.
      - Corporates assumed to begin tapping capital markets around 2023, stabilizing around ¼ percent of GDP yearly by 2026.
      - Trade credit assumed to increase with trade recovery and non-debt creating FDI to recover from around 1 percent of GDP in 2021 to around 2.0 percent of GDP by 2026.
- Projected paths:
  - External debt projected to decline from 58 percent of GDP in 2021 to around 50 percent of GDP by 2026.
  - Decline supported by cumulative trade surplus of 13 percent of GDP and policies supporting real GDP growth.
  - Projections assume non debt creating FDI and new official external financing at more concessional terms supporting gross international reserves accumulation: US$26 billion over 2022-26.
  - GEFNs projected to decline and stabilize around 12 percent of GDP over the medium term:
    - After rising in 2022–23 on account of Fund repurchases, GEFNs fall and stabilize driven by restructured terms, favorable official financing (including Fund-supported EFF program), and rising real GDP.
    - In the longer term, GEFNs increase slightly as repayments to official creditors (including the Fund) rise starting in 2026, requiring market access.
    - Nonfinancial corporates assumed to re-access international capital markets around 2023 and the public sector around 2025, under similar terms (average maturity of 7 years and at a spread of 450 basis points).
  - Quantitative table highlights (Table 1 projections, selected):
    - Baseline external debt (percent of GDP): 2021: 58.3; 2026: 50.8; 2030: 41.0
    - Change in external debt (percent of GDP): 2021: -24.8; 2022: -2.8; 2023: -0.1; 2024: 0.0; 2025: 0.3; 2026: -2.4
    - Identified external debt-creating flows (percent of GDP): 2021: -8.7; 2022: -4.3; 2023: -3.9; 2024: -4.0; 2025: -3.6; 2026: -3.7
    - Gross external financing need (in billions of US dollars): 2021: 63.3; projections across 2022–2030 shown in Table 1 (e.g., 2022: 86.2; 2026: 64.8)
    - GEFN in percent of GDP (selected): 2021: 25.4; projected 2026: 12.2
- Macroeconomic assumptions underlying the baseline (selected):
  - Real GDP growth (in percent): 2021: -0.6; 2022: 4.4; 2023: 10.2; 2024: 4.0; 2025: 3.0; 2026: 2.8
  - GDP deflator in US dollars (change in percent): 2021: 14.1; 2022: 25.5; 2023: 4.5; 2024: -1.7; 2025: -1.6; 2026: 4.0
  - Nominal external interest rate (in percent): 2021: 4.5; 2022: 1.2; 2023: 2.4; 2024: 2.8; 2025: 2.9; 2026: 3.2
  - Growth of exports (US dollar terms, in percent): 2021: 11.2; 2022: 35.2; 2023: 10.1; 2024: 2.9; 2025: 4.6; 2026: 5.9
  - Current account balance, excluding interest payments (percent of GDP): 2021: 2.7; 2022: 2.9; 2023: 2.1; 2024: 2.0; 2025: 2.1; 2026: 2.1

### C. Risks and policy implications
- Downside risks to external debt sustainability are significant:
  - Rising geopolitical tensions creating uncertainty for global growth, commodity prices, and capital flows.
  - External or climate shocks and policy slippages could complicate external stability given Argentina’s low reserve coverage, low export base, and high exposure to FX debt.
  - Example shock: a 30 percent real depreciation shock in 2022 would increase the external debt-to-GDP ratio to 167 percent; without market access and low reserves, debt would be unserviceable. Under this scenario, external debt-to-GDP would decline only to 152 percent and GEFNs-to-GDP to 65 percent by 2026.
- Near-term vulnerabilities:
  - Near-term GEFNs are high (representing twice the level of gross external reserves in 2021) and represent a risk.
  - Large Fund repurchases will be addressed through a Fund-supported EFF program, but risks could arise from policy implementation.
  - Even if GEFNs are projected to fall, they will remain large (averaging US$12 billion per annum during 2026-30) and subject to significant rollover risks if market access is not secured.
  - A large portion (70 percent) of the GEFN reflects BCRA swap, trade credits (which co-move with trade), and inter-company loans, which are subject to lower rollover risks.
- Policy implications and recommendations:
  - Rebuild reserves and boost FX earning capacity to reduce external debt vulnerabilities and enable eventual re-access to international capital markets.
  - Implement coherent macroeconomic policies to support trade surpluses, FDI, and international reserve accumulation.
  - Encourage non-debt creating FDI and obtain new official external financing at more concessional terms to support reserve accumulation.
  - Deepen the domestic debt market and encourage domestic savings to reduce reliance on external financing for investment needs.
  - As capital controls are eased, ensure external capital is directed towards productive long-term investments to reduce vulnerabilities.
  - Avoid premature lifting of capital flow measures until economic imbalances are addressed and reserve coverage improves.

*International Monetary Fund — Annex III. External Debt Sustainability Analysis*

### Annex IV. External Sector Assessment

### Annex IV. External Sector Assessment

### Overall assessment
- The external position in 2021 is estimated to be weaker than the level implied by medium-term fundamentals and desirable policies, based holistically on elevated external debt vulnerabilities, precariously low international reserves and lack of access to international capital markets.
- The recent sovereign FX debt restructuring agreements with private creditors provided short-term cash flow relief, but a credible macroeconomic and structural plan supported by the international community is still needed to:
  - reduce external debt;
  - rebuild international reserves;
  - meet external debt service obligations over the medium term.

### Potential policy responses
- Policies should balance support for the recovery with strengthening domestic and external stability.
- Recommended policy mix:
  - Growth-friendly fiscal consolidation combined with prudent monetary policies to:
    - maintain a strong trade surplus;
    - rebuild international reserves;
    - regain market access;
    - ensure debt sustainability.
  - Structural reforms to boost Argentina’s export capacity and encourage FDI.
  - As stability is established and the pandemic wanes, a gradual conditions-based easing of capital flow measures should be considered.

### Foreign asset and liability position and trajectory
Background and recent developments:
- External gross liabilities: 60.2 percent of GDP in Q3-2021 (well above end-2015 level of 34 percent of GDP).
- NIIP: positive at 25 percent of GDP in Q3-2021 (up 16 percentage points since end-2015), driven by private capital outflows and deleveraging by firms despite strong capital controls.
- In 2020 Argentina restructured US$82 billion (21.4 percent of GDP) in domestic and foreign law sovereign FX debt held by the private sector, with cash flow relief of US$34 billion during 2020–30.
- In 2021, provincial governments restructured US$13 billion of foreign-law FX debt obligations, with total cash-flow savings estimated at around US$6.5 billion for 2021-27.
Assessment and caveats:
- Gross debt and debt service obligations remain substantial; meeting obligations depends on implementation of a strong macroeconomic and structural reform plan that restores market access.

Key statistics (2021 Q3, % GDP):
- NIIP: 25.4
- Gross Assets: 85.5
- Res. Assets: 8.9
- Gross Liab.: 60.2
- Debt Liab.: 45.9

### Current account
Background:
- The CA is estimated to reach a surplus of 1.3 percent of GDP in 2021, slightly higher than in 2020.
- Drivers: improvement in the income balance (largely from lower interest payments related to debt restructuring), while a sharp rebound in imports broadly offsets stronger exports, including from record high export prices.
Assessment (2021, % GDP and adjustments):
- CA: 1.3
- Cycl. Adj. CA: 0.8
- EBA Norm: −1.0
- EBA Gap: 1.9
- COVID-19 Adj.: 0.3 (transitory impacts of COVID-19 on travel services and shift in consumption)
- Other Adj.: −2.0 (staff adjustment reflecting need to bring down external debt service and pave way for market access)
- Staff Gap: +0.1
- The IMF staff judges the near- to medium-term CA norm to be closer to 1.0 percent of GDP, implying an adjustment of 2.0 percent of GDP. The IMF staff assesses the CA gap to be +0.1 ±1 percent of GDP.

Footnote context:
- EBA results are preliminary; final assessment will be presented in the External Sector Report published in 2022. The large strengthening of the cyclically adjusted CA in 2021 is due almost entirely to a large swing in the output gap, about which there is high uncertainty.

### Real exchange rate (REER)
Background:
- After depreciating by near 30 percent between end-2017 to end-2019, the REER has been relatively stable, with some appreciation during 2021 as the rate crawl lagged headline inflation.
- The average 2021 REER appreciated by 4.3 percent compared to the 2020 average yet is up over 20 percent when comparing end of period levels.
Assessment:
- The IMF staff CA gap implies a small REER gap around −1 percent in 2021 (applying an estimated elasticity of 0.17).
- The REER index model suggests a REER gap of 6.9 percent, but with significant uncertainty.
- Overall IMF staff assessment: 2021 REER gap in the range of −5 to 5 percent.

### Capital and financial accounts: flows and policy measures
Background:
- Various CFMs introduced in 2019 with subsequent adjustments. Regulations by BCRA and CNV include measures to:
  - restrict official FX market (MULC) access for financial account transactions;
  - restrict participation in securities markets (MEP/CCL);
  - subject FX purchases to two separate taxes of 30 and 35 percent;
  - apply tight repatriation and surrender requirements on export proceeds;
  - limit cash withdrawals and restrict selective capital flow-related credit card transactions abroad;
  - limit FX holdings of banks, mutual funds and exchange bureaus.
- These are considered CFMs under the Institutional View on Capital Flows (IV).
- The BCRA has stopped intervening in the FX securities market and regulations limiting trading in this market have been eased.
Assessment:
- CFMs have slowed capital outflows but introduced distortions discouraging trade and foreign investment.
- CFMs are not substitutes for macroeconomic policies to address imbalances; they are needed in the near term but:
  - controls on trade flows should be avoided;
  - a conditions-based easing will be necessary, especially to encourage FDI.

### FX intervention and reserves level
Background:
- Gross international reserves: US39.7 billion at end-2021, generally unchanged relative to 2020, yet US$5 billion below end-2019 levels.
- Net international reserves (after excluding swap lines with other central banks, reserve requirements on domestic US dollar deposits, and deposit insurance): US$2.3 billion at end-2021, and have fallen to near zero by end-February 2022 on account of external debt service payments.
- Despite current account surpluses, debt restructuring efforts and capital controls, reserve accumulation has been challenged by continued outflows, including from net private debt amortization payments.
Assessment and metrics:
- Gross international reserves are estimated around 64 percent of the IMF’s composite metric as of end-2021 after smoothing of temporary effects, and around 69 percent without the adjustment.
- In the context of projected trade surpluses and lower debt service payments (following restructuring agreements) over the near to medium term, improving reserve coverage is necessary to:
  - pave the way for market access;
  - enable easing of CFM measures over the medium term.
- Given reserve scarcity, FX sales (in the official or parallel market) should be consistent with quarterly reserve accumulation goals while accounting for seasonal variability and temporary bouts of excessive volatility.

*International Monetary Fund: Annex IV. External Sector Assessment*

### 1.      Argentina was in the midst of a full-blown economic and social crisis by the time the

### 1.      Argentina was in the midst of a full-blown economic and social crisis by the time the new administration assumed office in late 2019.

### Crisis background (pre-2019)
- Economy contracted by about 5 percent since 2017.
- Inflation had reached 53.8 percent by end-2019.
- Public debt burden was unsustainable, external buffers were low, and access to capital markets was limited.
- Social indicators by end-2019:
  - Poverty exceeded 35 percent.
  - Unemployment neared 10 percent.
  - Real wages had fallen by over 15 percent relative to 2017 levels.

