## 1argea2022002

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### Executive Summary — Context, Performance, Risks, and Policy Recommendations
- Context:
  - Spillovers from the war in Ukraine have materialized, adding to Argentina’s economic and social challenges.
  - Shock projected to have a limited impact on growth, while sharply higher commodity prices add to inflation pressures and challenge fiscal, reserve accumulation and market financing goals.
  - Social and political tensions remain elevated, including as a result of high inflation, adding to spending and wage pressures.
  - First review discussions focused on updating the macroeconomic framework and reprioritizing policies (including social spending to protect low-income households) while ensuring end-year program targets are met.
- Program performance:
  - All performance criteria and indicative targets through end-March 2022 were met.
  - Structural progress: public hearings on wholesale electricity and gas tariffs announced (end-April, SB); tariff updates effective early June (prior action); selected AML/CFT reforms submitted to Congress (end-May, SB).
  - Fiscal and monetary actions: current budget modified to ensure consistency with end-2022 fiscal targets (prior action); central bank continued to raise policy rates and apply the enhanced monetary and FX policy framework.
- Program risks:
  - Global risks intensified by war in Ukraine, pandemic resurgence, rapid tightening in external financial conditions, and slowdown in key emerging economies.
  - Policy implementation risks acute amid complex economic, social, and political environment with ongoing spending and wage pressures.
  - High inflation could further fuel social discontent and weaken political support for the program.
- Policy recommendations:
  - Steadfast program implementation essential to tackle persistent high inflation and secure a decisive improvement in reserve coverage.
  - Fiscal: achieve agreed primary fiscal target for end-2022 via tighter fiscal policies in H2-2022 and reorientation of public spending to accommodate higher energy subsidies and social assistance.
  - Monetary and FX: stronger application of enhanced monetary and FX policy framework to deliver positive real policy interest rates and preserve real exchange rate competitiveness.
  - Financial market/financing: deepen domestic government peso market and reduce reliance on central bank financing; mobilize official external support including through Paris Club restructuring agreement.
  - Structural: continue energy reforms (including medium-term plan with World Bank support) and early actions to improve revenue compliance, public spending efficiency, monetary transmission, and AML/CFT effectiveness.
- Program requests and commitments:
  - End-year objectives unchanged.
  - Authorities requested modification of end-June 2022 PCs and ITs to reflect immediate impact of higher-than-programmed global commodity prices on fiscal deficit and reserve accumulation while maintaining end-year objectives unchanged as a share of GDP and in U.S. dollars.
  - New SB: submission to Congress by mid-September of a Draft 2023 Budget consistent with the agreed program fiscal deficit target of 1.9 percent of GDP for 2023.

*Source: IMF Executive Summary, Argentina first review discussions—June 15, 2022.*

### Recent Developments and Key Statistics
- Program approval and scope:
  - On March 25, 2022, the Executive Board approved Argentina’s request for a 30-month SDR 31.914 billion (about US$44 billion or 1,001 percent of quota) Extended Arrangement.
- Growth and activity:
  - 2020 contraction: 9.9 percent.
  - 2021 expansion: 10.3 percent.
  - High-frequency indicators: 6.1 percent y/y in Q1:2022.
  - Real retail sales: up 5.4 percent y/y through April.
  - Imports of capital goods: up 29 percent y/y in volume terms through April.
  - Level of real GDP: already 6 percent above pre-pandemic levels.
- Labor and social:
  - Unemployment rate: 7.0 percent in Q4:2021.
  - Labor force participation: 47 percent.
  - Over 215,000 new private sector jobs created since end-2020.
  - Poverty rates: 37 percent in H2:2021 (8 ppts below pandemic peaks).
  - Real wages: still 21 percent below end-2017 levels (rose 4 percent in H2:2021; down 1 percent thus far in 2022).
  - Informal workers: about 49 percent of total employment.
  - Minimum wage adjustments: average annual minimum wage increase of 59 percent during 2022.
- Inflation and monetary stance:
  - Inflation acceleration since February driven by higher global food and energy prices, rise in regulated prices, and pickup in rate of crawl of official exchange rate.
  - Headline inflation: 5.1 percent m/m (60.7 percent y/y) in May after peaking at 6.7 percent m/m in March.
  - Wage demands: exceeded 60 percent in some cases.
  - BCRA raised annual effective policy rate from over 45 percent at end-2021 to near 62 percent in May; monthly equivalent policy rate 4.1 percent.
  - Real monetary aggregates contracted through end-April: base money down 7.4 percent in real terms and stands at 5.3 percent of GDP (lowest since 2003); real private M3 declined by 5.4 percent.
  - Stock of BCRA remunerated liabilities (LELIQ and pases) declined to around 7.6 percent of GDP (from over 10 percent at end-2021).
- Fiscal through end-April:
  - Cumulative primary deficit: 0.4 percent of GDP through end-April.
  - Real expenditure growth: up 13 percent y/y.
  - Tax and customs revenue growth: up 3 percent y/y.
  - Non-tax revenues rose due to gains from reopening of inflation-indexed (CER) securities.
  - Energy subsidy bill: grew 70 percent y/y in real terms.
  - Real primary spending excluding subsidies: grew 9 percent y/y through end-April.
  - Specific spending growth (Jan-Apr 2022, ytd annual percent change):
    - Primary expenditures: 13.3
    - Wages: 10.4
    - Goods and services: 7.1
    - Pensions: 5.1
    - Social assistance: 14.0
    - Subsidies: 48.1
    - Transfers to provinces (discretionary current transfers only): 19.9
    - Other current: 15.0
    - Capital spending: 13.0
    - Memo items:
      - Primary exp, excl. subsidies: 9.2
      - Energy subsidies: 70.5
- External sector and reserves:
  - Current account surplus narrowed through April 2022.
  - Goods export volumes: up 4.9 percent y/y cumulative through April; industrial manufacturing up 11.4 percent.
  - Goods import volumes: up 21.3 percent y/y through April.
  - Cash goods trade surplus: US$5.3 billion through April 2022 (vs. US$6.4 billion a year prior).
  - Services deficit increased due to higher tourism outflows and lower services exports.
  - Net international reserves (at program exchange rates): rose by US$0.4 billion during April-May 2022; cumulative reserve accumulation since end-2021 around US$1.9 billion vs. revised end-June target of US$3.45 billion (which assumes US$0.7 billion in official budget support during Q2).

### Market Conditions and Financial Markets
- Domestic government bond market:
  - Strong net peso placements during Q1-2022 with rollover rates reaching 150 percent, compared to 117 percent under the program.
  - Increasing share of issuances concentrated in short-term inflation-indexed (CER) instruments.
  - Mid-June: yield curve on CER securities shifted upwards sharply despite central bank intervention.
  - June 9–14: BCRA purchased roughly ARS$300 million (0.3 percent of GDP) of government securities.
- FX and sovereign risk:
  - Gap between parallel and official exchange rate oscillated between 70 and 90 percent.
  - Argentine sovereign spreads rose further; international bond prices fell to multi-year lows (~25 cents per USD on average).
  - BCRA’s open position in non-deliverable futures rose in recent weeks after shrinking through early-April.
- Financial and corporate balance sheets:
  - Real private sector credit fell 0.6 percent m/m in April (-0.2 percent y/y) and stood at 6.7 percent of GDP (vs. 7.2 percent a year prior).
  - System-wide NPLs: 3.9 percent in March with provisioning at 116 percent of NPLs.
  - Exposure to public sector: around half of all banking system assets.
  - Corporate sector leverage: limited and declining, especially in foreign currency.

### Program Performance (through end-March 2022) — Quantitative Highlights
- All PCs and ITs met through end-March 2022.
- Fiscal:
  - Primary fiscal deficit through end-March: ARS 192 billion (0.25 percent of GDP), roughly ARS 20 billion below adjusted program target.
  - Nontax revenue gains from reopening inflation-linked securities exceeded 0.2 percent of GDP through end-March; absence of these gains would have meant the primary deficit target was not met.
- Monetary:
  - Central bank financing of the fiscal deficit: ARS 122 billion through end-March (well below program target ARS 237 billion).
  - Net international reserve accumulation: US$1,522 million, US$277 million above adjusted program target.
  - Net stock of central bank non-deliverable futures: US$1.2 bn vs. IT ceiling US$6bn.
- Structural:
  - Public hearings on wholesale electricity and gas prices announced early April (end-April, SB); increases effective early June (prior action).
  - Selected AML/CFT reforms submitted to Congress (end-May, SB).
  - Revisions to current budget to ensure consistency with 2022 fiscal targets to be adopted shortly (prior action).

### Macroeconomic Outlook and Risks
- Real GDP growth:
  - 2022 growth projection: between 3.5–4.5 percent (unchanged since approval).
  - Expected moderation to around 4 percent in H2-2022 assuming tightening of macroeconomic policies.
  - Economy converging to potential of around 2 percent beyond 2022.
- Inflation:
  - A 10 percent increase in global cereal and fuel prices estimated to increase inflation by about 1.6 percent.
  - End-2022 inflation projected to increase nearly 15 percentage points relative to program approval (from 38–48 percent to 52–62 percent).
  - Projections assume reduction in monthly inflation for remainder of year underpinned by tighter fiscal and monetary policies and some softening of global commodity prices.
  - Base money projections revised down from 7½ percent of GDP to 6½ percent of GDP.
- External balance:
  - Current account surplus projected to narrow to around 0.5 percent of GDP in 2022.
  - Higher export prices offset by higher import prices (notably LNG and fertilizers).
  - Export and import volumes projected generally unchanged relative to approval, predicated on policy-induced deceleration in domestic demand and broadly unchanged real exchange rate during 2022 (relative to end-2021).
- Fiscal balance:
  - Baseline assumes unchanged annual fiscal consolidation path and gradual elimination of monetary financing.
  - Fiscal policy projected to tighten in H2-2022 to meet primary fiscal deficit target of 2.5 percent of GDP.
  - Monetary financing of the fiscal deficit expected to be limited to 1 percent of GDP in 2022, supported by tapping government peso debt market (2 percent of GDP) and mobilizing external official support.
- Revised Macroeconomic Baseline (selected figures):
  - GDP growth (avg, %): 2021 10.2; 2022 [3.5 - 4.5]; 2023 [2.5 - 3.5]; 2024 [2.25 - 3.25].
  - Inflation (eop, %): 2021 50.9; 2022 [52.0 - 62.0]; 2023 [46.0 - 54.0]; 2024 [40.0 - 48.0].
  - Primary fiscal balance (% of GDP): 2022 -2.5; 2023 -1.9; 2024 -0.9.
  - Current account balance (% GDP): 2022 0.5; 2023 0.4; 2024 0.2.
  - Change in net int’l reserves (US$bn): 2022 5.8; 2023 4.0; 2024 5.2.
  - Monetary financing (% GDP): 2022 1.0; 2023 0.6; 2024 0.0.
- Risks and contingency planning:
  - Global downside risks: protracted war in Ukraine; COVID resurgence; faster tightening in global financial conditions; slowdown in key emerging economies.
  - Implementation risks high amid fragile economic, social, and political environment and spending/wage pressures.
  - Authorities committed to adhering to end-year targets and ready to reprioritize public spending; contingency planning cannot fully mitigate program risks.

### Fiscal Policies — Commitments, Adjustments, and Energy Subsidies
- Fiscal commitments and compensatory measures:
  - Authorities committed to achieving the 2.5 percent of GDP primary deficit target in 2022.
  - Package of measures worth around ¾ percent of GDP to offset higher-than-expected energy subsidies and targeted social assistance and somewhat lower-than-projected revenues.
  - Primary deficit through H1-2022 projected to be around ¼ percent of GDP higher than envisaged at approval.
  - Real spending growth projected to decline from 12.8 percent y/y in H1:2022 to -7.8 percent y/y in H2:2022.
- Revised 2022 fiscal program features:
  - Nontax revenues related to valuation gains on inflation indexed securities capped at 0.3 percent of GDP (which materialized during January-April), same as 2021.
  - Primary expenditures to be contained at 20.4 percent of GDP (0.3 percent of GDP below original program estimates).
  - Compensatory measures to streamline goods and services spending, transport subsidies, discretionary transfers to provinces and public enterprises, and better prioritize capital spending.
  - Federal government wage bill to be kept unchanged as a share of GDP.
  - Pension spending projected to decline as a share of GDP consistent with indexation formula; discretionary adjustments to pensions should be avoided.
  - Work to initiate on pension reform options (end-December 2022, SB).
- Energy policy:
  - Public hearings in mid-May; updated reference prices for wholesale electricity and gas effective early June (prior action).
  - Weighted-average increase in tariffs during 2022 estimated around 42 percent.
  - Presidential Decree to create subsidy segmentation aimed at eliminating electricity and gas subsidies for top 10 percent of residential consumers by payment capacity; gradual adoption starting in June.
  - Subsidy spending projected to remain generally unchanged relative to 2021 at 2.6 percent of GDP (0.4 percent of GDP higher than originally programmed), with no overall improvement in cost recovery ratios.
- Medium-term fiscal outlook:
  - Draft 2023 Budget to be submitted by mid-September consistent with agreed primary fiscal deficit of 1.9 percent of GDP for 2023 (new SB).
  - Achieving 2023 target relies on mobilizing revenues through improved property tax collection and tax/customs administration, adopting a compliance improvement plan drawing on IMF TA.
  - Additional energy tariff adjustments and efforts to reduce reliance on costly energy imports required to contain subsidy bill.