### 2018 Stand-By Arrangement (SBA) and outcomes
- SBA details:
  - Initial amount: SDR 35.38 billion (equivalent to US$50 billion and about 1,110 percent of quota).
  - Later augmented to SDR 40.71 billion (equivalent to US$56.3 billion and 1,277 percent of Argentina’s quota).
  - Represented the largest lending arrangement granted by the Fund to a single country in its history.
- Disbursements and reviews:
  - Under the SBA, five disbursements were made.
  - Only four reviews (out of twelve expected) were completed; the fourth and final review was completed in July 2019.
  - Fourth review brought total disbursements from June 2018 to July 2019 to SDR 31.91 billion (equivalent to US$44.1 billion and about 1,000 percent of Argentina’s quota).
- Program objectives and outcomes:
  - Four pillars: restoring market confidence; protecting the most vulnerable; strengthening Central Bank inflation targeting credibility; progressively lessening balance of payments strains.
  - None of the objectives were achieved: confidence and market access were not restored; output contracted sharply; inflation increased; employment fell and poverty increased; currency depreciated sharply.
  - In the absence of capital flow management measures, disbursements effectively financed capital flight of an historic size.
  - Public debt rose substantially as a share of GDP.
  - Decision by then-authorities not to restructure foreign-currency denominated debt worsened public debt sustainability.

### COVID-19 shock and government response (2020)
- Less than 100 days into the administration, COVID-19 exacerbated challenges.
- Economy contracted by 9.9 percent in 2020.
- Social indicators deteriorated further; pandemic especially affected women, children, and unskilled informal workers.
- 2020 policy responses:
  - Substantial fiscal resources mobilized to protect households and firms.
  - Measures: extraordinary allowances and bonuses; new emergency family income scheme for informal workers; salary support and reduced employer payroll tax contributions; regulations to safeguard employment.
- Debt sustainability steps:
  - September 2020: restructured over US$82 billion in FX-debt owed to private bondholders; participation rate exceeded 99 percent; secured cash flow relief of over US$35 billion during 2020–30.
  - Supported provincial restructuring of US$13 billion in FX debt, resulting in additional cash flow relief to provinces of US$6.5 billion during 2020–27.
  - Priority: strengthen peso sovereign debt market and encourage restructuring of FX debts held by private sector.

### 2021 recovery and key indicators
- Economy grew by over 10 percent in 2021.
- Health response:
  - By early-March 2022, close to 90 percent of the population had received at least one vaccine dose, and nearly 80 percent had received both doses.
- Demand and activity:
  - Investment up 42 percent y/y through Q3:2021.
  - Exports up by 13 percent through December 2021.
- Fiscal outcomes:
  - Federal primary fiscal balance improved from -6.4 percent of GDP in 2020 to -3 percent of GDP in 2021 (original budget target was -4.5 percent of GDP).
  - Real spending (net of COVID) rose by over 10 percent.
  - Net domestic (peso) market financing rose from 1.3 percent of GDP in 2020 to over 2 percent of GDP in 2021.
  - Monetary financing of the deficit fell from 7.4 percent of GDP in 2020 to 3.7 percent of GDP in 2021.
- External sector:
  - Trade surplus reached a near-historic high of US$15 billion.
  - Strong export volume growth offset import dynamism; sizeable financial-account outflows limited reserve accumulation.
- Labor and social indicators:
  - Unemployment rate fell to 8.2 percent in Q3:2021 (peak 13 percent in Q2:2020).
  - Labor force participation rising; formal employment above pre-pandemic levels; real wages beginning to recover.
  - Poverty rate fell to 40 percent in the first half of 2021, down 5 percentage points relative to pandemic peaks.

### Remaining challenges (end-2021)
- Persistent high inflation and low external buffers:
  - Headline inflation rose to 50.9 percent y/y at end-2021 (up from 36 percent y/y at end-2020).
- Social and infrastructure gaps:
  - Poverty rates remain high; 55 percent of all children living below the poverty line.
  - Labor market gains uneven: women and young adults with low skills hit harder; high share of informal and underemployed workers.
  - Public infrastructure (physical and digital) insufficient to support growth.
- Structural constraints to sustained growth:
  - Export shares relatively low; export base insufficiently diversified.
  - High dollarization and underdeveloped domestic capital markets limit ability to finance investment and growth.
- Balance of payments vulnerabilities:
  - Needs largely driven by the schedule of repayments to the IMF.

### Policy Framework and EFF request (2022–24)
- Primary goals:
  - Maintain economic and social recovery.
  - Strengthen stability and address long-term growth challenges.
  - Tailor policies to Argentina’s social and economic structure.
- Policy priorities:
  - Gradually and sustainably improve public finances to secure debt sustainability without compromising recovery; simultaneously implement policies to reduce social and infrastructure gaps.
  - Durably reduce high inflation via fiscal, monetary, and price-incomes policies.
  - Strengthen balance of payments via reserve accumulation, trade surpluses, net exports, and long-term capital inflows to pave way for re-entry to capital markets.
  - Enhance sustainability and resilience of growth via mobilizing domestic savings, effective public investment, innovation, and development of strategic tradable sectors.
- Request:
  - Formal request for an Extended-Fund Facility (EFF) for 30 months, amount SDR 31,914 million (equivalent to around US$45 billion, or 1,000 percent of Argentina’s quota).
  - Proposed purchase schedule:
    - SDR 7000 million upon approval by the IMF’s Executive Board.
    - SDR 3000 million at the time of the first review.
    - SDR 3000 million at the time of the second review.
    - SDR 4500 million at the time of the third review.
    - SDR 4000 million at the time of the fourth review.
    - SDR 3000 million at the time of the fifth review.
    - SDR 2500 million at the time of the sixth review.
    - SDR 2500 million at the time of the seventh review.
    - SDR 800 million at the time of the eight review.
    - SDR 800 million at the time of the ninth review.
    - SDR 814 million at the time of the tenth review.

### Macroeconomic baseline and projections
- Growth and inflation:
  - Real GDP expected to expand by 3½–4½ percent in 2022.
  - Converge to a potential growth rate of around 1¾ to 2¼ percent over the medium term.
  - Disinflation objective: reduce inflation to the range of 38–48 percent by end-2022 and by an additional 5 percentage points per annum through end-2024.
- External and reserve objectives:
  - External current account projected to remain in surplus.
  - Net International Reserves (NIR) envisaged to increase by US$15 billion over the course of the program.
  - Support for a buildup of reserves and strengthening of crawling peg regime via higher FDI and net official inflows.
- Monetary and money-demand assumptions:
  - Policies expected to support money demand, which after falling in 2021, is assumed generally unchanged as a share of GDP.

### Uncertainties and risks
- Pandemic re-intensification and new variants could impose mobility restrictions and trade disruptions.
- Geopolitical risks, including those related to war, increase uncertainties, especially for energy subsidies.
- Weaker global and regional conditions could worsen terms of trade (e.g., lower world agricultural prices or higher world energy prices).
- Climate-related shocks could affect exports with negative implications for FX inflows and fiscal revenues.
- Upside risks include more favorable external conditions and a stronger-than-anticipated recovery, especially in services.

### Fiscal and financing policy (targets and measures)
- Multi-year fiscal consolidation strategy:
  - Target primary deficit of 2.5 percent of GDP in 2022 (quantitative performance criterion).
  - Primary deficit of 1.9 percent of GDP in 2023.
  - Primary deficit of 0.9 percent of GDP by 2024.
  - Envisage reaching primary balance by 2025 and a primary surplus of around 1¼ percent of GDP over the medium term.
  - Financing primarily through steady expansion of peso-denominated government securities and international support, enabling zero monetary financing of the deficit by end-2024.
- Table of macro projections (Preliminary/Tentative Proj.):
  - GDP growth (avg, %) : 2021 = 10.2 ; 2022 = [3.5 - 4.5] ; 2023 = [2.5 - 3.5] ; 2024 = [2.5 - 3.0]
  - Inflation (eop, %) : 2021 = 50.9 ; 2022 = [38.0 - 48.0] ; 2023 = [34.0 - 42.0] ; 2024 = [29.0 - 37.0]
  - Primary fiscal balance (% of GDP) : 2021 = -3.0 ; 2022 = -2.5 ; 2023 = -1.9 ; 2024 = -0.9
  - Current account (% GDP) : 2021 = 1.3 ; 2022 = 0.5 ; 2023 = 0.4 ; 2024 = 0.3
  - Change in net int’l reserves (US$bn) : 2021 = -1.5 ; 2022 = 5.8 ; 2023 = 4.0 ; 2024 = 5.2
  - Note: Net International Reserves (NIR) are gross reserves net of swap lines, deposit insurance, reserve requirements on FX deposits, and other reserves liabilities.
- External project financing:
  - Additional external project financing will scale up capital spending; capital spending and fiscal targets will be adjusted to reflect deviations in external loan disbursements up to 0.2 percent of GDP in 2022 (and comparable levels in 2023-24).
- Revenue measures and tax policy:
  - Legislation approved to increase progressivity of the personal wealth tax regime (expected annual yield of 0.1 percent of GDP).
  - Bill presented to shift excises on petroleum products to an ad valorem basis to protect tax yields.
  - Process to update property valuations at the federal level to be completed by end-September (structural benchmark); yields net of co-participation could reach 0.1 percent of GDP for fiscal year 2022 and an additional 0.2 percent of GDP over the next few years.
  - Expected coverage: around 400,000 taxpayers, or around 597,000 urban properties subject to annual personal property tax.
  - Commitment to avoid additional taxes on financial transactions that affect domestic savings or productive investments (continuous structural benchmark).
  - Tax amnesties that undermine compliance will be avoided.
- Tax administration:
  - AFIP developed a Strategic Plan for 2021-25; plan to be published by end-March 2022.
  - In consultation with Fund staff, a detailed time-bound action plan to identify compliance gaps and improve compliance risk management of key domestic taxes and customs duties to be developed by end-August 2022 (structural benchmark).
  - Yields from administrative reforms could reach 1 percent of GDP over the medium term and begin to bear fruit starting next year (0.3 percent of GDP net of co-participation).

*ARGENTINA — INTERNATIONAL MONETARY FUND*

### 15.      On the expenditure  front, our efforts will focus on further  reorienting spending

### 1argea2022001 - 15.      On the expenditure  front, our efforts will focus on further  reorienting spending

### Expenditure priorities and social policy
- Energy subsidies
  - Baseline assumes a reduction in energy subsidies of 0.6 percent of GDP in 2022.
  - Baseline underpinned by a multipronged approach: reducing energy costs and increasing the pass-through of generation costs, while ensuring adequate protection for people in the most vulnerable situations.
  - Policy commitment: eliminate subsidies for high-income residential consumers.
  - Note on risks: important uncertainties and risks exist around this baseline given rising geopolitical tensions and evolving global energy prices.
- Social assistance
  - Strengthen social assistance schemes to address child poverty and promote labor market inclusion, particularly for women and individuals with low skills or insufficient qualifications.
  - Establish a floor on spending on flagship support programs—Asignación Universal para Protección Social, Tarjeta Alimentar, and Progresar—with coverage increases if social conditions deteriorate.
  - Reorient social spending towards training and employment programs; strengthen budget systems to address gender inequities.
  - Structural benchmark: conduct and publish a comprehensive evaluation of social support programs and strategy (end-December 2022).
- Capital and innovation spending
  - Plan to raise infrastructure investment to over 2 percent of GDP in 2022 (from an average of 1 percent of GDP during 2018–20) and maintain this level over the course of the program.
  - Investment focus: housing and sanitation in poorer urban areas; road, energy, digital and logistics infrastructure.
  - Protect and enhance spending on science and technology to encourage innovation.
- Other current spending
  - Rationalize other spending while protecting real incomes of pensioners and public sector workers.
  - Actions: (i) limit discretionary transfers to provinces and state-owned enterprises; (ii) manage the public sector wage bill so it grows consistently with economic growth.
  - Pension spending to be determined by the new pension update mechanism adopted in late 2020.
  - Structural benchmark: conduct and publish a study with options and recommendations to strengthen equity and long-term sustainability of the pension system, focused on special pension regimes set forth by Law 27.546 and on mechanisms to encourage voluntarily prolonging working lives (end-December 2022).

### Public investment management, cash management, and intergovernmental coordination
- Public investment management (PIMA-based reforms)
  - Improve accountability of capital spending and reinforce governance by centralizing review of major public investment projects and shifting capital investment composition towards direct investment by the national administration.
  - Near-term emphasis:
    - Reinforce monitoring and availability of information on public resources in capital projects:
      - Structural benchmark: Secretary of Treasury to prepare a proposal with an action plan to enhance financial and budget reporting of national public sector entities other than the National Administration according to Law 25.917, Art 3 (end-June 2022).
      - Proposal to specify monthly detailed information to MECON on: (i) financial and physical execution of individual major investment projects financed by APN capital transfers; (ii) allocation and use of earmarked taxes for individual major investment projects; and (iii) breakdown of financial assets and liabilities held by other public sector entities. Proposal will identify necessary regulatory adjustments.
      - Enhance quarterly financial and budget execution report by MECON on other national public sector entities based on the action plan; publish enhanced report by the third quarter of 2022 and work to increase publication frequency.
    - Improve selection of investment projects:
      - Modify SEPIPyPPP 1/2021 Resolution enabling annual regulation to set prioritization and selection criteria prioritizing ongoing projects and major projects with pre-feasibility or feasibility studies.
      - Adopt regulation to determine prioritization and selection criteria for projects to be included in the 2023 Budget (end-June 2022, structural benchmark).
      - DNIP to issue Technical Qualification Reports on projects prior to sending the 2023 budget proposal to Congress.
    - Strengthen procurement processes:
      - Update legal framework for procurement in the Public Works Law (13,064/1947) covering selection, awarding, execution, sanction processes, complaints, submissions and independent resolution procedures. Intend to issue this regulation by end-September 2022.
- Cash management
  - Strengthen the Treasury Single Account (TSA) and develop a plan to improve management of excess liquidity held by other national public sector entities to limit unintended reliance on monetary financing of the budget.
  - Define by end-June specific actions to phase in recommendations from the Fund’s Fiscal Safeguards Review.
- Budgetary process
  - 2023 pre-budget statement (Informe de Avance del Proyecto de Presupuesto) will include outlook, qualitative risk assessment, and measures supporting achievement of the fiscal framework.
  - Draft 2023 Budget to be submitted by mid-September, consistent with agreed primary deficit of 1.9 percent of GDP and include elaboration of underlying policies to meet program target.
- Federal-Provincial Fiscal Coordination
  - Agreement reached with 21 provincial governments on a new Fiscal Consensus aiming to: (i) enhance fiscal coordination and information exchange; (ii) modernize and simplify tax systems while providing provinces greater revenue-raising incentives; and (iii) reduce fiscal imbalances and provincial debt levels.
  - Will explore options to revamp Fiscal Responsibility Legislation, review role of Fiscal Council, and limit future FX borrowing by provincial governments.
  - Strengthen data-sharing agreements to ensure timely sharing of quarterly fiscal reports by all provinces.

### Domestic financing strategy and public debt management
- Domestic financing objectives
  - Target net peso financing from the private sector to the Treasury of around 2 percent of GDP per annum during 2022-24.
  - Gradually reduce reliance on inflation-linked instruments, widen portfolio of benchmark domestic securities, and lengthen maturity profile as disinflation progresses.
  - Strengthen debt management practices to establish a deep sovereign debt market and build a benchmark yield curve.
  - Structural benchmark: prepare a medium-term debt management strategy (MTDS) (end-December 2022) with a view to publication and implementation by March 2023.
  - Interim measures: develop annual borrowing plan and measures to (i) streamline the number of current instruments; (ii) enhance predictability of auctions; (iii) limit use of minimum auction pricing to guidance for new instruments and market stress; (iv) build benchmark bonds to support secondary market liquidity and price discovery.
  - Expand market makers program by widening eligible pool of securities.
  - Structural benchmark: publish semi-annual investor relations presentations (end-July 2022) and hold regular investor meetings on macroeconomic developments and public debt performance and financing.

### External financing and unwinding monetary financing
- Expected external official financing
  - Net financing from multilateral development banks and bilateral official creditors expected to reach 0.4 percent of GDP per annum during 2022-24.
  - Portion to finance infrastructure projects and programs to strengthen social protection and energy efficiency.
- Paris Club and IMF support
  - Work toward agreement with Paris Club creditors on a repayment schedule consistent with repayment capacity and debt sustainability.
  - Upfront net IMF financing in 2022 of 0.7 percent of GDP.
- Central bank financing reduction targets (quantitative performance criteria)
  - Reduce central bank financing of the Treasury to 1 percent of GDP in 2022, 0.6 percent of GDP in 2023, and zero by 2024.
  - If budget financing conditions improve, aim to further reduce central bank financing to accelerate rebuilding confidence in the currency.

### Monetary and exchange rate policies
- Strategy to durably lower inflation
  - Require comprehensive package: sustainable fiscal and financing path to reduce central bank financing; prudent and pro-active monetary policy to support demand for peso assets; voluntary price and incomes policies to tackle inflation inertia and unanchored inflation expectations.
  - Rate of crawl of the official exchange rate should support external competitiveness; well-designed capital flow management regime to support reserve accumulation.
- Recent monetary policy actions
  - Early January: BCRA raised the effective annual policy rate (applying to 28-day leliqs) by 285 basis points and streamlined sterilization instruments; raised regulated deposit rate floors and credit rate ceilings.
  - Mid-February (prior action): BCRA raised the effective annual policy rate by an additional 365 basis points.
- Price-incomes policy
  - New voluntary price agreement (Precios Cuidados) signed mid-January with over 150 private sector participants, guaranteeing a maximum price increase of 2 percent per month on 1,300 key consumer staples.
  - Price agreements to complement wage agreements to support real wage growth; incomes and price policies to be adjusted as circumstances evolve.
- Monetary policy stance
  - BCRA will aim to maintain a positive real effective policy rate consistent with a sustainable path for BCRA securities.
  - Real interest rate determination to consider coincident and forward-looking inflation measures updated monthly and other factors such as evolution of reserves.
  - Objective: ensure interest rates on bank term deposits remain positive in real terms and support development of domestic government securities market.
- Exchange rate management
  - Rate of crawl of the official exchange rate will preserve competitiveness by keeping the real effective exchange rate in 2022 generally unchanged relative to end-2021 levels.
  - Interventions in official market (MULC) will be consistent with reserve accumulation objective, accounting for seasonality and temporary excessive volatility.
  - Limit intervention in the non-deliverable forward market to circumstances when forward guidance is required (indicative target).
  - Note: adjustments to reserve accumulation objectives may be considered in consultation with IMF staff given exposure to volatile commodity prices.

### Monetary operations and reserve requirements
- January 2022 operations (to improve monetary policy transmission)
  - (i) Raised cap of 28-day LELIQs to reduce recourse to short-term securities and increase average tenor of sterilization operations.
  - (ii) Launched new 180-day LELIQs to facilitate structural liquidity management, support longer duration bank facilities, and foster growth of peso deposit demand.
  - (iii) Raised bank interest rate ceilings on certain regulated lending instruments and floors on certain regulated bank deposits.
  - BCRA to explore options to enhance sterilization policies and instruments.
- Reserve requirement reform
  - Structural benchmark: BCRA to publish a time-bound plan to streamline the reserve requirement regime (end-June 2022).
  - Plan seeks to gradually phase out unremunerated reserve requirements for small banks and many special regimes so reserve requirements differ mainly by deposit duration.
  - As conditions normalize and transmission improves, consider easing the floor on commercial banks’ deposit rates and lending ceiling rates.
  - Assess regulations allowing commercial banks to meet reserve requirements with holdings of government securities.

### Capital flow management policy and roadmap for easing FX controls
- Objectives and recent actions
  - Continue enhancing effectiveness and fairness of capital flow management regime; regime is not a substitute for warranted macroeconomic policies.
  - In consultation with IMF staff, eased certain regulations limiting securities trading in foreign exchange (prior action).
  - As conditions normalize, seek to ease import payments regulations to support economic recovery.
- Planned measures
  - Streamline FX regulatory framework and consolidate number of regulatory documents to strengthen transparency and reduce compliance costs.
  - Boost surveillance and enforcement of exchange control measures via better data collection, upstream monitoring, and improved coordination among BCRA, AFIP, Customs to enhance fraud detection.
  - Improve penalty framework by introducing authorization of administrative fines to make sanctioning more efficient and timely.
  - Structural benchmark: submit relevant legislation—Foreign Exchange Criminal Law—to Congress by end-December 2022.
  - Consider expanding BCRA’s powers to regulate and monitor a wider set of transactions affecting Argentina’s balance of payments.
- Strategic roadmap for gradual easing
  - Design a conditions-based strategic roadmap for gradual easing of FX controls to support gradual resumption of international market access starting in 2025.
  - Roadmap to be prepared in consultation with Fund staff, drawing on international experiences and Argentina-specific factors (public debt profile, reserve coverage, high degree of dollarization).
  - Roadmap will involve converging to a system of macro-prudential regulations supporting stable and sustainable capital flows.
  - Structural benchmark: publish strategic roadmap end-December 2022.

*Source: https://www.imf.org/-/media/files/publications/cr/2022/english/1argea2022001.pdf*

### 28.      Our macroeconomic program  is consistent with a   steady strengthening of the BCRA

### 1argea2022001 - 28.      Our macroeconomic program  is consistent with a   steady strengthening of the BCRA

### BCRA balance sheet and financial position
- Program objective: steady strengthening of the BCRA balance sheet through a projected reduction in the stock of central bank paper and the quasi-fiscal deficit (as a share of GDP), underpinned by gradual unwinding of monetary financing of the budget and policies to sustain money demand.
- Planned actions:
  - Comprehensive analysis of BCRA’s balance sheet and drawing on recommendations from the Fund’s Safeguard Assessment to develop and publish, in consultation with Fund staff, a medium-term strategy for durably improving its financial position (end-December 2022, structural benchmark).
  - Consider options to: (i) strengthen the financial relationship with the treasury; (ii) further enhance the BCRA’s governance framework; (iii) ensure the gradual adoption of IFRS accounting standards; and (iv) conduct monetary operations via government securities as well as other alternatives to reduce the quasi-fiscal cost of monetary policy.
- Recent milestone: the Board of the BCRA approved the first inflation-adjusted financial statements corresponding to the year 2020.

### Growth-and Resilience Policies (overview)
- Objective: begin to address long-standing bottlenecks and lay the foundation for more sustainable and inclusive growth by encouraging:
  - (i) expansion and diversification of the tradable sector;
  - (ii) investment and productivity;
  - (iii) local and regional economic development;
  - (iv) formal employment and labor inclusion;
  - (v) improvements in the efficiency and sustainability of the energy sector;
  - (vi) climate mitigation and adaptation policies;
  - (vii) broader development of capital markets.