### Public Financial Management (PFM), Governance, and Financing
- PFM findings and actions:
  - Fiscal safeguards review: PFM “provides broadly adequate safeguards for the use of Fund resources for budget support, risks remain elevated and have increased in certain areas.”
  - Need to enhance system robustness and capacity to plan, track, and report budgetary resources; additional conditionality may be considered in second review.
  - Pre-budget statement to be submitted by end-June with macro outlook, qualitative risk assessment, and general policies.
  - New tax proposal on unexpected profits submitted to Congress; if approved could raise federal tax revenues up to ¼ percent of GDP in 2023.
  - Action plan to enhance financial and budget reporting of non-financial public sector entities (end-June 2022 SB).
  - Inter-ministerial fiscal monitoring working group established.
  - Treasury Single Account (TSA) gaps: some budget-funded entities excluded; treasury cash balances held in a state-owned commercial bank rather than central bank; options include extending coverage and transferring cash balances to BCRA.
  - Resolutions for investment project prioritization and selection criteria needed (end-June 2022 SB).
  - Publication timetable sought for audit opinions on government’s annual financial statements pending since 2018.
- Financing — domestic and external:
  - Deepening domestic peso debt market:
    - Q1:2022 net peso financing outperformed expectations; securing end-year financing (~2 percent of GDP in 2022) requires further efforts and reduced rollover risk.
    - Maintain fiscal targets and sufficiently positive real interest rates plus instruments with inflation protection to keep monetary financing below program ceiling (1 percent of GDP in 2022).
    - Investor relations presentation made public in May (end-July 2022 SB). MTDS on-track (end-December 2022 SB).
  - Mobilizing external official financing:
    - Net official disbursements (excluding Fund) expected to reach originally-programmed level of 0.4 percent of GDP by end-2022 despite Q1 shortfalls.
    - Projected disbursements from Non-Paris Club bilateral creditors: around US$700 million during 2022, with roughly US$500 million now expected in Q4:2022.
    - Negotiations to restructure Paris Club legacy debt ongoing; terms/timing to be reflected at second review.
    - Resumption of market access assumed to start in 2025 with modest initial placements.

### Monetary and Exchange Rate Policies; Operational Measures
- Inflation and policy package:
  - Stabilizing inflation requires commitments to reduce fiscal deficit, lower monetary financing, and deliver positive real policy interest rates; incomes policies could complement but unilateral approaches should be avoided.
- Monetary stance and FX:
  - BCRA increased the annual effective policy rate by “about 690 bps since March” and committed to continue adjustments based on core inflation, forward-looking measures, and international reserves.
  - Actions aim to support peso demand, allow a faster rate of crawl to preserve competitiveness, reduce FX gap, and support reserve accumulation.
  - With low reserves, FX sales in official market should be limited; intervention in parallel markets avoided; intervention in non-deliverable futures limited (consistent with program ceilings).
  - Import restrictions should be avoided; rapid import growth best addressed through macroeconomic policy adjustments.
- Monetary transmission and reserve requirements:
  - Regulated deposit and lending rates should move with policy rates; consider operational changes to align short-term money market rates and policy rate.
  - Time-bound plan to reform reserve requirement regime (finalized end-June 2022 SB); regulations to reduce number of special reserve requirement rebates to be phased out conditional on banks’ capital and liquidity.
  - Maintain, initially, incentives for lending to SMEs and consumers while assessing adequacy and design.
- BCRA balance sheet and governance:
  - Updated IMF safeguards assessment conducted April–May 2022; BCRA established internal audit committee of non-executive board members.
  - Strategy to strengthen BCRA balance sheet and financial soundness initiated (end-December 2022 SB); IMF TA requested.
  - Additional conditionality, including on legal framework and transition to IFRS, to be considered in future reviews.
- Targeted easing of capital controls:
  - Regulations issued to ease FX controls in hydrocarbon and knowledge economy sectors conditional on increased exports and other requirements; impact uncertain.
  - Cross-institutional working group to prepare conditions-based plan for gradually easing CFMs (end-December 2022 SB).
- Key monthly indicators (May 2022, monthly terms):
  - Monetary policy rate (28-day Leliq): 4.1
  - Official Rate of crawl: 4.0
  - Core inflation (3-mo-ma) (Feb-Apr): 5.9
  - Bond prices break-even inflation (3-mo ahead): 4.5
  - BCRA survey inflation expectations (next 3-mo avg.): 4.9
  - CF inflation expectations (next 3-mo avg.): 4.5

### Energy Sector and Structural Reforms
- Energy subsidy scale and evolution:
  - Spending on electricity and gas subsidies rose from 1.0 percent of GDP in 2019 to 2.3 percent of GDP in 2021 (equivalent to US$11 billion).
  - Cost recovery ratios declined Q4-2019 → Q4-2021: Electricity 64 percent → 37 percent; Gas 79 percent → 44 percent.
  - Argentina’s energy subsidies highest in Latin America (after Venezuela); tariffs among lowest.
- Two-pronged strategy:
  - Supply-side: reduce energy import costs via shifts in import mix (substituting gas and fuel oil for LNG); agreements with Bolivia on gas supplies and Brazil on electricity swaps; finalizing gas pipeline construction.
  - Tariffs: regulated wholesale gas and electricity raised in March and again in June; new segmentation scheme differentiates tariff increases progressively.
    - High income residential consumers (wealthiest 10 percent) to pay full cost by end-2022.
    - Tariff increases for residential consumers tied to past nominal wage growth: 80 percent for middle income and 40 percent for low-income under “tarifa social”.
    - Energy tariffs for small commercial users to increase by more than residential users.
    - Large commercial and industrial users (GUDIs) continue to pay full cost.
- Box 2 key figures:
  - Weighted-average increase in wholesale energy prices during 2022 estimated around 42 percent.
  - Presidential Decree to eliminate electricity and gas subsidies for top 10 percent of residential consumers by end-2022.
  - Suggested energy subsidy savings: 0.15 percent of GDP in 2022; expected energy subsidy bill near 2.1–2.6 percent of GDP depending on context.
- Medium-term plan:
  - World Bank TA requested; Energy Secretariat expects plan for consultation end-September 2022 and final by end-2022.
  - Plan actions include improving energy efficiency, expanding renewables and hydroelectricity, linking residential pricing to costs, strengthening social tariff targeting, and improving distribution losses and service quality.

### Government Domestic (Peso) Market Financing — Box 3 Highlights
- Background:
  - Since end-2019, government strengthened domestic peso market amid capital controls and market exclusion.
  - Net financing largely in peso securities; occasional USD-linked bonds during volatility; swaps to reduce FX exposure.
  - Non-resident holdings of peso securities declined from 27 percent in 2019 to around 5 percent currently.
- Market reforms and measures:
  - Minimum pricing at auctions removed; auction calendars announced six months ahead; market makers program established; investor engagement stepped up.
- Inflation-linked instruments and maturities:
  - Share of inflation-linked securities: ~50 percent in 2019 → 80 percent in May 2022.
  - Average cover ratio: conventional instruments 0.9; inflation-linked securities 2.1.
  - Share of T-Bills: ~20 percent end-2019 → over 30 percent in May 2022.
  - Average time to maturity fell from 4.8 to 3.6 years (end-2019 → May 2022).
- Policy recommendations:
  - Build cash buffers and entice investment at longer maturities beyond 2023.
  - Adopt intentional pricing at auctions accepting higher premium versus alternatives.
  - Improve cash management and strengthen fiscal anchor to reassure markets that monetary financing will be limited (to under 1 percent of GDP in 2022).
  - Strengthen application of new monetary policy framework and align market rates (including on Treasury bills) to policy rate to encourage demand for peso assets and extend maturities.

### Debt Sustainability Analysis — Annex I and Staff Assessment
- Summary:
  - Updated DSA indicates public debt remains sustainable but not with high probability.
  - Federal gross public debt projected to decline from around 80 percent of GDP at end-2021 to around 60 percent by 2027 and 55 percent by 2030.
  - FX debt service and GFNs remain relatively high over medium to long term and above thresholds in March 2020 Technical Note.
  - Assessment subject to significant uncertainty from external conditions and program implementation risks.
- Key baseline projections and figures:
  - At end-2021 federal public debt: US$364 billion (80 percent of GDP).
  - Share of public debt in FX: 70 percent; share held by nonresidents: 40 percent at end-2021.
  - Revised baseline: GDP growth 2022 3.5–4.5 percent; inflation eop 2022 52–62 percent (mid-point 57 percent).
  - Federal debt projected to reach ~60 percent of GDP by 2027.
  - Change in net int’l reserves (US$bn): 2022 5.8; 2023 4.0; 2024 5.2 (as reported in baseline tables).
  - Public gross financing needs (selected): 17.2 (2022); 19.5 (2023); 17.0 (2024); 15.2 (2025); 14.2 (2026); 11.4 (2027).
- Stress tests and alternative scenarios (selected outcomes):
  - Historical scenario: Debt-to-GDP rises to over 100 percent by 2027 (including public-sector specifics).
  - Constant primary balance scenario: Debt-to-GDP falls initially then rises back to 83 percent by 2027.
  - One standard deviation growth shock / real interest rate shock (200bps) / primary balance shock (only half planned consolidation implemented, 1.9 percent of GDP less cumulatively): Debt ~75 percent of GDP by 2027.
  - Real exchange rate shock (100 percent real depreciation over 10 years with 25 percent pass-through): Debt-to-GDP rises to 120 percent in 2023 before declining to ~100 percent by 2027.
  - Combined macro-fiscal shock: Debt could rise to 160 percent of GDP over the medium term; GFNs could rise to around 30 percent of GDP by 2027.
  - Tailored contingent liability shock of 5 percent of GDP: fiscal deficit rises to ~8 percent of GDP in 2023-24; debt only falls to 75 percent of GDP by 2027.
- Composition of public debt (selected 2022 figures):
  - Total debt stock (end period): US$373.76 bn.
  - External debt: US$147.98 bn.
  - Multilateral creditors: US$73.55 bn (IMF: US$46.63 bn).
  - Domestic debt: US$225.77 bn (Domestic T-Bills: US$94.27 bn; Domestic Bonds: US$105.52 bn).
  - Stock of peso denominated debt: 12 percent of GDP at end-2021 (Box 3).
- Staff assessment:
  - Debt sustainable but not with high probability; program contingent on strong implementation across fiscal consolidation, enhanced monetary/FX framework, growth, exports, FDI, reserve coverage, and market access.
  - Exceptional program risks remain high.

### Program Conditionality, Financing Assurances, and Exceptional Access Assessment
- Conditionality and adjustments:
  - Authorities requested revisions to end-June 2022 QPCs (primary fiscal deficit, monetary financing of the fiscal deficit, change in net international reserves, domestic arrears) due to Ukraine spillovers.
  - New QPCs proposed for September/December 2022; new ITs for March/June 2023; end-year objectives unchanged as share of GDP and in U.S. dollars.
  - Definition revision: cap non-tax revenues from gains on reopening inflation-indexed securities at 0.3 percent of GDP in 2022.
  - New SB: submission to Congress of Draft 2023 Budget (mid-September 2022).
- Financing assurances:
  - Firm official creditor commitments secured over next 12 months.
  - Net financing from MDBs projected at "US$1.6 billion from June 2022 to June 2023" (World Bank, IADB, CAF).
  - Paris Club legacy debt at "US$2.4 billion at end-July 2021" under negotiation.
  - Other bilateral creditors reaffirm net financing around "US$0.6 billion per annum during 2022-24."
  - Projected cumulative trade surpluses ("US$39 billion") and net FDI inflows ("US$27 billion") expected to permit accumulation of international reserves (program definition) of roughly "US$15 billion," with FX controls supporting this outcome.
- Capacity to repay and arrears:
  - Repayment capacity "remains subject to very high risks"; Fund debt service obligations would remain very large—"around 6 percent of exports, or 10 percent of gross reserves"—with Fund credit outstanding declining gradually to around "6 percent of GDP by 2027."
  - Authorities making good faith efforts to resolve arrears under Lending into Arrears policy for external private creditors (total "US$2.5 billion") and Mobil Exploration (principal claims "US$196 million"); other arrears include Yacyreta ("US$76 million") and French export credit agency ("US$30 million").
- Exceptional access assessment:
  - Staff assesses Argentina continues to meet the four EA criteria, contingent on strong program implementation; program risks exceptionally high.
  - Criterion 1: met — exceptional BOP pressures and need for Fund financing beyond normal limits.
  - Criterion 2: met — public debt assessed “sustainable but not with a high probability.”
  - Criterion 3: met — prospects to regain private market access in "2025" subject to strong implementation; Fund repayments begin in late "2026".
  - Criterion 4: met — program shows initial implementation (all QPCs and ITs through end-March met); political/institutional capacity uncertain given internal opposition and spending/wage pressures ahead of October "2023" Presidential elections.