### Export expansion and strategic sectors
- Legislative and regulatory advances to encourage investment and exports in strategic sectors including the knowledge economy, hydrocarbons, mining, agro-industry, and automotive industry.
- Objective to strengthen regulatory predictability and investment incentives while minimizing fiscal and regulatory costs.
- Preliminary estimate: these measures could increase exports by around over US$25 billion by 2030.
- Timeline expectation: relevant legislative initiatives to be considered by congress during the course of 2022.

### Formal employment and inclusion
- Programs scaled up and introduced:
  - Potenciar Trabajo: now reaches over one million beneficiaries; deepens labor market inclusion via jobs training, direct cash transfers, and employer incentives.
  - “Te Sumo”: supports youth employment with an initial target of 50,000 new hires through job training and incentives to SMEs.
  - “Argentina Programa”: aims to produce over 10,000 new graduates by end-2022 for the knowledge economy sector.
  - Incentives program to encourage formal employment creation in Norte Grande.
- Pandemic-era labor measures being unwound: ban on layoffs (for unexpected circumstances or lack of work) lifted; double severance pay for layoffs without fair cause is being phased out and will fully expire by end-June 2022.

### Energy sector policies (near-term and medium-term)
- Objectives: improve efficiency, fairness, and sustainability; reduce energy costs; improve targeting of government subsidies; ensure lower-income households are protected.
- Near-term actions:
  - Expand energy production and reduce electricity generation costs, including Plan Gas which reduced the guaranteed gas price at new auctions from US$7.5 to US$3.5 per MMBTU.
  - Increase investment in energy production and transportation to meet domestic demand and reduce costly energy imports.
  - Subsidy segmentation for households with greater payment capacity: public hearing by end-April on proposal to eliminate electricity and gas subsidies, effective June 1, from the top 10 percent of residential consumers with the greatest payment capacity. Savings from the segmentation plan could reach 0.06 percent of GDP during 2022 with additional savings in 2023 as the scheme is expanded.
  - Wholesale gas and electricity tariffs updated effective March 1: wholesale electricity prices—PEST (precio estacional de energia) for all residential, and non-residential users (excluding GUDIs)—were updated by 28 percent and 42 percent respectively.
  - Public hearing by end-April on a proposal to update wholesale energy tariffs effective June 1, 2022 (end-April 2022, structural benchmark).
    - For residential users: updates anchored on prior year average coeficiente de variación salarial:
      - Tarifa social recipients: energy tariff revision equivalent to 40 percent of the prior year average coeficiente de variación salarial.
      - Remaining residential consumers (excluding those subject to the subsidy segmentation): energy tariff revision equivalent to 80 percent of the prior year coeficiente de variación salarial.
      - In both cases, the respective percentage increases in 2022 will include the increases applied for the whole calendar year.
    - For GUDIs: energy tariffs will reflect full cost recovery; other non-residential users will have their tariff revised according to the proposal defined in the public hearing.
  - Expectation: for 2022 the weighted average wholesale energy price will remain unchanged in real terms. Similarly, additional tariff revisions for subsidized residential users will not be envisaged during 2022 and 2023, provided the government successfully implements the segmentation scheme.
- Medium-term plan:
  - Develop and publish a medium-term plan to further reduce energy subsidies and improve energy matrix efficiency, published for consultation by end-September 2022 (structural benchmark), with final version published by end-December 2022.
  - Plan actions include: (i) encourage investments to boost generation and transmission, including pipelines and expansion of LNG and renewable capacity; (ii) reduce distribution losses via improved metering, billing, and collections; (iii) improve energy consumption efficiency and conservation; (iv) strengthen targeting and progressivity of energy subsidies; (v) ensure end-user tariffs better reflect wholesale costs over time.
  - Plan will include specific cost recovery targets and count on technical and financial support from international development partners.

### Gender equity and inclusion
- Context: formal sector wages for men are, on average, 30 percent higher than for women; activity rate for women around 50 percent versus 70 percent for men; unremunerated household tasks largely carried out by women (76 per cent).
- Actions:
  - Strengthen care support systems and expand social protection programs that target women.
  - Increase access to child-care facilities, housing, and other social infrastructure for mothers.
  - Promote labor market inclusion through programs such as Registradas (33,000 domestic workers have been registered thus far).
  - Promote women’s presence in male-dominated jobs (industry, construction, technology).
  - Enhance gender budgeting approach: 15 percent of national expenditure was identified as allocated to policies that contribute to closing gender gaps (first introduced for fiscal year 2021).

### Climate mitigation and adaptation
- Actions and legislative initiatives:
  - Preparation of a new Electro-Mobility Law (Ley de Promocion de Electromovilidad) to incentivize renewable energy-powered vehicles: estimated to lead to the over 20,000 new jobs and over US$5 billion in new investments over the medium term. Expected to be considered by congress during the course of 2022.
  - Implementation of a Green Productive Development Plan promoting investment in the knowledge economy, circular economy processes, and environmental adaptation and resource efficiency; development during 2022 of new legislation and regulatory framework to support hydrogen sector investment.
  - Include a full-fledged climate tagging system in the 2023 Budget Preparation Manual; budget documentation will include a report on climate initiatives (according to economic classification) and the list of tagged public investment projects.

### Competition, financial inclusion, and sustainable finance
- Competition policies: strengthen competition framework to tackle excessive concentration, barriers to entry, and market power.
- Financial inclusion (National Strategy for Financial Inclusion 2020-2023 relaunched):
  - Objectives: expand access to financial services; promote digital payments, savings, credit, microfinance; enhance financial literacy and consumer protection; consolidate interoperability on digital payments; reduce social gaps and expand territoriality; incorporate gender perspective; prioritize inclusion of vulnerable groups and financing SMEs; promote use of new technology.
- Sustainable finance: promote sustainable finance to increase investor base, considering social impact and positive externalities, not only financial profitability.

### Financial sector resilience and digital payments
- Commercial banks: remain liquid and well-capitalized; strong bank oversight will continue, especially after unwinding pandemic-related regulatory forbearance.
- Additional measures:
  - Discourage use of crypto-currencies to prevent money laundering, informality, and disintermediation.
  - Support digitization of payments to improve efficiency and costs of payment systems and cash management.
  - Safeguard financial consumer protection.

### Transparency and governance (COVID-related spending)
- Publish information on the ultimate beneficial owner(s) of companies awarded COVID contracts by the national public administration (by end-December 2022).
- Work to reach agreement with provinces to establish a consolidated system of ultimate beneficial owner(s) information for all provinces, with a view to publishing companies awarded COVID contracts by all provinces by end-March 2023.
- Complete and publish the ex-post internal audit for COVID-19 spending during 2021 by end-2022.
- Ex-post external audits on COVID-19 spending that took place at least during 2020 will be published, once approved, by end-June 2023 (structural benchmark), consistent with plans of the Auditoría General de la Nación (AGN).

### AML/CFT strengthening
- Preparations ahead of the AML/CFT evaluation by the FATF in 2023; with IMF support an action plan has been developed:
  - Finalize and adopt the national risk assessment of money laundering (ML) by end-June 2022 and consolidate with already-finalized terrorist financing (TF) assessments; disseminate results to AML/CFT stakeholders. Publication of a National AML/CFT Strategy expected by end-September 2022 (structural benchmark).
  - Amend AML/CFT legislation (Law 25.246) to strengthen the sanctioning regime, inventory of reporting entities, preventive measures, and requirements for legal entities/legal arrangements to obtain, maintain, and update ultimate beneficial owner information within company registry(ies). Submit amended legislation to congress by end-May 2022 (structural benchmark). FIU to advance implementing resolutions, including for non-profit reporting institutions, to facilitate prompt implementation.

### Program monitoring, safeguards, and financing
- Monitoring framework: quarterly reviews, prior actions, quantitative performance criteria, indicative targets, and structural benchmarks. Quantitative and continuous performance criteria and indicative targets specified in Table 1 and the Technical Memorandum of Understanding (TMU). Prior actions and proposed structural benchmarks set out in Table 2.
- Consultation commitment: standard IMF consultation clause—the authorities will consult with the Fund on adoption of additional measures and refrain from policies inconsistent with program objectives.
- Financing assurances:
  - Firm net financing secured for the first 12 months of the arrangement: US$2.6 billion from official partners during the first year.
  - Composition of firm commitments:
    - World Bank: US$0.792 billion
    - Inter-American Development Bank: US$0.959 billion
    - Andean Development Fund (CAF): US$0.055 billion
    - FONPLATA: US$0.074 billion
    - BCIE: US$0.058 billion
    - China (official bilateral): US$0.455 billion
    - Other bilateral banks: US$0.207 billion
  - Negotiations with the Paris Club toward an agreement on a repayment schedule are ongoing. Authorities consider there are good prospects of financing for the remainder of the program.

*Source: 1argea2022001 - 28.      Our macroeconomic program  is consistent with a   steady strengthening of the BCRA*

### 35.      Safeguards and budget support. We understand that, in line with Fund's policy, a

### 1argea2022001 - 35.      Safeguards and budget support. We understand that, in line with Fund's policy, a

### Safeguards and budget support
- A Safeguards Assessment and a Fiscal Safeguards Review will be completed by the time of the first program review.
- Authorities will provide Fund staff access to the BCRA’s most recently completed external audit reports.
- Use of IMF financing for budget support is requested; servicing roles and responsibilities will be governed by a memorandum of understanding between the BCRA and the government.
- All Fund purchases are requested to be disbursed into Argentina’s SDR account to support the commitment to meet Fund obligations as they fall due and to rebuild international reserve buffers.

### Resolution of external arrears
- Continuing efforts to resolve outstanding external arrears, including:
  - Holdout creditors that did not participate in the 2005/10 debt exchange or settle under the terms provided in 2016.
  - Gradual repayment of debt to the binational entity Yacyreta for energy services; undisputed arrears expected to be settled by the end of 2022, supported by an allocation in the 2022 budget; disputed claims under discussion (difference in views on the applicable exchange rate).
  - Claims by the French export credit agency (US$30 million) are in litigation in the Argentine Supreme Court (after previous lower court rulings in favor of the Argentine government).
  - Remaining outstanding sovereign arrears to private firms totaling about US$500 million.

### Proposed baseline quantitative performance criteria and indicative targets (selected highlights)
- Fiscal targets (cumulative floors / ceilings; in billions of Argentine pesos unless otherwise stated):
  - Cumulative floor on the federal government primary balance:
    - end-Mar: -222.3
    - end-June: -566.8
    - end-Sept: -912.3
    - end-Dec: -1758.6
  - Ceiling on the federal government stock of domestic arrears:
    - end-Mar: 535.9
    - end-June: 535.9
    - end-Sept: 535.9
    - end-Dec: 535.9
- Continuous performance criterion:
  - Non-accumulation of external debt payments arrears by the federal government:
    - end-Mar: 0.0
    - end-June: 0.0
    - end-Sept: 0.0
    - end-Dec: 0.0
- Indicative targets:
  - Cumulative floor on real federal government revenues:
    - end-Mar: 2417.3
    - end-June: 4759.4
    - end-Sept: 6929.2
    - end-Dec: 8900.0
  - Cumulative floor on federal government spending on social assistance programs:
    - end-Mar: 151.9
    - end-June: 318.0
    - end-Sept: 494.4
    - end-Dec: 707.8
- Monetary targets:
  - Cumulative floor on the change in net international reserves (NIR) of BCRA (in billions of U.S. dollars):
    - end-Mar: 1.2
    - end-June: 4.1
    - end-Sept: 4.4
    - end-Dec: 5.8
  - Cumulative ceiling on central bank financing of the federal government:
    - end-Mar: 236.8
    - end-June: 438.5
    - end-Sept: 613.3
    - end-Dec: 705.2
  - Indicative target — Ceiling on the central bank stock of non-deliverable forwards (in billions of U.S. dollars):
    - end-Mar: 6.0
    - end-June: 7.0
    - end-Sept: 9.0
    - end-Dec: 9.0
- Notes and calibrations:
  - Targets as defined in the Technical Memorandum of Understanding (TMU).
  - Based on program exchange rates defined in the TMU.
  - Flows from January 1 through December 31.
  - The average stock of domestic arrears during Q4 2021 stood at 535.9 billion pesos.
  - Real revenues rebased assuming CPI=100 at end-2021.
  - Change in NIR measured against the value of NIR on December 31, 2021, which stood at US$2.325 billion.
  - Stock of non-deliverable forwards on December 31, 2021 stood at US$4.185 billion, as defined in the TMU.
  - Targets subject to adjustors as defined in the TMU.