### Measurement, Definitions, and Reporting Requirements (TMU highlights)
- Program exchange rates: those prevailing on March 2, 2022.
  - ARS to USD: 1/107.93
  - ARS to SDR: 1/150.08
  - ARS to EUR: 1/119.83
  - Gold price (US$/ounce): 1,928.72
- Inflation anchor for PCs/ITs: point estimate of 57 percent eop 2022 (within program range).
- Federal government primary balance:
  - Primary balance = total revenues (Esquema IMIG) minus primary spending (cash basis).
  - Revenues exclude BCRA transfers (Utilidades and Adelantos Transitorios), interest income from intra-public sector holdings, proceeds from sale of financial assets, and SDRs allocated by Fund or bilaterally.
  - Revenue income from issuance of government debt included in non-tax revenues capped at 0.3 percent of GDP in 2022 for program calculations.
- Ceiling on federal government accumulation of domestic arrears:
  - Arrears measured daily; cap to reduce stock from 1.2 percent of GDP at end-2021 to 0.8 percent of GDP in Q4 2022.
- Net international reserves (NIR) of BCRA:
  - NIR = gross official reserves minus gross official liabilities with maturities ≤ one year (BPM6-consistent).
  - Change in NIR measured relative to stock on December 31, 2021.
  - Baseline program loan disbursements (Table 3 cumulative US$mn): end-March 2022 55; end-June 2022 755; end-September 2022 1,394; end-December 2022 1,457.
- Cumulative ceiling on BCRA financing of federal government:
  - Cap at 765,213 million pesos (1 percent of GDP in 2022) by end-December 2022, measured cumulatively from end-December 2021.
- Continuous PCs and ITs:
  - Continuous PCs include commitments not to impose/intensify exchange restrictions, not to introduce/modify MCPs, not to conclude bilateral payments inconsistent with Article VIII, and not to impose import restrictions for BOP reasons.
  - Cumulative floor on real federal government revenues and cumulative floor on federal spending on social assistance programs monitored with specific definitions and reporting lags (no more than 25 calendar days after month-end).
  - Ceiling on BCRA’s stock of net non-deliverable futures capped at US$9 billion by end-2022 (stock was US$4.185 billion on Dec 31, 2021).
- Measurement of energy wholesale prices (PEST and PIST):
  - Weighted average energy wholesale price = 0.7*PEST + 0.3*PIST for program purposes.
  - For 2022, annual real change in weighted average wholesale energy price deflated by projected average annual inflation of 58 percent for 2022 (TMU ¶2 notes projected end-of-period inflation 57 percent).
- Data and information requirements:
  - Daily, weekly, fortnightly, monthly, and semi-annual reporting schedules specified for exchange rates, BCRA balance sheet, interest rates, federal government operations, external financing, provincial debt, banking indicators, and more, with specific maximum lags.

*Source: IMF staff report (May–June 2022) — 1argea2022002.*

### EXECUTIVE SUMMARY

### EXECUTIVE SUMMARY

### Context
- Spillovers from the war in Ukraine have materialized, adding to Argentina’s economic and social challenges.
- The shock is projected to have a limited impact on growth, but sharply higher commodity prices are adding to inflation pressures and challenging fiscal, reserve accumulation and market financing goals.
- Social and political tensions remain elevated, including as a result of high inflation, adding to spending and wage pressures.
- First review discussions focused on:
  - updating the macroeconomic framework to account for changes in external conditions; and
  - reprioritizing policies to address the impact of the shock (including social spending to protect low-income households) and ensure meeting the end-year program targets.

### Program Performance
- All performance criteria and indicative targets through end-March 2022 were met.
- Initial progress is being made on the program’s structural agenda:
  - Public hearings on proposals to update wholesale electricity and gas tariffs were announced (end-April, structural benchmark).
  - Tariff updates became effective early June (prior action).
  - A selected package of reforms to the AML/CFT legislation was submitted to Congress (end-May, structural benchmark).
- Fiscal and monetary policy actions:
  - The current budget is being modified to ensure consistency with the end-2022 fiscal targets (prior action).
  - The central bank has continued to raise policy rates and remains committed to apply the enhanced monetary and FX policy framework.

### Program Risks
- The program remains subject to exceptional risks:
  - Global risks have intensified from the war in Ukraine, a resurgence of the pandemic, a rapid tightening in external financial conditions, and a slowdown in key emerging economies.
  - Policy implementation risks remain acute in a very complex economic, social, and political environment with ongoing spending and wage pressures.
  - High inflation, if not addressed, could further fuel social discontent and weaken political support for the program.
- These risks cannot be fully mitigated through program design and contingency planning.

### Policy Recommendations
- Steadfast program implementation is essential to tackle persistent high inflation and secure a decisive improvement in reserve coverage.
- Fiscal policy:
  - Achieving the agreed primary fiscal target for end-2022 will require tighter fiscal policies in the second half of the year through a reorientation of public spending to make way for higher spending on energy subsidies and social assistance.
- Monetary and FX policy:
  - Stronger application of the enhanced monetary and FX policy framework is essential to deliver positive real policy interest rates and preserve real exchange rate competitiveness.
- Financial market and financing policy:
  - Actions are critical to support an appropriate deepening of the domestic government peso market and reduce reliance on central bank financing.
  - Continued efforts are needed to mobilize official external support from multilateral and bilateral sources, including through a restructuring agreement with the Paris Club.
- Structural reforms:
  - Continued implementation of the structural agenda remains essential.
  - On energy: aside from efforts to update energy tariffs, development of a medium-term energy reform plan, with support from the World Bank, remains a priority.
  - Early actions are needed to start improving revenue compliance, the efficiency and management of public spending, the transmission of monetary operations, and the effectiveness of the AML/CFT regime.

### Program Requests and Commitments
- The program’s end-year objectives remain unchanged.
- To address the impact of the shock—especially severe in Q2:2022—the authorities requested modification of the end-June 2022 performance criteria and indicative targets to reflect:
  - the immediate impact of higher-than-programmed global commodity prices on the fiscal deficit and the reserve accumulation path;
  - while maintaining end-year objectives unchanged as a share of GDP (e.g., fiscal deficit, monetary financing) and in U.S. dollars (e.g., reserve accumulation).
- The program proposes a new structural benchmark: submission to Congress by mid-September of a Draft 2023 Budget consistent with the agreed program fiscal deficit target of 1.9 percent of GDP for 2023.

### Recent Developments and Key Statistics
- Program approval and scope:
  - On March 25, 2022, the Executive Board approved Argentina’s request for a 30-month SDR 31.914 billion (about US$44 billion or 1,001 percent of quota) Extended Arrangement.
- Growth and activity:
  - After contracting by 9.9 percent in 2020, the economy expanded by 10.3 percent in 2021.
  - High frequency indicators suggest economic activity grew by 6.1 percent y/y in Q1:2022.
  - Real retail sales were up 5.4 percent y/y through April.
  - Imports of capital goods up 29 percent y/y in volume terms through April.
  - The level of real GDP is already 6 percent above pre-pandemic levels.
- Labor and social indicators:
  - Unemployment rate fell to 7.0 percent in Q4:2021 (the lowest level since 2015).
  - Labor force participation rate returned to near pre-pandemic levels (47 percent).
  - Over 215,000 new private sector jobs created since end-2020.
  - Poverty rates fell to 37 percent in H2:2021 (8 ppts below pandemic peaks) but remain above pre-pandemic levels.
  - Real wages are still 21 percent below end-2017 levels (after rising by 4 percent during H2:2021, real wages are down 1 percent thus far in 2022).
  - Informal workers represent about 49 percent of total employment.
  - Minimum wage adjustments resulted in an average annual minimum wage increase of 59 percent during 2022.
- Inflation and monetary stance:
  - Inflation accelerated since February, driven by higher global food and energy prices, a rise in regulated prices, and a needed pickup in the rate of crawl of the official exchange rate.
  - Headline inflation reached 5.1 percent m/m (60.7 percent y/y) in May after peaking at 6.7 percent m/m in March.
  - Wage demands have exceeded 60 percent in some cases; quarterly revisions contingent on inflation developments are occurring.
  - The BCRA raised the annual effective policy rate from over 45 percent at end-2021 to near 62 percent in May, bringing the monthly equivalent policy rate to 4.1 percent.
  - Real monetary aggregates contracted through end-April: seasonally-adjusted base money is down 7.4 percent in real terms (and stands at 5.3 percent of GDP, its lowest level since 2003).
  - Real private M3 declined by 5.4 percent.
  - Stock of BCRA remunerated liabilities (LELIQ and pases) declined to around 7.6 percent of GDP (from over 10 percent at end-2021).
- Fiscal developments through end-April:
  - Cumulative primary deficit reached 0.4 percent of GDP through end-April.
  - Real expenditure growth was strong and broad-based, up 13 percent y/y in real terms.
  - Tax and customs revenue growth up 3 percent y/y.
  - Non-tax revenues rose sharply due to property income related to gains from the reopening of inflation-indexed (CER) securities.
  - Energy subsidy bill grew 70 percent y/y in real terms.
  - Real primary spending excluding subsidies grew by 9 percent y/y through end-April.
  - Specific spending growth (Jan-Apr 2022, ytd annual percent change):
    - Primary expenditures: 13.3
    - Wages: 10.4
    - Goods and services: 7.1
    - Pensions: 5.1
    - Social assistance: 14.0
    - Subsidies: 48.1
    - Transfers to provinces (discretionary current transfers only): 19.9
    - Other current: 15.0
    - Capital spending: 13.0
    - Memo items:
      - Primary exp, excl. subsidies: 9.2
      - Energy subsidies: 70.5
- External sector and reserves:
  - Current account surplus narrowed through April 2022, challenging reserve accumulation.
  - Goods export volumes up 4.9 percent y/y cumulative through April; industrial manufacturing sector up 11.4 percent.
  - Goods import volumes up 21.3 percent y/y through April, reflecting frontloading of energy imports and buoyant domestic demand.
  - Cash goods trade surplus narrowed to US$5.3 billion through April 2022 (compared to US$6.4 billion a year prior).
  - Services deficit increased due to higher tourism outflows and lower services exports, adding to reserve accumulation challenges.
  - Financial flows have been generally in line with expectations, although net official support has lagged somewhat.

*Source: IMF Executive Summary, Argentina first review discussions—June 15, 2022.*

### 10. Meanwhile, market conditions have turned more volatile recently,  on account of

### 10. Meanwhile, market conditions have turned more volatile recently, on account of global and domestic factors.

### Market conditions and financial markets
- Domestic government bond market:
  - Strong net peso placements during Q1-2022 with rollover rates reaching 150 percent, compared to 117 percent under the program.
  - Increasing share of debt issuances concentrated in short-term inflation-indexed (CER) instruments.
  - In mid-June, the yield curve on CER securities shifted upwards sharply despite strong central bank intervention.  
  - During June 9-14, the BCRA purchased roughly ARS$300 million (0.3 percent of GDP) of government securities.
- Imports and reserves:
  - Through April 2022, energy (fuel and lubricant) import volumes rose by around 80 percent y/y.
  - Net international reserves (at program exchange rates) rose by US$0.4 billion during April-May 2022, bringing cumulative reserve accumulation since end-2021 to around US$1.9 billion, compared to the proposed revised end-June target of US$3.45 billion (which assumes US$0.7 billion in official budget support during Q2).
- Foreign exchange and sovereign risk:
  - Gap between the parallel and official exchange rate has oscillated between 70 and 90 percent.
  - Argentine sovereign spreads have risen further; international bond prices have fallen to multi-year lows (to an average of around 25 cents per USD).
  - The BCRA’s open position in the non-deliverable futures market has risen in recent weeks after shrinking through early-April.
- Financial and corporate balance sheets:
  - Real private sector credit fell by an additional 0.6 percent m/m in April (-0.2 percent y/y) and stood at 6.7 percent as a share of GDP (against 7.2 percent a year prior).
  - System-wide NPLs fell to 3.9 percent in March with provisioning at 116 percent of NPLs.
  - Exposure to the public sector represents around half of all banking system assets.
  - Corporate sector balance sheets have limited and declining leverage, especially in foreign currency.

### Program performance (through end-March 2022)
- Overall:
  - All program performance criteria (PCs) and indicative targets (ITs) were met through end-March 2022.
- Fiscal:
  - Primary fiscal deficit through end-March was limited to ARS 192 billion (0.25 percent of GDP), roughly ARS 20 billion below the adjusted program target.
  - Nontax revenue gains related to reopening inflation-linked securities exceeded 0.2 percent of GDP through end-March; absence of these gains would have meant the primary deficit target was not met.
- Monetary:
  - Central bank financing of the fiscal deficit was limited to ARS 122 billion through end-March, well below the program target (ARS 237 billion).
  - Net international reserve accumulation reached US$1,522 million, US$277 million above the adjusted program target.
  - Net stock of central bank non-deliverable futures was US$1.2 bn vs. the IT ceiling of US$6bn.
- Structural benchmarks and prior actions:
  - Public hearings on updating wholesale electricity and gas prices were announced in early April (end-April, SB); increases became effective in early June (prior action).
  - Authorities submitted a selected package of reforms to the AML/CFT legislation (end-May, SB, ¶27).
  - Revisions to the current budget to ensure full consistency with the 2022 fiscal targets and updated spending priorities will be adopted shortly (prior action, previously mid-April, SB).

### Macroeconomic outlook and risks
- Real GDP growth:
  - 2022 growth projection remains between 3.5–4.5 percent, unchanged since approval of the arrangement.
  - Expected moderation of growth to a mid-point of around 4 percent in H2-2022 assumes tightening of macroeconomic policies.
  - Economy converging to potential of around 2 percent beyond 2022.
- Inflation:
  - A 10 percent increase in global cereal and fuel prices is estimated to increase inflation by about 1.6 percent.
  - End-2022 inflation rate projected to increase by nearly 15 percentage points relative to program approval (from 38-48 percent to 52-62 percent).
  - Projections assume reduction in the monthly inflation rate for the remainder of the year underpinned by tighter fiscal and monetary policies and some softening of global commodity prices.
  - Base money projections revised down from 7½ percent of GDP to 6½ percent of GDP.
- External balance:
  - Current account surplus projected to narrow to around 0.5 percent of GDP in 2022.
  - Higher export prices (grains and crude oil) expected to be offset by higher import prices (particularly LNG and fertilizers).
  - Export and import volumes projected to remain generally unchanged relative to approval of the arrangement, predicated on policy-induced deceleration in domestic demand and a broadly unchanged real exchange rate during 2022 (relative to end-2021).
- Fiscal balance:
  - Baseline assumes unchanged annual fiscal consolidation path and gradual elimination of monetary financing.
  - Fiscal policy projected to tighten in H2-2022 to meet the fiscal primary deficit target of 2.5 percent of GDP.
  - Monetary financing of the fiscal deficit expected to be limited to 1 percent of GDP in 2022, supported by tapping government peso debt market (2 percent of GDP) and mobilizing external official support.
- Revised Macroeconomic Baseline, 2021–24 (selected figures as presented):
  - GDP growth (avg, %): 2021 10.2; 2022 [3.5 - 4.5]; 2023 [2.5 - 3.5]; 2024 [2.25 - 3.25].
  - Inflation (eop, %): 2021 50.9; 2022 [52.0 - 62.0]; 2023 [46.0 - 54.0]; 2024 [40.0 - 48.0].
  - Primary fiscal balance (% of GDP): 2022 -2.5; 2023 -1.9; 2024 -0.9.
  - Current account balance (% GDP): 2022 0.5; 2023 0.4; 2024 0.2.
  - Change in net int’l reserves (US$bn): 2022 5.8; 2023 4.0; 2024 5.2.
  - Monetary financing (% GDP): 2022 1.0; 2023 0.6; 2024 0.0.
- Risks and contingency planning:
  - Global downside risks include (i) a protracted war in Ukraine; (ii) a resurgence of the COVID pandemic; (iii) a faster-than-anticipated tightening in global financial conditions; and (iv) a slowdown in key emerging economies.
  - Implementation risks high amid fragile economic, social, and political environment and ongoing spending and wage pressures.
  - Authorities committed to adhering to end-year program targets and ready to reprioritize public spending; contingency planning cannot fully mitigate program risks.

### Fiscal policies
- Commitment and compensatory measures:
  - Authorities committed to achieving the 2.5 percent of GDP primary deficit target in 2022.
  - Package of measures worth around ¾ percent of GDP to offset higher-than-expected energy subsidies and targeted social assistance, and somewhat lower-than-projected revenues.
  - Primary deficit through H1-2022 projected to be around ¼ percent of GDP higher than envisaged at approval.
  - Real spending growth projected to decline from 12.8 percent y/y in H1:2022 to -7.8 percent y/y in H2:2022.
- Revised 2022 fiscal program features:
  - Revenues as a share of GDP projected to end somewhat below original program estimates due to weaker income and payroll tax collections and policy choices (nontaxable personal income floor increase; postponing programmed adjustments on fuel excises).
  - For program purposes, nontax revenues related to valuation gains on inflation indexed securities will be capped at 0.3 percent of GDP (which materialized during January-April), the same level as in 2021.
  - Primary expenditures to be contained at 20.4 percent of GDP (0.3 percent of GDP below original program estimates) through more disciplined expenditure management in H2-2022.
  - Compensatory measures to streamline goods and services spending, transport subsidies, discretionary transfers to provinces and public enterprises, and better prioritize capital spending.
  - Federal government wage bill to be kept unchanged as a share of GDP via prudent wage management.
  - Pension spending projected to decline as a share of GDP consistent with existing indexation formula; discretionary adjustments to pensions should be avoided. Work should initiate on reform options to strengthen equity and sustainability of the pension system (end-December 2022, SB).
- Energy policy:
  - Following public hearings in mid-May, updated reference prices for wholesale electricity and gas went into effect early June (prior action).
  - Weighted-average increase in tariffs during 2022 estimated around 42 percent.
  - Presidential Decree to create a new subsidy segmentation scheme aimed at eliminating electricity and gas subsidies for the top 10 percent of residential consumers with the greatest payment capacity; gradual adoption starting in June.
  - Subsidy spending this year projected to remain generally unchanged relative to 2021 at 2.6 percent of GDP (0.4 percent of GDP higher than originally programmed), with no overall improvement in cost recovery ratios.
- Medium-term fiscal outlook:
  - Authorities plan to submit a Draft 2023 Budget consistent with the agreed primary fiscal deficit of 1.9 percent of GDP for 2023 by mid-September 2022 (new SB).
  - Achieving the 2023 target will rely on mobilizing revenues through improvements in property tax collection and tax and customs administration and adopting a compliance improvement plan and compliance risk management framework drawing on IMF technical assistance.
  - Additional energy tariff adjustments and continued efforts to reduce reliance on costly energy imports will be required to contain the energy subsidy bill.

*Source: 1argea2022002 - 10. Meanwhile, market conditions have turned more volatile recently, on account of global and domestic factors.*

### 18. Strengthening the public financial management (PFM) system remains a priority. The

### 18. Strengthening the public financial management (PFM) system remains a priority.

### Public Financial Management: findings and planned actions
- Fiscal safeguards review: Argentina’s PFM system "provides broadly adequate safeguards for the use of Fund resources for budget support, risks remain elevated and have increased in certain areas."
- Need to "enhance the system’s robustness and increase capacity to plan for, track, and report the use of budgetary resources."
- Additional conditionality in this area "will be considered in the context of the second review."
- Pre-budget statement: "A pre-budget statement will also be submitted by end-June, with a preliminary description of the macroeconomic outlook, a qualitative risk-assessment, and general policies to achieve the fiscal targets."
- New tax proposal: Authorities "recently submitted to Congress a new tax proposal on unexpected profits... If approved, this could raise federal tax revenues up to ¼ percent of GDP in 2023."
- Control of public spending:
  - Recent increase in budgetary transfers to extra-budgetary entities requires strengthened controls around release of transfers and improved transparency of larger non-financial public sector entities.
  - Action plan to enhance financial and budget reporting of non-financial public sector entities (end-June 2022 SB).
  - An inter-ministerial fiscal monitoring working group was established to support expenditure control.
- Control of budgetary resources:
  - Gaps in the Treasury Single Account (TSA): certain budget-funded entities excluded by specific legal authorizations; treasury cash balances are held in a state-owned commercial bank rather than the central bank.
  - Options to strengthen the TSA include extending coverage and transferring cash balances to BCRA.
- Public investment efficiency:
  - Resolutions establishing investment project prioritization and selection criteria need issuance (end-June 2022 SB) and implementation to identify high-priority projects for the Draft 2023 Budget.
- Public procurement:
  - Revisions to procurement legal framework in the Public Works Law expected to be finalized by end-September 20202 (as stated in source) to strengthen selection, awarding, execution, sanctions, and independent resolution procedures.
- External controls:
  - Publication of audit opinions on the government’s annual financial statements pending since 2018; a timetable for prompt publication should be sought.

### Financing: domestic and external
- Deepening domestic peso debt market:
  - Q1:2022 net peso financing "outperformed expectations," but securing envisaged end-year financing "about 2 percent of GDP in 2022" requires further efforts and reduced rollover risk.
  - Maintain fiscal targets and "sufficiently positive real interest rates" plus instruments offering inflation protection to keep monetary financing below program ceiling "1 percent of GDP in 2022."
  - Investor relations presentation made public in May (end-July 2022, SB). Medium-term debt strategy on-track (end-December 2022, SB).
- Mobilizing external official financing:
  - Net official disbursements (excluding the Fund) expected to reach originally-programmed level of "0.4 percent of GDP by end-2022" despite minor Q1:2022 shortfalls.
  - Project disbursements from Non-Paris Club bilateral creditors projected at around "US$700 million during 2022", with roughly "US$500 million now expected in Q4:2022."
  - Negotiations to restructure Paris Club legacy debt ongoing; terms and timing to be reflected at second program review.
  - Resumption of access to international capital markets is assumed to start in "2025", with modest initial placements.

### Monetary and exchange rate policies
- Inflation and policy package:
  - Stabilizing inflation requires adherence to commitments to reduce fiscal deficit, lower monetary financing, and deliver positive real policy interest rates; incomes policies could complement but unilateral approaches should be avoided.
- Monetary stance and FX:
  - BCRA increased the annual effective policy rate by "about 690 bps since March" and is committed to continue adjustments based on core inflation, forward-looking measures, and international reserves.
  - Actions aim to support peso demand, allow a faster rate of crawl to preserve competitiveness, reduce the FX gap, and support reserve accumulation.
  - With low reserves, FX sales in the official market should be limited; intervention in parallel markets should be avoided; intervention in the non-deliverable future should remain limited (consistent with program ceilings).
  - Import restrictions should be avoided; rapid import growth is best addressed through macroeconomic policy adjustments.
- Monetary transmission and reserve requirements:
  - Regulated deposit and lending rates should move with policy rates; consider changes to operational framework to align short-term money market rates (including Treasury Bills) and the policy rate.
  - Develop a time-bound plan to reform the reserve requirement regime (finalized end-June 2022, SB); issue regulations to reduce number of special reserve requirement rebates, to be phased out conditional on banks’ capital and liquidity positions.
  - Maintain, initially, incentives for lending to SMEs and consumers while assessing their adequacy and design.
- BCRA balance sheet and governance:
  - Updated IMF safeguards assessment conducted April–May 2022; BCRA established an internal audit committee of non-executive board members to oversee financial reporting, internal/external audit, and risk processes.
  - Work initiated on a strategy to strengthen BCRA balance sheet and financial soundness (end-December 2022, SB); IMF technical assistance requested.
  - Additional conditionality, including on the legal framework and transition to International Financial Reporting Standards, will be considered in future reviews.
- Targeted easing of capital controls:
  - Regulations issued to ease FX controls in hydrocarbon and knowledge economy sectors conditional on increased exports and other requirements; impact uncertain.
  - A cross-institutional working group to prepare a conditions-based plan for gradually easing CFMs (end-December 2022, SB).