### Prior actions and structural benchmarks (selected)
- Prior actions (met):
  - Raise the effective annual policy rate by 365 basis points (Monetary/FX Policy).
  - Ease certain regulations, in consultation with Fund staff, limiting securities trading in foreign exchange (Monetary/FX Policy).
- Structural benchmarks and timing (selection):
  - Avoid additional taxes on financial transactions — Continuous.
  - Modify the current Budget Law to be in line with the 2022 primary fiscal deficit target agreed under the program — April 15, 2022.
  - Call a public hearing on a proposal to update wholesale energy tariffs effective June 1, 2022; residential updates anchored on average wage growth (coeficiente de variación salarial) as established by Law 27.443; GUDIs to reflect full cost recovery — April-2022.
  - Submit to congress amended AML/CFT Legislation (Law 25.246) in accordance with international standard — May-2022.
  - Prepare proposal with action plan to enhance financial and budget reporting of national public sector entities other than the National Administration according to Law 25.917, Art 3 — Jun-2022.
  - Publish a time-bound plan to streamline the reserve requirement system and improve the transmission of monetary policy — Jun-2022.
  - Publication of semi-annual investor relations presentation to advance the investor relations program — Jul-2022.
  - Develop and publish a medium-term plan to further reduce energy subsidies with cost recovery targets — Sept-2022.
  - Conduct and publish evaluation of social support programs and strategy to identify policy improvements — Dec-2022.
  - Publication of an external ex-post audit on COVID spending that took place at least during 2020 — June-2023.

### Technical Memorandum of Understanding (TMU) — definitions and monitoring
- General:
  - TMU sets definitions of performance criteria (PCs) and indicative targets (ITs) under the Extended Fund Facility (EFF) arrangement; describes methods for assessing program performance and information requirements.
  - Program exchange rates are those that prevailed on March 2, 2022; inflation in 2022 is based on a point estimate of 43 percent (end of period), within the program inflation range.
- Key program exchange rates (as of March 2, 2022):
  - Argentine Pesos to the US dollar 1/: 107.93
  - Argentine Pesos to the SDR 1/: 150.08
  - Argentine Pesos to the Euro 1/: 119.83
  - Argentine Pesos to the Canadian dollar 1/: 85.21
  - Argentine Pesos to the British pound 1/: 144.22
  - Argentine Pesos to the Renminbi 1/: 17.07
  - Gold price (US$/ounce) 2/: 1,928.72
  - 1/ Rate published by the BCRA as of March 2, 2022.
  - 2/ Spot price published by Bloomberg as of March 2, 2022.
- Cumulative floor on the Federal government primary balance:
  - Coverage: Federal government (Sector Público Nacional No Financiero) — central administration, social security institutions, Administración Nacional decentralized institutions, PAMI, fiduciary funds, and other federal entities.
  - Measurement: Above-the-line; equivalent to total revenues (ingresos totales, “Esquema IMIG”) minus primary spending (gastos primarios); measured on a cash basis; cumulative from the beginning of each calendar year.
  - Revenues exclude Central Bank financial transfers (including Utilidades and Adelantos Transitorios), interest income from intra-public sector holdings, proceeds from sale of financial assets, and SDRs allocated by the Fund or received bilaterally.
  - Primary expenditures recorded on cash basis include social protection, economic subsidies, operational expenses, current transfers to provinces, other current spending, and capital spending (including capital transfers to provinces).
  - Government-funded PPPs treated as traditional public procurements and recorded as part of the Federal government deficit on a cash basis.
  - All primary expenditures directly settled with bonds or other non-cash liabilities recorded above-the-line and decrease the primary balance; exclusions for specified pension and court-related liabilities as of March 3, 2022.
  - Monitoring: Fiscal data provided to the Fund with a lag of no more than 25 calendar days after the end of each month.
  - Adjustor: Target adjusted for shortfall (excess) in expenditure financed by disbursements of project loans from multilateral and bilateral partners; adjustor capped at cumulative 141,000 million pesos in 2022 (equivalent to US$1.1 billion / 0.2 percent of GDP).
- Ceiling on Federal government accumulation of domestic arrears:
  - Definition: Domestic arrears = floating debt = difference between primary spending recorded on an accrual basis (gasto devengado, SIDIF) and primary spending on a cash basis (base caja, Treasury); excludes intra-public transfers (transferencias figurativas).
  - Includes spending categories: personnel, acquisition of goods and services, nonprofessional services, capital expenditures, and transfers.
  - Measurement: Arrears measured on a daily basis; program caps quarterly average stock of arrears for 2022 at Q4 2021 level of 535,881 million pesos (consistent with reducing stock from 1.2 percent of GDP in Q4 2021 to 0.8 percent of GDP in Q4 2022).
  - Monitoring: Daily frequency data provided with a lag of no more than 25 calendar days after the end of each month.
- Federal government non-accumulation of external debt payments arrears:
  - Debt definition: Current liability created under contractual arrangement requiring future payment of assets or services; includes loans, suppliers’ credits, and leases (present value at inception excluding operation/repair/maintenance payments).
  - External debt determined by residency criterion (includes nonresident holdings of Argentine law peso and foreign currency debt).
  - External arrears defined as external debt obligations (principal and interest) falling due after March 3, 2022 that have not been paid, considering contractual grace periods.
  - Coverage: Federal government; excludes (i) arrears on trade credits, (ii) arrears on debt subject to renegotiation or restructuring, and (iii) arrears from nonpayment of commercial claims subject to litigation initiated prior to March 3, 2022.
  - Monitoring: Continuous.
- Cumulative floor on the change in Net International Reserves (NIR) of BCRA:
  - Definitions:
    - NIR = U.S. dollar value of gross official reserves of the BCRA minus gross official liabilities with maturities of under one year.
    - Gross official reserves consistent with BPM6: monetary claims, free gold, holdings of SDRs (including all Fund disbursements), reserve position in the IMF, holdings of fixed income instruments, and net cash balances within ALADI.
    - Excluded from reserve assets: pledged/collateralized/encumbered assets, claims on residents, claims in foreign exchange from derivatives vis-à-vis domestic currency, precious metals other than gold, assets in nonconvertible currencies, and illiquid assets.
    - Gross official liabilities in foreign currencies include foreign currency liabilities with original maturity ≤ one year, Fund disbursements deposited in the SDR account (except net financing component of the program SDR 3.166 billion), and deliverable forward FX liabilities on a net basis undertaken by the BCRA.
    - Certain swaps and non-resident deposits (People’s Bank of China swap, BIS swap, foreign exchange bank reserve requirements, SEDESA, ALADI) considered as foreign exchange liabilities of the BCRA with maturity ≤ one year.
  - Non-U.S. dollar denominated assets/liabilities converted to U.S. dollar at program exchange rates.
  - Monitoring specifics and further methodological details provided in the TMU.

*Source: Attachment II. Argentina: Technical Memorandum of Understanding; program documents, March 3, 2022.*

### 20.      Measurement: The change in net international reserves will be measured as the cumulative

### 1argea2022001 - 20.      Measurement: The change in net international reserves will be measured as the cumulative

### Measurement, Monitoring, and Adjustors for Net International Reserves (NIR)
- Measurement:
  - The change in net international reserves will be measured as the cumulative change in the stock of NIR at each test date relative to the stock on December 31, 2021.
- Monitoring:
  - Foreign exchange asset and liability data at the BCRA will be provided to the Fund at daily frequency within two days.
- Adjustors:
  - Official non-project loans and grants:
    - The NIR targets will be adjusted upward (downward) by the surplus (shortfall) in program loan disbursements and grants from multilateral institutions (including the IBRD, IDB and CAF) and bilateral partners, relative to the baseline projection reported in Table 3.
    - The value of the downward adjustor, i.e., in the event of a shortfall of loans and grants, would be capped at a cumulative of US$500 million in each calendar year.
    - Program loan disbursements are defined as external loan disbursements (excluding project financing disbursements and IMF budget support) from official creditors that are usable for the financing of the general government.
  - Paris Club payments:
    - The NIR targets will be adjusted downward (upward) by the surplus (shortfall) in interest and principal payments to the Paris Club relating to the outstanding debt that was reprofiled in 2014, compared to the baseline assumptions reported in Table 4.
- Baseline projection excerpts (cumulative from January 1 of each year):
  - Table 3. Program Loan Disbursements from Multilateral and Bilateral Sources (baseline projection):
    - end-March 2022: 190 (In millions of US$) 1/
    - end-June 2022: 190
    - end-September 2022: 190
    - end-December 2022: 190
  - Table 4. Paris Club Payments (Amortization and Interest) (baseline assumptions):
    - end-March 2022: 10 (In millions of US$) 1/
    - end-June 2022: 700
    - end-September 2022: 1,349
    - end-December 2022: 1,389

### Cumulative Ceiling on the BCRA’s Financing of the Federal Government
- Definitions:
  - Central bank (BCRA) financing to the government includes:
    - (i) overdraft transfers from the BCRA to the Federal Government (line Adelantos Transitorios in the summary account of the BCRA, as published on its website),
    - (ii) distribution of profits (Utilidades), and
    - (iii) the acquisition of government debt in the primary market or by direct purchases from public institutions.
- Measurement / Ceilings:
  - The program will cap such financing at 705,228 million pesos (1 percent of GDP in 2022) by the end of December 2022, with cumulative flows from end-December 2021 in millions of pesos.
  - The cap for 2023 will be 0.6 percent of GDP, with zero net financing in 2024.
- Clarification:
  - Any decrease in the stock of Adelantos shall only reflect cash payments of this amount in pesos by the Treasury to the BCRA.
  - Transfer of Letras Intransferibles to the BCRA will not reduce the stock of Adelantos.
- Monitoring:
  - Daily data will be provided to the Fund within two days.
  - The flow of BCRA financing to the government will be measured at each test date as the cumulative value starting from the beginning of the calendar year.

### Continuous Performance Criteria
- Commitments (continuous performance criteria):
  - The authorities will seek not to:
    - (i) impose or intensify any exchange restrictions,
    - (ii) introduce or modify Multiple Currency Practices (MCPs),
    - (iii) conclude bilateral payment agreements that are inconsistent with Article VIII, and
    - (iv) impose or intensify import restrictions for balance of payment reasons.

### Quantitative Indicative Targets: Federal Revenues and Social Spending
- Cumulative Floor on Real Federal Government Revenues:
  - Definition:
    - Federal government revenues are defined as ingresos totals (according to “Esquema IMIG” and as defined above).
  - Measurement:
    - “Real” federal government revenues will be measured as nominal monthly revenues deflated by the corresponding monthly headline consumer price index published by INDEC (nivel general del Índice de precios al consumidor (IPC)).
    - Real federal government revenues at each quarterly test date will be measured on a cumulative basis starting from the beginning of the calendar year, and compared with the program baseline projection.
  - Monitoring:
    - Federal government revenue data will be provided to the Fund with a lag of no more than 25 calendar days after the end of each month.
- Cumulative Floor on Federal Government Spending on Social Assistance Programs:
  - Definition:
    - Social spending for the purpose of the program is computed as the cumulative sum of all federal government spending (both recurrent and capital) on the following social assistance programs:
      - Asignación Universal para Protección Social, which includes Asignación Universal por Hijo, Asignación por Embarazo, and Ayuda Escolar Anual
      - Tarjeta Alimentar
      - Progresar
  - Monitoring:
    - Data will be provided to the Fund with a lag of no more than 25 calendar days after the end of each month.

### Ceiling on the BCRA’s Stock of Non-Deliverable Forwards (NDF)
- Definitions:
  - The stock of net non-deliverable forwards (NDF) is defined as the net of the U.S. dollar notional value of all long and short position contracts entered by the BCRA involving the Argentinian peso, either directly or through any institution they use as their financial agent.
- Measurement and Limit:
  - The stock of NDF in billions of US$ will be measured at each test date and will be capped at US$9 billion by end-2022.
  - The stock of NDF stood at US$4.185 billion on December 31, 2021.
- Monitoring:
  - This indicative target will be monitored on a quarterly basis.
  - Daily data will be provided to the Fund within two working days.

### Energy Pricing Definitions, Measurement, and Monitoring
- Revisions to energy bills for residential consumers:
  - Revisions to energy bills for residential consumers (excluding those subject to the subsidy segmentation scheme) will be anchored on average wage growth as defined by the Salary Variation Coefficient (Coeficiente de Variacion Salarial (CVS)), as established by the vetoed Law 27.443.
  - The CVS is published by INDEC and estimates the evolution of salaries paid, covering the registered private sector, the unregistered private sector and the public sector.
  - The CVS increased by 53.4 percent from end-December 2020 to end-December 2021.
- Calculation of the real change in wholesale energy prices:
  - Definition:
    - Energy wholesale prices are defined as the pass-through prices paid by distributors for electricity and gas: the precio estacional (PEST) and the precio del gas natural en punto de ingreso al sistema de transporte (PIST), respectively.
    - User category breakdowns:
      - For electricity (PEST): categories (i) residential users from whom subsidies are eliminated; (ii) residential users who receive the social tariff (Tarifa Social); (iii) other residential users, not in categories (i) or (ii); (iv) large non-residential users (GUDIs); and (v) other non-residential users not in category (iv).
      - For natural gas (PIST): categories (i) residential users from whom subsidies are removed; (ii) residential users who receive the Tarifa Social; (iii) other residential users, not in categories (i) or (ii); and (iv) non-residential users.
  - Measurement:
    - For program purposes, the PEST and the PIST will be measured as weighted averages of the actual PESTs/PISTs charged to different categories of subsidized users, with the weights based on estimates of the number of users in each category.
    - The weighted average energy wholesale price will be calculated as an average of the PEST and the PIST, using weights of 0.7 and 0.3, respectively.
    - For 2022, the annual real change in the weighted average wholesale energy price will be calculated as the average annual projected change in the nominal price (based on implemented values of the PEST and PIST), deflated by projected average annual inflation of 48 percent for 2022, under the program.
      - Note: Projected end-of-period inflation in 2022 is 43 percent (see ¶2).
  - Monitoring:
    - For each category of user described above, data will be provided to the Fund on the estimated number of users in each category and the actual values of the PEST and the PIST.

### Other Information Requirements and Reporting Frequencies
- General:
  - In addition to providing any data and information staff request to monitor program implementation, the authorities will provide additional data to ensure adequate monitoring of economic variables.
- A. Daily (provided within two days unless otherwise stated):
  - Nominal exchange rates; total currency issued by the BCRA; deposits held by financial institutions at the BCRA; total liquidity assistance to banks through normal BCRA operations, including overdrafts; interest rates on overnight deposits and on 7-day repurchase and reverse repurchase agreements.
  - Aggregated data on banks’ foreign exchange positions by currencies and foreign currency accounts with the BCRA, provided in categories: public national; public provincial; private domestic; private foreign; and small banks.
  - Daily data on BCRA sales and purchases of securities settled in different currencies will be provided to the Fund with a weekly frequency, no more than two business days following the end of the considered week.
  - BCRA activity in the NDF market.
- B. Weekly:
  - BCRA balance sheet.
  - Daily data on sales and purchases of securities settled in different currencies, recorded and provided by the Comision Nacional de Valores, including trading by the BCRA. This information will include a report of the daily estimation of total stocks and implicit exchange rate of the most representative securities transacted in the CCL and MEP modalities and operations.
- C. Fortnightly:
  - Interest rates on domestic debt instruments including LELITE, LEDES, LECER, LEPAS, BONAR, BONTE, BONAD and BONCER (at different maturities).
- D. Monthly (lag no more than 25 days after month end unless otherwise stated):
  - Federal government operations including monthly cash flow from the beginning to the end of the current fiscal year (and backward revisions as necessary), according to both the format of the Informe Mensual de Ingresos y Gastos (IMIG) and the format of the Cuenta Ahorro Inversion Financiamiento (AIF).
  - Specific monthly reporting to include:
    - Revenues from sales of physical assets, and 12-month projections for future sales of such assets.
    - Fiscal financing sources (below-the-line), including BCRA transfers, issuance of domestic public securities, financing from within the non-financial public sector, external financing, and other financing schemes.
    - External financing received and projections for the coming four quarters, with loans and grants categorized by program and project.
    - On federal debt:
      - Domestic and external debt service (amortization and interest payments) of the federal government.
      - Projected monthly federal government debt amortization/repayments and interest payments (local currency and FX bonds, treasury bills, Eurobonds, domestic loans, external commercial and external official loans), including both direct and guaranteed debt. In the case of issuance of government guaranteed debt, the name of the guaranteed individual/institution shall be included.
      - Information on the stock of external arrears will be reported on a continuous basis.
      - Federal government debt stock by currency, as at end month, including by (i) creditor (official, commercial domestic, commercial external); (ii) instrument (local currency and FX denominated bonds, treasury bills, Eurobonds, domestic loans, external commercial and external official loans); and (iii) direct and guaranteed.
    - The balances of the (federal) government at the central bank and in the commercial banking system needed to determine the cash position of the (federal) government.
    - Required and excess reserves of the banking sector in local and foreign currency.
    - Deposits in the banking system: current accounts, savings and time deposits within six weeks after month end.
    - Average monthly interest rates on loans and deposits within two weeks of month end; weighted average deposit and loan rates within six weeks after month end.
    - Balance sheets of other financial corporations (non-deposit taking), including holdings of federal and provincial debt and of the BCRA instruments within one month after month end.
    - Data on the total loans value of all new federal government-funded public private partnerships.
- E. Semi-annual:
  - Federal government expenditures to the provinces and the Autonomous City of Buenos Aires related to the settlement of liabilities associated with pensions, revenue sharing and expenditure allocation, as well as payments of arrears as per ICSID or similar arbitration rulings.
  - On provincial debt:
    - Quarterly data on the provincial government debt stock by currency, provided within six months of the closing of each semester (i.e., end-June and end-December), including by (i) creditor (official, commercial domestic, commercial external); (ii) instrument (local currency and FX denominated bonds, treasury bills, Eurobonds, domestic loans, external commercial and external official loans); and (iii) direct and guaranteed.
    - Quarterly domestic and external debt service (amortization and interest payments) of the provincial governments, provided within six months of the closing of the previous semester (i.e., end-June and end-December).
    - Quarterly projections for the following semester for provincial government debt amortization/repayments and interest payments, at least 30 days before the end of each semester (i.e., end-June and end-December). This would include local currency and FX bonds, treasury bills, Eurobonds, domestic loans, external commercial and external official loans, and both direct and guaranteed debt. In the case of issuance of government guaranteed debt, the name of the guaranteed individual/institution shall be included.

*Source: 1argea2022001 - 20. Measurement: The change in net international reserves will be measured as the cumulative (PDF chapter/section).*

### 67.4 percent of the proposed access).  The final purchase would become available in

### 1argea2022001 - 67.4 percent of the proposed access).  The final purchase would become available in

### Proposed EFF: access, phasing, and schedule
- Proposed total access: SDR 31,914.0 (Total in Table 1).
- Purchases by availability date (SDR millions) and cumulative percent of quota:
  - 2022 March: Purchase 7,000.00 — Cumulative 219.6 (percent of quota)
  - 2022 June: Purchase 3,000.00 — Cumulative 313.7
  - 2022 September: Purchase 3,000.00 — Cumulative 407.9
  - 2022 December: Purchase 4,500.00 — Cumulative 549.1
  - 2023 March: Purchase 4,000.00 — Cumulative 674.6
  - 2023 June: Purchase 3,000.00 — Cumulative 768.7
  - 2023 September: Purchase 2,500.00 — Cumulative 847.1
  - 2023 December: Purchase 2,500.00 — Cumulative 925.5
  - 2024 March: Purchase 800.00 — Cumulative 950.6
  - 2024 June: Purchase 800.00 — Cumulative 975.7
  - 2024 September: Purchase 814.00 — Cumulative 1,001.3
- Note 1/ (from Table 1): After approval of the arrangement, all subsequent purchases will depend on the completion of a review and compliance with performance criteria and consultation clause to be established under the arrangement.

### Past Fund arrangements and recent developments (selected highlights)
- Argentina was a prolonged and large user of Fund resources up to the mid-2000s; multiple SBAs and EFFs in 1990s and 2000s.
- 2000 SBA: approved SDR 16.9 billion; only SDR 9.8 billion disbursed before program went off track in December 2001.
- On January 4, 2006, Argentina repaid all obligations to the Fund and cancelled the 2003 SBA the following day.
- 2018 SBA: three-year SBA approved in June 2018 with access of SDR 35.4 billion; augmented to SDR 41 billion in October 2018; SDR 31.9 billion disbursed; arrangement went off track in August 2019; cancelled in July 2020.
- 2020–21 debt operations (private and provincial restructurings) provided substantial cashflow relief:
  - Federal restructuring in September 2020: US$82 billion FX-denominated debt restructured (US$65.5 billion foreign-law exchange) — liquidity relief of roughly US$36 billion over 2020-30.
  - Provincial restructurings: US$13 billion restructured (about US$7 billion PBA).
  - Provincial FX debt restructuring generated about US$6.5 billion cashflow relief between 2020-2027.
  - Refinancing of private sector and state-owned oil & gas FX debt delivered combined US$4.5 billion relief in 2021-22.

### Debt situation and outlook — key metrics
- Total external debt-to-GDP:
  - 36.9 percent at end-2017; 70.8 percent at end-2019; 55.6 percent at end-September 2021.
- Public sector accounts for about 71 percent of Argentina’s external debt.
- About 38 percent of public external debt is owed to the official sector; the IMF is the single largest creditor.
- Short-term debt: about one-fifth of total external debt.
- External debt service burden:
  - Total external debt service averaged about 21 percent of GDP in 2018-21.
  - Under the baseline of the proposed EFF, external debt service projected to remain elevated in 2022-23 at about 15 percent of GDP on average, of which 3.4 percent of GDP per year are obligations to the Fund (mainly reflecting repurchases under the 2018 SBA).
- Public debt-to-GDP:
  - Averaged about 46½ percent over 2015-17.
  - Reached 88.8 percent of GDP by end-2019.
  - Estimated at 80.6 percent in 2021.
  - Projected under the proposed EFF baseline to decline to about 61½ percent by 2026 and 55.3 percent by 2030.
- Staff assessment: public debt assessed sustainable but not with high probability; risks to external and public debt sustainability judged significant and subject to program implementation uncertainties.