- Key monthly indicators (May 2022, in percent / monthly terms):
  - Monetary policy rate (28-day Leliq): 4.1
  - Official Rate of crawl: 4.0
  - Core inflation (3-mo-ma) (Feb-Apr): 5.9
  - Bond prices break-even inflation (3-mo ahead): 4.5
  - BCRA survey inflation expectations (next 3-mo avg.): 4.9
  - CF inflation expectations (next 3-mo avg.): 4.5

### Other structural policies
- Energy sector:
  - With World Bank support, developing a medium-term plan to strengthen energy sector (end-September 2022 SB) to improve energy matrix, reduce distribution losses and inefficiencies, and strengthen quality and accessibility of energy services.
  - Facilitate construction of natural gas pipeline to connect "Vaca Muerta" to large urban areas; ensure transparency and governance of tendering and procurement.
- Other strategic sectors:
  - Progress on legislation/regulations in hydrocarbons, mining, agro-industry, automotive, and electro-mobility to encourage investment and exports while securing a level playing field and minimizing fiscal/regulatory costs.
  - Legislation to promote hydrogen investment is being developed; legal framework for biotechnology investments extended; tax regime for copper exports aligned with best practices.
- AML/CFT regime:
  - Selected amendments to Law 25.246 submitted to Congress (end-May 2022, SB) to strengthen sanctioning regime, reporting entities inventory, preventive measures, and ultimate beneficial owner disclosure.
  - Gap analysis expected to be completed by end-August 2022.
  - Preparatory work to implement amended legislation and publish National AML/CFT Strategy (end-September 2022, SB).

### Program issues, financing assurances, and risks
- Program conditionality:
  - Authorities request revisions to end-June 2022 QPCs (primary fiscal deficit, monetary financing of the fiscal deficit, change in net international reserves, domestic arrears) due to Ukraine spillovers.
  - New QPCs proposed for September/December 2022 (previously ITs); new ITs proposed for March/June 2023; end-year objectives remain unchanged as share of GDP and in U.S. dollars.
  - Definition revision: cap non-tax revenues related to gains from reopening inflation-linked securities at "0.3 percent of GDP in 2022."
  - New structural benchmark proposed: submission to Congress of a Draft 2023 Budget consistent with program targets (mid-September 2022, SB).
- Financing assurances:
  - Firm official creditor commitments secured over next 12 months.
  - Net financing from MDBs projected at "US$1.6 billion from June 2022 to June 2023" (World Bank, IADB, CAF).
  - Paris Club legacy debt at "US$2.4 billion at end-July 2021" under negotiation.
  - Other bilateral creditors reaffirm net financing of around "US$0.6 billion per annum during 2022-24."
  - Projected cumulative trade surpluses ("US$39 billion") and net FDI inflows ("US$27 billion") expected to more than offset net external debt obligations and permit accumulation of international reserves (program definition) of roughly "US$15 billion," with FX controls supporting this outcome.
- Capacity to repay:
  - Repayment capacity "remains subject to very high risks" and hinges on strong policy implementation to build international reserves and resume market access.
  - Fund debt service obligations would remain very large over the medium term—"around 6 percent of exports, or 10 percent of gross reserves"—with Fund credit outstanding declining gradually to around "6 percent of GDP by 2027."
- Arrears:
  - Authorities are making good faith efforts to resolve arrears under the Fund’s Lending into Arrears policy for external private creditors (total "US$2.5 billion") and Mobil Exploration (principal claims "US$196 million"); other arrears include Yacyreta ("US$76 million") and the French export credit agency ("US$30 million").
- Jurisdictional conditionality:
  - No new exchange restrictions imposed or intensified; no multiple currency practices introduced or modified; no import restrictions imposed for balance of payments reasons (continuous PC).

### Exceptional access assessment
- Staff assesses Argentina continues to meet the four EA criteria, contingent on strong program implementation; program risks remain exceptionally high.
- Criterion 1: met — Argentina experiences exceptional balance of payments pressures; Fund financing beyond normal limits and international community support required.
- Criterion 2: met — public debt assessed "sustainable but not with a high probability"; adequate safeguards in place to meet EA2, but assessment subject to exceptionally high risks and depends on fiscal consolidation, enhanced monetary/FX framework, and policies to strengthen growth, exports, FDI, and reserve coverage.
- Criterion 3: met — prospects to regain private capital market access in "2025" subject to strong implementation; repayments to Fund begin in late "2026".
- Criterion 4: met — program shows initial implementation (all QPCs and ITs through end-March met); political/institutional capacity to deliver remains uncertain given internal coalition opposition and strong spending/wage pressures ahead of the October "2023" Presidential elections.

*Source: IMF staff report (May 2022) — 1argea2022002.*

### 34. Argentina’s Fund-supported program, approved in March  2022, set pragmatic and

### 34. Argentina’s Fund-supported program, approved in March 2022, set pragmatic and realistic objectives, along with carefully calibrated policies

### Program objectives and design
- Aim to strengthen public finances and tackle persistent high inflation through a multi-pronged strategy.
- Key elements:
  - Gradual elimination of monetary financing of the fiscal deficit.
  - Enhanced monetary and exchange rate policy framework.
  - Strengthening the domestic peso debt market.
  - Improving effectiveness of government spending.
  - Enhancing competitiveness of key sectors.
- Early identification and adoption of measures highlighted as critical given elevated risks from the evolving war in Ukraine.

### Implementation and early results (through end-March 2022)
- All performance criteria and indicative targets through end-March 2022 were met.
- Initial structural progress:
  - Wholesale electricity and gas were raised in early June to limit the energy subsidy bill.
  - A new tariff segmentation scheme is being adopted to gradually eliminate subsidies for wealthier households.
  - The current budget is being modified to ensure consistency with the end-2022 fiscal targets (prior action).
  - The central bank has continued to gradually raise policy rates since the approval of the arrangement.

### Macroeconomic outlook and policy needs going forward
- A tightening in macroeconomic policies, in line with end-year program objectives, will be necessary to:
  - Strengthen stability.
  - Sustain the ongoing recovery.
- External shock assessment:
  - Spillovers from the war in Ukraine expected to have a muted effect on growth and the overall balance of payments, but rising global commodity prices are materially impacting inflation and the fiscal balance.
- Authorities’ compensatory measures:
  - Reprioritize spending to make way for higher energy subsidies and appropriately targeted social assistance to protect low-income households from the food price shock.
- Fiscal stance requirement:
  - Adhering to the originally-planned 2022 primary fiscal deficit of 2.5 percent of GDP will require tighter fiscal policies in the second half of year.
- Monetary and FX policy roles:
  - Stronger application of the enhanced monetary and FX policy framework is critical to encourage demand for peso assets, preserve exchange rate competitiveness, and support more robust reserve accumulation.
  - Reserve accumulation has been weaker than anticipated largely on account of strong import growth.
- Income and price policy guidance:
  - Voluntary incomes policies could play a complementary role to contain adverse wage-price inflationary dynamics.
  - Unilateral price controls or trade restrictions should be eschewed as they could prove counterproductive and risk undermining program objectives.
- Adjustments:
  - Revisions to the quarterly paths for the primary deficit and reserves are appropriate given the immediate impact of the external shocks.
  - Steadfast and focused policy implementation of tighter macroeconomic policies will be essential.

### Structural agenda priorities
- Fiscal consolidation needs to be underpinned by:
  - Continued efforts to strengthen tax compliance.
  - Reduce energy subsidies.
  - Contain the wage and pension bill, while attending to large social and infrastructure gaps.
- Specific guidance:
  - Discretionary upward adjustments to wages and pensions should be avoided to secure fiscal targets.
  - Work should commence on preparing options to improve the equity and sustainability of the pension system.
  - Public financial management reforms to improve expenditure controls, transparency, and efficiency of public policies.
  - Deepen the domestic peso debt market.
  - Improve the transmission of monetary policy.
  - Strengthen the central bank’s balance sheet.
  - Enhance the AML/CFT regime.
- Growth and competitiveness:
  - Unlocking Argentina’s export potential is critical, with care in designing targeted incentives and priority given to strengthening predictability of the regulatory framework and ensuring a level playing field.

### Risks and contingency planning
- Program risks are elevated; contingency planning remains necessary.
- Vulnerabilities and downside risks:
  - High vulnerability to external shocks.
  - Policy implementation often challenged by complex economic, social, and political situation.
  - Global outlook more uncertain than at time of approval, with increased downside risks from:
    - Evolution of the war in Ukraine.
    - An intensification of the pandemic.
    - Sudden tightening in global financing conditions.
  - Support for the program could weaken, especially ahead of the 2023 Presidential election, or earlier if persistent high inflation is unaddressed.
- Recommendation:
  - Contingency planning to permit early identification and adoption of measures to secure macroeconomic stability.

### Staff recommendations
- Support for the authorities' request for:
  - Completion of the First Review under the Extended Arrangement.
  - Modification of performance criteria, given program performance and policy commitments going forward.
- Recommendation to complete the financing assurances review, given Argentina’s ongoing good faith efforts to resolve its external arrears.

### Box 1 — Recent Inflation Developments: key findings
- Inflation dynamics largely driven by exchange rate and wage developments, with wages closely related to past inflation dynamics.
- The rise in inflation in the first five months of 2022 was a cumulative 29.3 percent, broad-based and concentrated in:
  - Food prices: up 29.3 percent.
  - Transport prices: up 27.1 percent.
  - Utility prices: up 22 percent.
  - Restaurants and hospitality: up 31.9 percent.
  - Clothing/apparel: up 36.4 percent.
- May 2022 specifics:
  - Core inflation reached 5.2 percent m/m.
  - Over 80 percent of items in the consumption basket posted price increases above 3 percent m/m.
  - Median BCRA market survey respondent in May expected end-2022 inflation to reach 73 percent compared to 55 percent in December 2021.
- Pass-through estimates:
  - A 10 percent increase in global cereal and fuel prices is estimated to increase inflation over 12 months by about 1.6 percent in Argentina, compared to the average pass-through of 1.1 percent for the LA5.
- Constraints and challenges:
  - High levels of inflation, a high degree of wage indexation, unanchored expectations, relative price misalignments, and weak reserve buffers add to the challenges of addressing second round effects.
  - Monetary policy effectiveness is conditional on having a credible fiscal anchor to contain reliance on monetary financing and strengthen debt sustainability.

### Box 2 — Energy Subsidies: key findings and policy measures
- Energy subsidy scale and evolution:
  - Spending on electricity and gas subsidies rose from 1.0 percent of GDP in 2019 to 2.3 percent of GDP in 2021 (equivalent to US$11 billion).
  - Cost recovery ratios declined sharply between Q4-2019 and Q4-2021:
    - Electricity: from 64 percent to 37 percent.
    - Gas: from 79 percent to 44 percent.
  - Argentina’s energy subsidies are currently the highest in Latin America (after Venezuela), while tariffs are among the lowest.
  - Sharp increases in energy prices since February 2022 and climate-related factors (notably drought on hydroelectric production in the Parana basin) have added upward pressure on the subsidy bill.
- Authorities’ two-pronged strategy to contain subsidy overruns:
  - Supply side measures:
    - Reduce cost of energy imports through shifts in the energy import mix (e.g., substituting gas and fuel oil for more expensive LNG).
    - Agreements with Bolivia on supplies of natural gas and with Brazil on electricity swaps.
    - Finalization of gas pipeline construction to expand domestic gas production and reduce imports.
  - Tariffs:
    - Regulated prices for wholesale gas and electricity were raised in March and again in June.
    - New segmentation scheme differentiates tariff increases among users in a progressive structure:
      - High income residential consumers (wealthiest 10 percent) will pay full cost by end-2022.
      - Tariff increases for residential consumers will be a share of past nominal wage growth: 80 percent for middle income and 40 percent for low-income users under “tarifa social”.
      - Energy tariffs for small commercial users will increase by more than residential users.
      - Large commercial and industrial users (GUDIs) will continue to pay full cost.
- Further policy and reform needs:
  - Tariff increases in 2022 remain insufficient to improve cost recovery in the context of rising global energy costs.
  - The scheme to eliminate subsidies from the top 10 percent wealthiest residential users remains untested and could face implementation challenges and legal hurdles.
  - Recommendation to link residential energy pricing more directly and automatically to the evolution of costs and to gradually phase out subsidies for all commercial users.
  - Need to improve energy efficiency and climate friendliness through:
    - Reducing distribution losses.
    - Improving energy conservation.
    - Enhancing quality of services.
    - Encouraging investment in renewable energy to exploit Argentina’s vast wind and hydroelectric potential.