### Financial implications of proposed EFF — exposure and liquidity
- IMF current credit exposure to Argentina: SDR 28.7 billion (prior to proposed EFF).
- Purchases under 2018 SBA totaled SDR 31.9 billion; scheduled repurchases since September 2021: SDR 3.2 billion.
- Remaining scheduled repurchases: SDR 12 billion in remainder of 2022 (March-December), SDR 13.3 billion in 2023, SDR 3.4 billion in 2024.
- Proposed EFF access SDR 31.9 billion would:
  - Be the second largest arrangement in absolute terms in the Fund’s history (after Argentina 2018 SBA, excluding FCL).
  - Access as share of quota would be 31 percent above the median of other EA cases since 2008.
- Projected outstanding GRA credit if purchases and repurchases made per schedule:
  - Peak at SDR 34.2 billion (1,074 percent of quota) in December 2022 and March 2023.
  - Credit outstanding would settle at SDR 31.9 billion (1,001 percent of quota) by end of arrangement and remain at that level through August 2026.
  - Credit outstanding would fall below the EA threshold in September 2030.
- Exposure ratios (peak, as reported):
  - Peak Fund exposure about 98 percent of projected gross international reserves (median peak recent EA cases: 39 percent).
  - Fund exposure nearly 592 percent of net international reserves.
  - As share of total external debt, peak Fund exposure about 18 percent (median peak recent EA cases: about 12 percent).
  - As share of GDP, peak Fund exposure about 8.5 percent (slightly below median peak of recent EA cases).
- Peak projected payment obligations to the Fund:
  - Projected to peak in 2023 at SDR 14.6 billion — representing 39.7 percent of projected gross international reserves and 168.7 percent of net international reserves.
  - Debt service to the Fund as share of exports of goods and services would peak at 20.6 percent (second highest for any arrangement after 2018 Argentina SBA).
  - Total external debt service as share of projected exports of goods and services projected to peak at 87.6 percent.
- Net repayment profile: net debt service to the Fund would peak at SDR 6.0 billion in 2029 (9.9 percent of projected gross international reserves; 6.2 percent of exports of goods and services).

### Capacity to repay and program fiscal projections (selected figures from Table 5)
- GRA credit to Argentina (SDR millions) projected:
  - 2022: 34,215.9
  - 2023: 32,912.5
  - 2024: 31,914.0
  - 2025: 31,914.0
  - 2026: 31,080.7
  - 2027: 27,580.7
  - 2028: 22,530.7
  - 2029: 17,211.7
  - 2030: 11,892.7
  - 2031: 6,573.7
  - 2032: 2,088.0
  - 2033: 269.0
  - 2034: 0.0
- Charges due on GRA credit (SDR millions) projected 2022–2034 (select):
  - 2022: 948.1
  - 2023: 1,256.1
  - 2024: 1,170.9
  - 2025: 1,177.4
  - 2026: 1,175.2
- Debt service due on GRA credit (SDR millions) projected 2022–2034 (select):
  - 2022: 12,979.9
  - 2023: 14,559.5
  - 2024: 4,583.4
  - 2025: 1,177.4
  - 2026: 2,008.6
- Indicators in percent of GDP (select):
  - GRA credit to Argentina: 2022 — 8.5; 2023 — 8.1; 2024 — 7.8; 2026 — 6.1; 2030 — 1.2.
  - Total external debt service: 2022 — 14.9; 2023 — 15.2; 2024 — 13.2; 2026 — 12.4; 2030 — 12.8.
- In percent of Gross International Reserves (select):
  - GRA credit to Argentina: 2022 — 97.9; 2023 — 89.9; 2024 — 80.8; 2026 — 56.0; 2030 — 3.0.
  - Debt service due on GRA credit: 2022 — 37.1; 2023 — 39.7; 2024 — 11.6.

### Concentration, liquidity, and income risks
- Credit concentration:
  - Argentina’s share of outstanding GRA credit would rise to 35.7 percent from 32.1 percent at end-February 2022 after the scheduled first purchase.
  - Share of top five borrowers would rise to 69 percent from 67.2 percent.
  - Argentina would remain the Fund’s largest borrower.
- Fund liquidity (one-year Forward Commitment Capacity, FCC):
  - FCC as of 2/28/2022: SDR 175,320.9.
  - Impact on FCC on approval: -31,914.0 (in percent of current one-year FCC: -18.2).
  - FCC would fall to SDR 143,406.9 on approval, partly reversing as Argentina makes scheduled repurchases on the 2018 SBA.
  - FCC would remain above the SDR 100 billion threshold for activation of the NAB, though geopolitical developments could change demand for Fund resources.
- Income and burden-sharing risks:
  - Fund income from Argentina projected to account for about 41 percent of the Fund’s projected total lending income through FY 2024 (desk survey scenario as of December 2021).
  - GRA charges and surcharges for Argentina projected at about SDR 948 million for the remainder of 2022 versus a current burden-sharing capacity of about SDR 69.6 million (residual).
  - Argentina’s GRA charges/surcharges remaining in 2022 would be 1,362.0 percent of residual burden-sharing capacity (Table 6 memorandum).
  - If Argentina accrues arrears on charges or surcharges after drawing, the Fund’s current burden-sharing capacity would be insufficient to cover them.

### Staff assessment and risks
- Purpose: Proposed EFF will provide financial support to help address balance of payments needs, rebuild international reserves, and begin to reduce high inflation.
- Exposure: Arrangement will maintain an elevated Fund exposure to Argentina over a prolonged period. Credit outstanding would rise from SDR 28.7 billion (902 percent of quota) in Feb 2022 to SDR 31.9 billion (1,001.1 percent of quota) in Sept 2024, with peak exposures of SDR 34.2 billion in Dec 2022 and March 2023.
- Credit risks: Assessed as exceptionally high. Argentina’s capacity to repay is subject to very high risks and hinges on successful program implementation and outcomes.
- Liquidity impact: Significant upfront impact — FCC reduced by SDR 31.9 billion (about 18 percent) on approval; partly reverses as repurchases under 2018 SBA occur. FCC stays broadly adequate but warrants close monitoring.
- Policy implementation and political risks: Timely completion of scheduled program reviews is essential to unlock disbursements and support confidence. Program slippages could occur, particularly in run-up to the 2023 presidential elections. External shocks, including those related to the war in Ukraine, could jeopardize program stabilization objectives.
- Final judgment: Even with full program implementation, residual risks to the Fund’s exposure and liquidity would remain significant; the arrangement provides a more gradual net repayment schedule than the 2018 SBA but obligations to the Fund remain relatively high in the medium term.

*Source: Supplement to the Staff Report for the 2022 Article IV Consultation and Request for an Extended Arrangement under the Extended Fund Facility, prepared by the Argentina team of the Western Hemisphere Department; March 23, 2022.*

### 4.5 percent (m/m) in  February, and more than  60 percent of product categories registered

### 1argea2022001 - 4.5 percent (m/m) in  February, and more than  60 percent of product categories registered

### Impact of the war in Ukraine: preliminary assessment and implications
- Overall outlook: "extremely fluid" and subject to change depending on the evolution of commodity prices and the authorities’ policy response; implications to be reassessed at the time of the first review of the program.
- Growth: Limited direct linkages to Russia and Eastern Europe imply the first-round impact will be modest, but overall impact will be larger due to increased global uncertainties and required domestic policy tightening.
- External balance: Impact on the trade balance in 2022 "will likely be muted," reflecting offsetting effects between higher grain and crude oil exports and higher fertilizer and LNG imports.
- Inflation:
  - Higher global commodity prices will raise projected domestic inflation, especially food inflation, disproportionately impacting the poor.
  - High passthrough from international to domestic prices is expected; the precise impact depends on efforts to contain second-round effects.
- Fiscal balance: Preliminary estimates put the direct fiscal cost of the commodity price shock at around ½ percent of GDP, with overruns in the energy subsidy bill from higher LNG prices expected to be only partially offset by higher-than-programmed revenues, particularly from agricultural export duties.
- Program recalibration: The program will likely need to be recalibrated to account for evolving implications of the war in Ukraine shock; authorities emphasized tackling inflation as top priority and committed to actions to lower it.

### Monetary and foreign exchange policy actions and assessments
- Policy objectives: Secure positive real policy interest rates to support demand for peso assets and limit second-round effects from the global commodity shock.
- Policy actions:
  - On March 22, the central bank raised its effective annual policy rate by an additional 300 basis points (to about 55 percent), bringing the increase in the effective rate to around 950 basis points since the start of the year.
  - Rate hikes, an acceleration in the rate of crawl, and news on the prospects of a Fund-supported program are starting to support reserve accumulation and a decline in the gap between the parallel and official exchange rate—from over 100 percent in early January to around 80 percent currently.
  - Since end-February, net international reserves have stabilized and the BCRA has purchased over US$550 million from the official market, while significantly unwinding its position in the non-deliverable forward market.
- Staff judgments and recommendations:
  - Policy interest rates would need to be adjusted further depending on the evolution of core inflation and in line with the monetary policy framework.
  - It is essential to continue to improve monetary policy transmission and ensure that the rate of crawl is adjusted, as needed, to maintain competitiveness.

### Fiscal policy stance, adjustments, and social measures
- Authorities’ commitments:
  - Emphasized commitment to the program’s fiscal and financing objectives; perceive further recalibrations likely and will undertake a comprehensive assessment in the context of the first review.
  - Reiterated commitment to use higher-than-programmed real fiscal revenues and spending reallocation to secure the baseline fiscal deficit.
  - Some expansion of targeted food security support could be needed.
- Possible fiscal actions to meet program objectives:
  - Reprioritizing spending and its targeting.
  - Deepening efforts to improve tax compliance (including addressing evasion occurring through tax havens) and broaden the tax base.
- Staff recommendation: An early and balanced approach (through a series of revenue and expenditure measures, including a recalibration of the capital budget) to ensure fiscal and financing objectives are met while protecting the most vulnerable from food price increases.
- Recent measures:
  - Temporary increase in export duties on processed soy products (from 31 to 33 percent), yielding less than 0.1 percent of GDP, to finance creation of a trust fund to subsidize wholesale wheat flour consumption at pre-war in Ukraine prices.
  - Government recently raised the minimum wage; before the announcement the real minimum wage had fallen by 10 percent relative to January 2020 levels. The minimum wage is projected to rise by a cumulative 49.5 percent during 2022, with phased adjustments over the course of the year.

### Incomes and food security policies
- Authorities’ view: Incomes and targeted food security policies would continue to play a supportive role.
- Recent actions and assurances:
  - Minister of Agriculture ruled out any additional export duties on agricultural products and announced an increase in wheat export quotas to provide greater certainty to producers.
  - Staff welcomed the decision to rule out further export duties and to increase export quotas.
- Staff caution: Incomes policies could be complementary if accompanied by strong macroeconomic policies; involuntary and coercive schemes should be avoided as they would be counterproductive.