*Source: 1argea2022002 — IMF staff report (Argentina).*

### Box 3. Government  Domestic (Peso) Market  Financing

### Box 3. Government Domestic (Peso) Market Financing

### Background and recent developments
- Since end-2019, shut out from international capital markets and in the context of capital controls, the government has appropriately sought to strengthen the domestic peso market.
- Net financing has been largely in peso securities, with the occasional issuance of USD linked bonds during periods of high volatility.
- Through a combination of new peso issuances and swaps converting domestically-issued USD securities to peso securities, the government has reduced its exposure to foreign currency.
- Non-resident holdings of peso securities have been on the decline, with their share of peso portfolio holding decreasing from 27 percent in 2019 to around 5 percent currently.

### Debt management reforms and market development measures
- Developments were facilitated by a strengthening of debt management practices:
  - minimum pricing at auctions have been removed;
  - auction calendars are now announced six months ahead and held on certain weeks of the month;
  - a market makers program has been established (to facilitate activity of both primary and secondary markets);
  - engagement with investors has been stepped up.

### Challenges accentuated by rising inflation
- The share of inflation linked securities jumped from around 50 percent in 2019 to 80 percent in May 2022, as investors sought protection from rising inflation and policy uncertainties.
- Demand differences at auctions:
  - average cover ratio of conventional instruments: 0.9;
  - average cover ratio of inflation-linked securities: 2.1.
- Difficulties in extending maturities, especially more recently:
  - share of T-Bills rose from around 20 percent at end-2019 to over 30 percent in May 2022;
  - average time to maturity fell from 4.8 to 3.6 years over the same time period.

### Risks ahead and market sensitivity
- Reducing refinancing risks will require careful debt management and steadfast program implementation.
- This is especially important ahead of the 2023 elections, as pre-election periods in Argentina have historically been associated with heightened uncertainty and risk aversion (in the absence of mechanisms to smooth swings in the less liquid segments of the market).
- Carefully communicated interventions might be necessary to prevent liquidity disruptions, in particular if disorderly market conditions were to occur.

### Policy recommendations and operational measures
- On debt management:
  - proactively build cash buffers while enticing investment at longer maturities (beyond 2023);
  - adopt more intentional pricing behavior at auctions through the acceptance of higher premium against investment alternatives (including central bank securities);
  - improve the government’s cash management.
- On credibility and macro policy:
  - strengthen the credibility of the fiscal anchor to reassure markets that reliance on monetary financing of the budget will be limited (to under 1 percent of GDP in 2022) and placate sustainability concerns;
  - note: the stock of peso denominated debt stood at only 12 percent of GDP at end-2021.
- On monetary policy and market alignment:
  - stronger application of the new monetary policy framework and better alignment of market rates (including on Treasury bills) to the policy rate should help encourage the demand for peso assets and the relative attractiveness of government debt instruments.
  - By supporting a reduction in inflation, these efforts will help to extend maturities and reduce reliance on inflation-linked instruments (which are appropriate in the current volatile inflation context).

### Key statistics and indicators (reported values)
- Non-resident share of peso portfolio holdings: 27 percent in 2019 → around 5 percent currently.
- Share of inflation-linked securities: around 50 percent in 2019 → 80 percent in May 2022.
- Average cover ratio:
  - conventional instruments: 0.9;
  - inflation-linked securities: 2.1.
- Share of T-Bills: around 20 percent at end-2019 → over 30 percent in May 2022.
- Average time to maturity: 4.8 years → 3.6 years (end-2019 to May 2022).
- Monetary financing of the budget targeted to be limited to under 1 percent of GDP in 2022.
- Stock of peso denominated debt: 12 percent of GDP at end-2021.

*Source: IMF staff and Argentine authorities (Box 3, "Government Domestic (Peso) Market Financing").*

### Annex I. Updated Public Debt Sustainability  Analysis

### Annex I. Updated Public Debt Sustainability Analysis

### Summary findings
- The Updated Debt Sustainability Analysis (DSA) indicates that under the program’s revised baseline macroeconomic framework, public debt remains sustainable but not with high probability.
- Federal gross public debt is projected to decline from around 80 percent of GDP at end-2021 to around 60 percent by 2027 and 55 percent by 2030.
- FX debt service and gross financing needs (GFNs) remain relatively high over the medium to long term and above the thresholds established in the March 2020 Technical Note on Debt Sustainability.
- The assessment is subject to significant uncertainty, notably from the evolution of external conditions, including spillovers from the ongoing war in Ukraine.
- Key policy imperatives: sustained fiscal consolidation (including beyond the program), deepening domestic capital markets, boosting exports and productivity, mobilizing domestic saving, strengthening reserves, and improving prospects of international market access to strengthen debt-servicing capacity.

### A. Background
- At end-2021, Argentina’s federal public debt stood at US$364 billion (80 percent of GDP).
- Federal public debt rose in US$ terms from US$323 billion at end-2019, largely driven by a rise in domestic debt placed with the market and public entities to finance fiscal deficits; debt declined steeply as a share of GDP from 89 percent of GDP in 2019 due to a very positive interest rate/growth differential.
- At end-2021, the private and public sectors (BCRA and FGS) each held around 40 percent of federal debt, with the remaining 20 percent (US$73 billion) held by the official sector.
- Of the debt held by the private sector: about 65 percent is FX-denominated debt issued under foreign and domestic law (the bulk restructured in September 2020), with 35 percent held in peso-denominated debt.
- The bulk of official sector debt is held by the IMF and other IFIs; bilateral creditors hold a small portion.
- The share of public debt in FX was 70 percent and the share held by nonresidents was 40 percent of total debt at end-2021.

### B. Revised baseline scenario (macroeconomic and financing assumptions)
- Real GDP growth
  - Growth projected to slow to 3.5–4.5 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
  - Annual eop inflation projected to rise from 50.9 percent in 2021 to 52–62 percent (mid-point 57 percent) in 2022, before falling by around 5 percentage points per annum, stabilizing around 30 percent over the medium term.
  - The REER projected to stabilize in 2022 and remain broadly unchanged at average 2021 levels.
- Primary balance
  - Higher projected primary deficit in first half of the year (0.3 percent of GDP) due to higher energy subsidies; the deficit for 2022 as a whole is assumed to remain unchanged at 2.5 percent of GDP.
  - Primary deficit path unchanged relative to program approval: falling from 3 percent in 2021 to 0.9 percent of GDP by end-2024.
  - Further consolidation required to converge to the 1.3 percent of GDP steady-state fiscal primary surplus by 2027.
- Capital flow management measures
  - Assumed to remain generally in place through the program period with some targeted easing; gradual easing over time consistent with return to international capital markets in 2025 as reserve coverage improves.
- Domestic financing
  - Net domestic financing expected to average 1.8 percent of GDP during 2022–27, consistent with average annual rollover rates of around 130 percent, and a full unwinding of monetary financing by 2024.
  - Near term: greater reliance on short-term fixed rate instruments and inflation (CER)-linkers in 2022 and 2023.
  - Domestic real interest rates assumed to rise from around 2 percent in 2022, to 3 percent by 2025, and 4½ percent by 2028.
- External financing and market access
  - Assumed EFF phasing provides positive net financing in 2022 (0.8 percent of GDP), zero net financing thereafter.
  - Net financing from MDBs projected at 0.3 percent of GDP from 2022-24.
  - Net non-IMF official financing projected to reach 0.4 percent of GDP beyond 2024 to cover interest obligations.
  - Debt service on FX-denominated debt assumed to follow the post-restructuring schedule; modest issuance in international markets anticipated from 2025 onwards.

### Key projections under the revised baseline
- Federal debt projected to decline from 80 percent of GDP to around 60 percent of GDP by 2027.
- Excluding debt held by the public sector, debt projected to fall below the 40 percent of GDP ceiling established in the March 2020 Technical Note by 2030.
- FX debt service held by the private and official sector declines and stabilizes at an average of 3.2 percent of GDP during 2025–30.
- GFNs projected to average around 11 percent of GDP from 2025-30, and around 7.2 percent of GDP excluding intra-public sector debt obligations (over 2 ppts higher than the target in the March Technical Note).
- Large and sustained domestic financing implies a sizable increase in peso debt service, posing challenges if capital flow measures are gradually eased.

### C. Risks and vulnerabilities
- Exceptional uncertainty from global economic outlook: evolution of the war in Ukraine, pandemic intensification, sudden tightening of global financial conditions, slowdown in key emerging economies.
- Possible negative impacts on activity, fiscal/external balances, inflation, social conditions, and debt service capacity.
- Policy implementation slippages (especially ahead of October 2023 Presidential elections) could undermine confidence, pressurize international reserves, exacerbate refinancing risks, and compromise re-access to international capital markets.
- Risks amplified by the large share of FX debt and presence of non-residents given Argentina’s low export base and thin domestic market.
- Risk mitigants: large share of FX debt held by IFIs; large share of overall debt held by intra-public sector, reducing rollover risks.
- BCRA’s weak balance sheet identified as a key contingent liability, particularly if reliance on monetary financing is not scaled back and money demand wanes.

### D. Alternative scenarios and stress tests (selected outcomes)
- Historical scenario
  - Debt-to-GDP rises from 80 percent of GDP (50 percent of GDP, excluding intra-public sector debt) in 2021 to over 100 percent of GDP by 2027 (85 percent of GDP, excluding intra-public sector debt).
  - GFNs remain elevated at around 20 percent of GDP.
- Constant primary balance scenario
  - Debt-to-GDP falls initially but gradually rises back to 83 percent of GDP (65 percent of GDP, excluding intra-public sector debt).
- One standard deviation growth shock, a sustained real interest rate shock of (200bps), or a primary balance shock (only half the planned fiscal consolidation implemented, 1.9 percent of GDP less cumulatively)
  - Debt rises to around 75 percent of GDP by 2027 (55 percent of GDP, excluding intra-public sector debt).
  - GFNs rise to around 14 percent of GDP by 2027 (11 percent of GDP, excluding intra-public sector debt).
- Real exchange rate shock (100 percent real depreciation over 10 years) with 25 percent pass-through
  - Debt-to-GDP rises to 120 percent of GDP in 2023 before declining to around 100 percent of GDP by 2027 (75 percent of GDP, excluding intra-public sector debt).
  - GFNs peak at 21 percent of GDP and decline to 18 percent of GDP by 2027 (14 percent of GDP, excluding intra-public sector debt).
- Combined macro-fiscal shock
  - Debt could rise to 160 percent of GDP over the medium term (around 115 percent of GDP, excluding intra-public sector debt).
  - GFNs could rise to around 30 percent of GDP by 2027 (25 percent of GDP, excluding intra-public sector debt).
- Tailored contingent liability shock of 5 percent of GDP
  - Fiscal deficit rises to around 8 percent of GDP in 2023-24.
  - Debt would only fall to 75 percent of GDP by 2027 (57 percent of GDP, excluding intra-public sector debt).
  - GFNs remain around 14 percent of GDP by 2027 (12 percent of GDP, excluding intra-public sector debt).

### Policy implications and priorities
- Sustain fiscal consolidation beyond the program to strengthen debt dynamics.
- Deepen domestic capital markets and strengthen domestic debt management to handle increased peso debt service and high rollover needs.
- Mobilize domestic saving and build reserves to mitigate refinancing risks and support gradual easing of capital flow measures.
- Boost exports and productivity to reduce external vulnerability and improve debt-servicing capacity.
- Maintain disciplined implementation of the reform and financing plan to preserve market access prospects and reduce the likelihood of adverse stress-test outcomes.

*Source: Annex I. Updated Public Debt Sustainability Analysis (DSA) — end-April 2022 data and program documentation.*

### 6. Staff assesses debt remains sustainable but not with high probability. With  projected

### 6. Staff assesses debt remains sustainable but not with high probability. With  projected

### Assessment summary
- Staff assesses debt remains sustainable but not with high probability.
- Projected debt and debt service metrics are now above the targets set out in the March 2020 Technical Note on Debt Sustainability.
- Buffers are limited and risks to the revised baseline remain exceptionally high, given uncertainties on the external front and ongoing policy implementation risks.
- Anything less than steadfast implementation of policies to reduce fiscal imbalances and rebuild reserves in line with end-year program objectives could weaken stability and the ability to decisively tackle high inflation and encourage holdings of peso assets.

### Latent structural vulnerabilities identified
- (i) the low and undiversified export base;
- (ii) thin domestic capital markets;
- (iii) high shares of foreign currency and non-resident debt;
- (iv) the contingent liabilities from provinces’ FX debt and central bank balance sheet weaknesses, which will need to be addressed over the medium term.