### Financing assurances, budget support, and program financing
- Baseline financing: The baseline program is fully financed.
- Staff assessment: Firm commitments for financing for the first year and good prospects for financing for the remainder of the program.
- Paris Club: Provided financing assurances by committing to engage with Argentine authorities regarding restructuring the country’s legacy debt (US$2.4 billion at end-July 2021) in the context of the Fund-supported program.
- Other bilateral creditors: Agreed to provide positive net project financing over the course of the program (an average of US$0.6 billion per annum), enabling higher infrastructure spending and contributing to reserve build-up.
- Budget support and BCRA-government agreement:
  - A framework agreement (memorandum of understanding) defines roles and responsibilities for servicing financial obligations to the Fund.
  - Agreement clarified that Fund disbursements would be used to meet Argentina’s balance of payment needs, including repayment of Fund obligations and bolstering international reserves, with the net financing component in local currency available to finance the primary fiscal deficit in 2022.

### Exceptional access assessment and debt sustainability
- Exceptional Access Criterion 4: Staff judges Criterion 4 as met.
- Congressional approval: On March 17, Argentine National Congress approved the agreement with Fund staff with roughly an 80 percent majority in both chambers; congressional backing was broad based though about one-third of the ruling coalition either abstained or voted against the agreement.
- Political risks: Political and implementation challenges remain high; support for the program could be strained ahead of the October 2023 Presidential elections or earlier, especially if confidence is not quickly rebuilt or shocks derail implementation and macroeconomic goals.
- Exceptional Access Criterion 2 (Annex I analysis):
  - Staff judges debt to be "sustainable but not with high probability" and that adequate safeguards are in place to meet EA2.
  - Options under Fund policy include reprofiling of existing claims or maintaining sufficient private sector exposure without reprofiling.
  - Argentina remains locked out of international capital markets; limited FX private claims fall due during the program following the September 2020 FX debt restructuring.
  - Debt sustainability test: Results indicate debt sustainability could be maintained after a "large shock" via a debt rescheduling in 2025 together with a fiscal adjustment of about the same order of magnitude as envisaged in staff’s preliminary baseline for the 2022-24 program.
  - FX availability test: A large rescheduling of privately held external debt would be needed to both repay the Fund and keep FX exposure of domestic bank and non-bank creditors near historically observed levels; the rescheduling needed would be large but below the volume of debt service to private external creditors coming due during the repayment period.

### Fund jurisdictional issues and approvals
- Exchange regime assessment: Argentina maintains exchange restrictions and multiple currency practices (MCPs) subject to Fund approval under Article VIII, Sections 2(a) and 3.
- Identified measures include:
  - Exchange restrictions arising from limitations on payments for imports, invisible transactions (dividends/profits and FX for individuals), and payments of interest and amortization on external loans.
  - An exchange restriction and MCPs arising from taxes on the purchase of foreign exchange by individuals and payments for consumption abroad.
  - A multiple currency practice caused by limitations on availability of foreign exchange in the official market, channeling transactions to the parallel market and producing a large spread between official and parallel rates.
- Staff support: Argentina requested Executive Board approval for certain measures; staff supports approval of certain exchange restrictions and the MCPs maintained for balance of payments reasons. Measures are temporary and expected to be gradually lifted over the program period as conditions allow.
- Exception: Staff did not support approval of an exchange restriction relating to limitation on access to foreign exchange if the requester is on the tax authorities’ list of apocryphal invoices or documents, assessing that this measure is not temporary and not imposed for BoP reasons.

### Staff appraisal and program schedule highlights
- Staff judgment: The broad thrust of the staff appraisal remains appropriate; staff now judges the program is fully financed and EA4 is met.
- Staff recommendation: Approve the extended arrangement set forth in the Supplement’s Attachment and approve certain exchange restrictions and MCPs for a period of 12 months.
- Revised proposed schedule of reviews and purchases (Selected entries, exact figures preserved):
  - March 25, 2022 — 7,000 SDR millions — 220% Quota — Approval of Arrangement
  - May 10, 2022 — 3,000 SDR millions — 94% Quota — First Review and end-March 2022 performance criteria
  - September 10, 2022 — 3,000 SDR millions — 94% Quota — Second Review and end-June 2022 performance criteria
  - December 10, 2022 — 4,500 SDR millions — 141% Quota — Third Review and end-September 2022 performance criteria
  - March 10, 2023 — 4,000 SDR millions — 125% Quota — Fourth Review and end-December 2022 performance criteria
  - Total — 31,914 SDR millions — 1,001% Quota

*Source: IMF staff report supplement (Argentina).*

### Annex II. Foreign Exchange Regime as it Applies to Current

### Annex II. Foreign Exchange Regime as it Applies to Current International Transactions

### General Assessment
- Argentina maintains extensive restrictions on access to the official foreign exchange market (Mercado Unico y Libre de Cambios or “MULC”) for payments and transfers for current international transactions.
- On September 1, 2019, Decree No. 609/19 (as later amended by Decree No. 91/19) set controls and restrictions on the acquisition, sale, and transfer of foreign currency by physical persons and legal entities and enabled the Central Bank of Argentina (BCRA) to establish, through regulations, the exemptions to the Decree.
- The Decree and subsequent BCRA regulations constitute the current Argentine FX Regulatory Regime. The BCRA regulations until mid-December 2021 are consolidated in the Amended and Restated Text on Foreign Exchange (“FX Regulations”).

### Detailed Assessment — Categories of Restrictions
- General Requirements:
  - Residents must certify, among other things, that they have not undertaken certain transactions in the parallel securities markets (MEP/CCL) in the past 90 days, and that they will not access this market during the following 90 days.
  - The resident must not be registered in the tax authority’s database of apocryphal invoices or documents.
- Imports of Goods and Services:
  - Resident firms may access the FX market to make payments for imports of goods subject to the general requirements and the following limitations:
    - Until December 31, 2022, importers can only access the FX market up to an amount equivalent to an “Import Ratio”.
    - Prior approval from the BCRA is required to access the FX market for payment of certain luxury goods unless paid after certain delayed time periods (180 or 365 days, depending on the good).
    - For firms incorporated within the last year, BCRA prior approval is required for imports of goods with pending customs entry registration (e.g., advance payments) if the amount is greater than USD 5 million.
  - Prior BCRA approval is required for payments for service imports from related parties.
  - There are limitations on advance payments of credit facilities for imports of goods and services.
- Debt Payments Abroad:
  - Resident firms may access the MULC to make payments for debt service owed abroad subject to general requirements and if they certify that all external debt proceeds as of September 1, 2019 have been repatriated and surrendered into the local exchange market.
  - A special regime in effect through end-December 2022 requires the mandatory refinancing of certain foreign debt payments falling due between October 15, 2020 and end-2022.
    - For residents who have foreign debt payments exceeding $2 million/month during this time period (excluding debt that was already refinanced), the BCRA will only grant access to 40 percent of the principal amount due; for the remainder a detailed refinancing plan must be submitted to the BCRA (30 days prior to maturity date of principal to be refinanced) which sets forth the refinancing of the remaining 60 percent (with an average life of at least two years).
  - Until June 30, 2022, BCRA prior approval is also required (with some exceptions) to access the FX Market for amortization payments on external indebtedness when the creditor is a related party.
  - Prior approval by the BCRA is required for advance payment of financial indebtedness (interest and principal).
- Invisible Transactions:
  - Dividends/Profits:
    - Access to the FX market to transfer profits and dividends to non-resident shareholders is allowed without prior BCRA approval if:
      - (i) the total amount does not exceed their amount determined by the shareholders’ meeting; and
      - (ii) the total amount of these transfers made since January 17, 2020 does not exceed 30 percent of the total value of foreign direct investment in the relevant resident company entered and settled through the MULC since that date.
    - Payments and dividends that do not meet these requirements require BCRA approval.
  - Access to FX by Individuals:
    - Resident individuals (except those receiving social transfers) are limited to $200/month (if debited to local account) or $100/month (if not debited to a local account) for purposes of saving or remittance abroad for family assistance.
    - As of September 1, 2020, purchases made abroad with a debit card debited from local accounts or payments for credit card purchases in foreign currency are deducted from the $200/month quota.
    - Non-resident individuals require BCRA authorization for purchases of FX for transfer abroad, with limited exceptions (e.g., purchase of tickets in FX for tourism and travel up to $100).
- Exchange Taxes:
  - Purchases of foreign currency by Argentine residents are subject to a 30 percent “PAIS” tax and a 35% tax withholding tax, which is considered an advance on income tax and may be refunded at the end of the tax year.
  - The 35 percent tax is based on the potential spread exceeding 2 percent between the market exchange rate and the effective exchange rate of the transaction, and the tax can be credited towards other tax obligations at the end of the tax year.
- Parallel Market Rate and Multiple Currency Practices (MCP):
  - Limitations on the availability of foreign exchange channel current international transactions to the parallel market, causing a large spread between the official exchange rate and the parallel market rate, and thereby creating an MCP.

### Exchange Rate Arrangements and IMF Classification
- Argentina’s currency is the Argentine peso.
- De jure exchange rate arrangement: “crawling peg”.
- De facto exchange rate arrangement was reclassified to “crawl-like” from “other managed”, effective January 27, 2020.
- Argentina has accepted the obligations of Article VIII, Sections 2, 3, and 4, but maintains exchange restrictions and multiple currency practices subject to IMF jurisdiction under Article VIII.
- Identified IMF-listed restrictions include:
  - General restrictions on access to the foreign exchange market tied to prior and subsequent 90-day limitations on securities market transactions and tax-authority database status.
  - Restrictions on payments for imports, invisible transactions, and on payments of interest and amortization on external loans (including mandatory refinancing, surrender of external debt proceeds into the local market, limitations on advance payments, and prior BCRA consent for related-party principal payments).
  - Exchange taxes and MCP arising from the 30 percent PAIS tax and the 35 percent withholding tax mechanism.

### Key Numeric and Date-Specific Points
- Decree No. 609/19 issued on September 1, 2019 (as later amended by Decree No. 91/19).
- Certification requirements reference past and subsequent 90 days regarding MEP/CCL transactions.
- Limits for individuals: $200/month (debited to local account) and $100/month (if not debited to local account).
- Purchases abroad or credit card FX payments deducted from the $200/month quota as of September 1, 2020.
- Dividend transfers since January 17, 2020 limited to 30 percent of total value of FDI entered and settled through the MULC since that date.
- Import access limit “until December 31, 2022” tied to an “Import Ratio”.
- Special debt refinancing regime applies to foreign debt payments falling due between October 15, 2020 and end-2022.
- For residents with foreign debt payments exceeding $2 million/month during the special regime period, BCRA grants access to 40 percent of principal due and requires refinancing plans for the remaining 60 percent with an average life of at least two years.
- BCRA prior approval for related-party amortization payments required until June 30, 2022 (with some exceptions).

### Statistical and Data Context Relevant to FX Surveillance
- The Report notes Argentina disseminates national accounts and various macroeconomic statistics; data provision is assessed as adequate for surveillance.
- INDEC compiles GDP series and introduced a new national CPI in January 2017; CPI weights are based on the 2004-05 expenditure survey and should be updated using the 2017-18 expenditure survey per international best practices.
- Argentina reports monetary statistics in a national format and has not fully adopted the latest international MFS reporting forms; new detailed central bank and other depository corporation data have been reported to STA and are under review.
- External sector statistics: Argentina compiles detailed annual balance of payments and international investment position data from 2006 in accordance with BPM6 methodologies; further reconciliation of portfolio investment positions between INDEC and the Central Bank would enhance compilation.

*Source: Annex II. Foreign Exchange Regime as it Applies to Current International Transactions (excerpt).*

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_Source: https://www.imf.org/-/media/files/publications/cr/2022/english/1argea2022001.pdf_