### Baseline scenario — key indicators and projections (as of May 26, 2022)
- Nominal gross public debt: 56.0 (2020); 102.8 (2021); 80.2 (2021–2027 series shown)
- Public gross financing needs: 12.5 (2020); 18.8 (2021); 17.2 (2022); 19.5 (2023); 17.0 (2024); 15.2 (2025); 14.2 (2026); 11.4 (2027); 9.2 (projection)
- Real GDP growth (in percent): 0.4 (2020); -9.9 (2021); 10.3 (2022); 4.0 (2023); 3.0 (2024); 2.8 (2025); 2.0 (2026); 2.0 (2027); 2.0 (projection)
- Inflation (GDP deflator, in percent): 33.0 (2020); 39.8 (2021); 53.8 (2022); 57.7 (2023); 48.6 (2024); 46.0 (2025); 43.9 (2026); 37.1 (2027); 32.2 (projection)
- Nominal GDP growth (in percent): 33.3 (2020); 26.0 (2021); 69.9 (2022); 63.9 (2023); 51.5 (2024); 50.1 (2025); 46.7 (2026); 39.9 (2027); 34.8 (projection)
- Effective interest rate (in percent): 4.1 (2020); 2.8 (2021); 2.4 (2022); 3.0 (2023); 5.3 (2024); 6.3 (2025); 7.8 (2026); 9.1 (2027); 9.7 (projection)
- Change in gross public sector debt (cumulative): 5.0 (2020); 14.0 (2021); -22.6 (2022); -7.0 (2023); 0.0 (2024); -1.3 (2025); -4.2 (2026); -3.8 (2027); -3.6 (cumulative to 2027); -20.1 (longer cumulative)
- Identified debt-creating flows (cumulative): 2.8 (2020); 12.8 (2021); -27.0 (2022); -27.4 (2023); -21.0 (2024); -20.4 (2025); -19.1 (2026); -15.7 (2027); -13.1; -116.7 (longer cumulative)
- Primary deficit (in percent of GDP): 3.1 (2020); 6.4 (2021); 3.0 (2022); 2.5 (2023); 1.9 (2024); 0.9 (2025); 0.0 (2026); -0.8 (2027); -1.3 (longer)
- Primary (noninterest) revenue and grants (in percent of GDP): 26.0 (2020); 25.8 (2021); 25.7 (2022); 26.0 (2023); 26.5 (2024); 27.4 (2025); 28.1 (2026); 28.8 (2027); 28.9 (cumulative)
- Primary (noninterest) expenditure (in percent of GDP): 29.2 (2020); 32.2 (2021); 28.7 (2022); 28.5 (2023); 28.4 (2024); 28.3 (2025); 28.2 (2026); 28.0 (2027); 27.6 (longer)
- Automatic debt dynamics: -0.3 (2020); 6.1 (2021); -30.4 (2022); -29.9 (2023); -22.9 (2024); -21.3 (2025); -19.1 (2026); -14.9 (2027); -11.9; -120.0 (longer)
- Interest rate/growth differential: -11.4 (2020); -16.3 (2021); -40.7 (2022); -29.9 (2023); -22.9 (2024); -21.3 (2025); -19.1 (2026); -14.9 (2027); -11.9; -120.0 (longer)
- Exchange rate depreciation contribution: 11.0 (2020); 22.5 (2021); 10.3 (2022)

Notes on definitions and methodology (as presented)
- External financing requirement is defined as the sum of current account deficit, amortization of medium and long-term total external debt, and short-term total external debt at the end of previous period.
- EMBIG is an average over the last 3 months, 25-Feb-22 through 26-May-22.
- Effective interest rate defined as interest payments divided by debt stock (excluding guarantees) at the end of previous year.
- Automatic debt dynamics derived as [(r - π(1+g) - g + ae(1+r)]/(1+g+π+gπ)) times previous period debt ratio, with r = interest rate; π = growth rate of GDP deflator; g = real GDP growth rate; a = share of foreign-currency denominated debt; and e = nominal exchange rate depreciation (measured by increase in local currency value of U.S. dollar).
- Real interest rate contribution derived from numerator in footnote as r - π (1+g); real GDP growth contribution as -g; exchange rate contribution as ae(1+r).
- Residual includes asset changes and interest revenues; for projections, includes exchange rate changes during the projection period.

### Alternative scenarios and realism checks
- Historical Scenario assumptions (selected): Real GDP growth 4.0 (2022) then -0.2 annually (2023–2027); Inflation 57.7 (2022), 48.6 (2023), 46.0 (2024), 43.9 (2025), 37.1 (2026), 32.2 (2027); Primary Balance -2.5 (2022), -3.6 (2023–2027); Effective interest rate 3.0 (2022), 5.4 (2023), 7.3 (2024), 11.9 (2025), 15.8 (2026), 17.2 (2027).
- Constant Primary Balance Scenario assumptions (selected): Primary Balance held at -2.5 (2022–2027); Effective interest rate rises over time: 3.0 (2022); 5.4 (2023); 6.5 (2024); 10.5 (2025); 13.9 (2026); 15.1 (2027).

### Stress tests — selected outcomes and assumptions
- Primary Balance Shock scenario (2022–2027): Real GDP growth path 4.0, 3.0, 2.8, 2.0, 2.0, 2.0; Inflation path 57.7, 48.6, 46.0, 43.9, 37.1, 32.2; Primary balance path -2.5, -2.2, -1.4, -0.5, 0.4, 1.0; Effective interest rate path 3.0, 5.4, 6.5, 10.2, 13.4, 14.2.
- Real GDP Growth Shock scenario: Real GDP growth 4.0, -2.2, -2.5, 2.0, 2.0, 2.0; Primary balance -2.5, -1.9, -0.9, 0.0, 0.8, 1.3; Effective interest rate 3.0, 5.4, 6.4, 10.0, 13.0, 13.8.
- Real Interest Rate Shock scenario: Effective interest rate path 3.0, 5.4, 7.1, 11.1, 14.4, 15.3.
- Real Exchange Rate Shock scenario: Inflation shifts in 2023 to 57.7 then 82.4? (table shows "Inflation57.782.462.943.937.132.2" indicating altered inflation path under this shock), Effective interest rate path 3.0, 7.4, 5.3, 8.5, 11.6, 12.6.
- Combined Shock and Contingent Liability Shock scenarios included with corresponding higher effective interest rates (e.g., Combined Shock effective rates include 3.0, 7.5, 5.8, 9.3, 12.8, 13.9; Contingent Liability: 3.0, 5.7, 7.0, 10.4, 13.5, 14.3).
- Stress tests show gross nominal public debt and public gross financing needs can rise markedly under shocks (charts indicate debt in percent of GDP and percent of revenue rising substantially under several stress scenarios).

### Composition of public debt and creditor breakdown (selected figures for 2022)
- Total debt stock (end of period): US$ 373.76 bn; percent total debt 1.00; percent GDP 0.61; Debt service: 106.03 (value shown), 66.72, 35.45; shares: 17.4% 10.8% 5.4% (table entries)
- External debt: US$ 147.98 bn; percent total debt 0.40; percent GDP 0.24; Debt service components: 26.50, 24.88, 11.30; shares: 4.4% 4.0% 1.7%
- Multilateral creditors total: US$ 73.55 bn; percent total debt 0.20; percent GDP 0.12; Debt service: 21.19, 21.34, 7.36; shares: 3.5% 3.4% 1.1%
  - IMF: US$ 46.63 bn; percent total debt 0.12; percent GDP 0.08; Debt service: 18.89, 19.12, 5.04; shares: 3.1% 3.1% 0.8%
  - World Bank: US$ 8.56 bn; percent total debt 0.02; percent GDP 0.01; Debt service: 0.43, 0.41, 0.43; shares: 0.1% 0.1% 0.1%
  - CAF: US$ 3.67 bn; ADB/AfDB/IADB combined: US$ 13.93 bn
- Bilateral creditors total: US$ 4.38 bn; Paris Club: US$ 1.49 bn; Non-Paris Club: US$ 2.89 bn (o/w China US$ 2.60 bn)
- Bonds (external): US$ 69.39 bn
- Domestic debt: US$ 225.77 bn; percent total debt 0.60; percent GDP 0.37; Debt service: 79.53, 41.84, 24.15; shares: 13.1% 6.8% 3.7%
  - Domestic T-Bills: US$ 94.27 bn
  - Domestic Bonds: US$ 105.52 bn
  - Domestic Loans: US$ 23.74 bn
- Memo items: Collateralized debt US$ 0.78 bn; Contingent liabilities US$ 1.46 bn
- Nominal GDP: 608.08 (value shown); Nominal GDP entries also include 618.85 and 651.33 in table context.

### Forecast track record and realism diagnostics
- Distribution of forecast errors (2012–2020) presented for Real GDP Growth, Primary Balance, and Inflation (Deflator):
  - Real GDP growth: Argentina forecast error median -2.69; Argentina has a percentile rank of 9% relative to all countries.
  - Primary Balance: Argentina forecast error median -1.01; Argentina has a percentile rank of 26%.
  - Inflation (Deflator): Argentina forecast error median 13.03; Argentina has a percentile rank of 100%.
- Three-year CAPB adjustment metrics:
  - 3-year CAPB adjustment greater than 3 percent of GDP is near top quartile; Argentina has a percentile rank of 19% for 3-year CAPB adjustment magnitude.
  - 3-year average level of CAPB: Argentina has a percentile rank of 64%.

### Policy implications and priorities (as indicated)
- Steadfast implementation of policies is required to reduce fiscal imbalances and rebuild reserves in line with end-year program objectives.
- Addressing structural vulnerabilities over the medium term is necessary, including diversifying exports, deepening domestic capital markets, reducing shares of foreign-currency and non-resident debt, and mitigating contingent liabilities from provinces’ FX debt and central bank balance sheet weaknesses.

*Source: IMF staff; national authorities for historical data (as presented in the Public Debt Sustainability Analysis materials).*

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

### 1argea2022002 - 1.      Staff’s assessment based on the new sovereign risk and debt sustainability tools is that

### Overall assessment
- Staff’s assessment based on the new sovereign risk and debt sustainability tools is that overall risks of sovereign stress are high, and debt is sustainable but not with high probability.
- The assessment draws on both medium-term and long-term risk analyses.
- Staff concurs with the mechanical signal; the 2020 restructuring and implementation of the program should help contain financing risks.
- Given Argentina's susceptibility to adverse shocks, need to maintain tight fiscal policy, and need to re-enter international debt markets after the program, there are relevant risks of a renewed episode of sovereign stress over the longer term.
- Final categorical assessment: "Sustainable but not with high probability."

*Key summary points (exact figures preserved)*:
- Medium-term: Mechanical signal indicates moderate (close to borderline high) risk.
- Debt stabilization in the baseline: High probability at 5-year horizon but with substantial uncertainty.
- Long-term: Overall risks of sovereign stress are high.

### A. Medium-Term Risk Analysis (core modules and signals)
- Core tools: GFN Financeability Module and Debt Fanchart; each generates an index compared to upper and lower thresholds to produce a mechanical risk signal.
- 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 (moderate risk; weakened but moderate):
- Baseline gross financing needs (GFNs): GFNs for Argentina average 14½ percent of GDP over the 2022-27 period (relatively high, unchanged from the program request).
- Initial bank claims on the government: At 16 percent of the Argentine banking system’s assets (up from 13.4 percent at the program request).
- 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 20 percent of its assets to absorb residual issuance.
- Risks are mitigated by 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 (improved slightly; moderate risk, close to high):
- Probability of debt stabilization under the 5-year baseline: 99 percent.
- Projected institutions-adjusted median debt level in 2026: 43 percent of GDP.
- Fanchart width (measure of uncertainty): 68 percent of GDP (very high).
- Real interest rates are negative and projected to remain negative over the 5-year fanchart horizon.

Medium-Term Index (MTI):
- MTI value: 0.38 (just below the high-risk threshold and well above the low-risk threshold).
- At MTI = 0.38:
  - 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 beneficial effects of the 2020 debt restructuring and assumed program implementation, but substantial uncertainty remains.

### B. Longer-Term Risk Analysis (10-year horizon)
- Rationale: refinancing at market rates after re-accessing external debt markets and shocks to real interest rates and other debt drivers (real GDP growth, primary balances, real exchange rates) analyzed over 10 years.
- Over the longer-term, Argentina will need to refinance maturing obligations from the 2020 debt restructuring and Fund repurchases; capacity to repay depends critically on successful IMF program implementation and re-accessing international private credit markets.
- 10-year debt fanchart results:
  - Debt would continue to decline under the baseline, but probability of debt stabilization is lower than in the 5-year horizon.
  - Probability of debt stabilization in a fanchart ending in 2032: 66 percent (sufficiently high to be consistent with debt sustainability, although with substantial risks).

### C. Assessment of Debt Sustainability
- SRDSF conclusion: Argentina’s debt is “sustainable, but not with high probability.”
- Tools informing this assessment:
  - Debt Fanchart (prospects for debt stabilization).
  - GFN Financeability Module (rollover risks).
  - Crisis prediction model (probability of unsustainable debt events such as sovereign default and restructuring).
  - Staff judgment, including the 10-year Debt Fanchart and risks underlying the baseline assumptions.

### Annex II — Updated External Debt Sustainability Analysis (key facts and projections)
- End-2021 external debt: 59 percent of GDP (US$267 billion).
  - Public sector owes 71 percent of these obligations.
  - External gross financing needs (EGFNs) in 2021: 19 percent of GDP.
- Public sector obligations (US$191 billion):
  - Federal government: US$147 billion.
  - BCRA: US$30 billion.
  - Provincial governments: US$14 billion.
- Private sector external debt: US$76 billion (nonfinancial corporates: US$70 billion).
- 2021 flows and stocks:
  - GEFNs in 2021: US$62 billion.
  - Debt service obligations: US$76 billion.
  - Non-interest trade surplus: US$13 billion.
  - Amortizations: US$69 billion (short-term credit US$27 billion; medium-term instruments US$42 billion).
  - Breakdown of amortizations: public amortization US$9 billion (including Fund repurchases for US$3.8 billion); private amortization US$11 billion.

Baseline projections and balances:
- Trade surplus: projected to increase from around 2 percent of GDP in 2022 to around 3 percent of GDP over the medium term.
- Current account: projected to converge to around ¾ percent of GDP (near the current account norm).
- External interest payments: averaging about 3 percent of GDP.
- Retained earnings: stabilizing around ½ percent of GDP.
- Assumed gross reserves accumulation: US$25 billion over 2022–26.
- External debt projected path under revised baseline: decline from 55 percent of GDP in 2022 to around 48 percent of GDP by 2027.
- Financing assumptions: continued encouragement of non-debt creating FDI and mobilization of official external financing at concessional terms.

Downside risk scenarios and vulnerabilities (exact figures):
- External conditions and shocks: war in Ukraine, pandemic intensification, abrupt tightening of external financial conditions, slower growth in key emerging economies.
- Policy slippages risks: low reserve coverage, low export base, high exposure to FX debt.
- Severe shock illustration: a 30 percent real depreciation shock in 2022 would increase the external debt-to-GDP ratio to 160 percent.
  - Under that scenario, without market access and with low international reserves:
    - External debt-to-GDP would decline only to 137 percent by 2027.
    - GEFNs-to-GDP would be 62 percent by 2027.
- Near-term GEFNs: remain high (about 50 percent higher than gross external reserves in 2022).
- Medium-term GEFNs: projected to average 12 percent of GDP per annum during 2026–30 and remain subject to significant rollover risks if market access is not secured.

*Italic: IMF staff assessment as reported in the source document.*

### 5.      Addressing external imbalances and boosting Argentina’s FX earning capacity remains

### 5.      Addressing external imbalances and boosting Argentina’s FX earning capacity remains critical

### Policy objectives and recommended actions
- Moderate domestic demand (in the near term) to reduce external debt vulnerabilities and allow eventual re-access to international capital markets.
- Support a buildup of reserves and set the basis for stronger and more export-oriented growth.
- Encourage foreign direct investment (FDI) and ensure that, as controls are gradually eased, external capital is directed towards productive long-term investments to reduce external debt vulnerabilities.
- Deepen the domestic debt capital market to reduce reliance on external financing for investments.
- Avoid premature lifting of capital flow measures until economic imbalances are properly addressed and reserve coverage improves.

### Key findings on vulnerabilities and opportunities
- External sector vulnerabilities remain significant; policies to boost FX earnings and reserve accumulation are essential to reduce risks and enable gradual market re-access and easing of capital flow measures.
- Opportunities could arise in the medium term from new global trade and commodity price developments, given Argentina’s shale oil and gas reserves, and agricultural and mining potential.
- About half of the GEFN reflect BCRA swap, trade credits (which co-move with trade), and inter-company loans, which are subject to lower rollover risks.
- GEFNs include the non-interest current account plus external debt service obligations (interest and amortizations).

### Selected macroeconomic and social outcomes (recent performance)
- Real GDP growth: 10.3 percent in 2021; annual rate of 6.1 percent during Q1-2022.
- Goods sector: expanded by close to 4 percent y/y; services: up 6.8 percent y/y.
- Export volumes (manufacturing): up 11.4 percent y/y cumulative through April.
- Import volume growth: up 21.3 percent y/y.
- Manufacturing capacity utilization: around 67 percent.
- Level of real GDP: around 6 percent above pre-pandemic levels.
- Unemployment rate: 7.0 percent in Q4:2021.
- Labor force participation: 47 percent.
- Formal private sector jobs added since end-2020: over 215,000.
- Poverty rate: 37 percent in S2-2021 (declined 8 percentage points relative to pandemic peaks).
- Headline inflation: 5.1 percent m/m in May (6.0 percent m/m in April).
- Monetary policy tightening: effective monetary policy rate increased by about 690 basis points since program approval (and a cumulative of roughly 1630 basis points since end-2021).
- Reserve accumulation (through end-March 2022): US$1,522 million, US$278 million above the adjusted program target.
- Central bank financing of the fiscal deficit through end-March: ARS 122 billion (0.16 percent of GDP) vs. program target ARS 237 billion (0.3 percent of GDP).
- Stock of domestic arrears (average quarterly): ARS 536 billion (below target).

### External debt and financing needs (selected figures from Table AII.1 and related text)
- Baseline: External debt (percent of GDP) by year (table line as presented): 41.37 71.27 76.58 83.15 58.75 50.55 55.95 55.65 52.75 50.64 48.04 35.54 23.54 12.40 7.0 (note: table presents these numbers in a single row labeled "Baseline: External debt")
- Change in external debt (percent of GDP): 6.4 29.9 5.3 6.6 -24.4 -3.7 0.9 -0.2 -2.9 -2.1 -2.6 -4.5 -1.5 -1.4
- Identified external debt-creating flows (percent of GDP): 0.2 23.1 4.9 7.1 -25.9 -4.1 -3.9 -3.9 -3.6 -3.7 -3.8 -3.6 -3.7 -3.7
- Current account deficit, excluding interest payments (percent of GDP): 3.6 2.9 -3.7 -4.3 -2.9 -2.0 -2.2 -2.0 -2.2 -2.4 -2.5 -2.4 -2.5 -2.6
- Exports (percent of GDP): 13.1 19.8 22.0 19.7 19.2 20.1 20.4 20.4 20.2 20.2 20.1 18.9 19.1 19.2
- Imports (percent of GDP): 15.7 22.3 18.3 15.9 15.9 17.6 17.7 17.8 17.2 17.0 16.7 15.7 15.7 15.7
- Net non-debt creating capital inflows (negative) (percent of GDP): -2.4 -2.4 -1.4 -0.7 -1.1 -1.4 -1.7 -2.2 -2.1 -2.1 -2.0 -1.9 -1.9 -1.9
- Automatic debt dynamics contribution (percent of GDP) (table excerpt): 1/-1.1 22.6 10.0 12.1 ... -21.9 -0.6 0.0 0.3 0.7 0.7 0.7 0.7 0.7 0.8
- Residual, incl. change in gross foreign assets (percent of GDP): 6.2 6.8 0.4 -0.5 1.5 0.4 4.8 3.6 0.7 1.7 1.2 -0.9 2.2 2.3
- External debt-to-exports ratio (in percent) (selected values shown): 316.2 360.1 348.5 421.9 305.4 274.3 274.2 272.3 261.3 251.0 239.0 229.6 220.6 212.1
- Gross external financing need (GEFN) in billions of US dollars (selected values): 89.6 107.5 96.0 84.0 85.7 74.5 77.3 66.9 66.8 68.4 75.4 80.1 82.8 86.4
- GEFN as a percent of GDP (selected line present in table): 15.8 27.6 26.4 25.7 18.9 ... (table provides year-by-year values)
- Scenario with key variables at their historical averages (percent of GDP, selected value): 55.0 58.7 62.8 67.8 73.6 79.3 85.1 91.4 98.3 2.4 (table row as presented)

### Scenario and stress-test descriptions (as presented)
- Individual shocks are permanent one-half standard deviation shocks; figures in boxes represent average projections for variables in the baseline and scenario.
- Historical scenarios use ten-year historical averages to project debt dynamics five years ahead.
- Combined scenario: permanent 1/4 standard deviation shocks applied to real interest rate, growth rate, and current account balance.
- One-time real depreciation of 30 percent occurs in 2022 (presented as a real depreciation shock).
- Examples of scenario outcomes (from figures):
  - Baseline external debt (percent of GDP): 48 (baseline indicated in figure captions).
  - Historical external debt examples: 79 (historical label in figure).
  - Combined shock external debt: 56 (combined shock label).
  - Real depreciation shock with 30% depreciation: 137 (figure label).
  - Gross financing need under baseline (right scale in figures) and shocks show substantial increases under depreciation shocks (e.g., GEFN under 30% depreciation: 62 in Figure AII.2).

### Program commitments and requested actions (from Letter of Intent and MEFP update)
- Letter dated: June 14, 2022.
- Request completion of the first review and a disbursement in the amount of SDR 3,000 million.
- Request modification of end-June 2022 performance criteria on the primary fiscal balance, the change in net international reserves, monetary financing of the fiscal deficit, and the stock of domestic arrears to accommodate:
  - (i) higher-than-expected inflation;
  - (ii) higher-than-anticipated energy import volumes and prices (impacting energy subsidy and import bills);
  - (iii) upfront targeted and temporary social support to protect lower-income households from the food price shock.
- Program monitoring through quarterly reviews, prior actions, quantitative performance criteria, indicative targets, and structural benchmarks as described in the MEFP and TMU.
- Recent program performance highlights:
  - All end-March 2022 performance criteria and indicative targets were met.
  - Primary fiscal deficit through end-March: ARS 192 billion (0.25 percent of GDP), roughly ARS 20 billion below the adjusted target.
  - Social spending IT observed as spending exceeded the established floor.
  - Reserve accumulation reached US$1,522 million; stock of central bank non-deliverable futures narrowed and remained well below the end-March program ceiling.

*Source: IMF staff — Chapter: "5. Addressing external imbalances and boosting Argentina’s FX earning capacity remains critical" (June 14, 2022 materials included in IMF country documentation).*

### 7. The baseline macroeconomic framework has been revised to reflect recent

### 7. The baseline macroeconomic framework has been revised to reflect recent

### Baseline macroeconomic outlook and risks
- Baseline envisages a steady and sustained economic expansion and assumes policy responses to secure meeting end-year program targets.
- Growth:
  - Growth in 2022 is projected to remain unchanged (relative to program approval) at around 4 percent, taking into account the strong Q1 performance and the expected dynamism of the services sector, as well as the limited direct impact of the war in Ukraine shock.
  - Beyond 2022, projections are unchanged relative to program approval.
- Inflation:
  - Inflation is now projected to rise to 52–62 percent by end-2022, compared to 38–48 percent at the time of program approval, largely on account of the passthrough of higher-than-anticipated global food and energy prices.
  - Inflation is expected to decline gradually during the course of this year and into 2023–24 as the impact of the commodity price shock dissipates and implementation of our multipronged strategy to tackle inflation bears fruit.
- External balance:
  - Projected to remain broadly unchanged relative to the program as higher imports — from higher prices, including on LNG and fertilizers, and more dynamic import volumes — are expected to be broadly offset by higher export prices (grains and crude oil) and stronger financial inflows.
  - End-year reserve accumulation goals remain unchanged through the continued active management of macroeconomic policies.
- Macroeconomic projections (selected figures):
  - GDP growth (avg, %): 2021 = 10.3; 2022 = [3.5 - 4.5]; 2023 = [2.5 - 3.5]; 2024 = [2.5 - 3.0]
  - Inflation (eop, %): 2021 = 50.9; 2022 = [52.0 - 62.0]; 2023 = [46.0 - 54.0]; 2024 = [40.0 - 48.0]
  - Primary fiscal balance (% of GDP): 2021 = -3.0; 2022 = -2.5; 2023 = -1.9; 2024 = -0.9
  - Current account (% GDP): 2021 = 1.4; 2022 = 0.5; 2023 = 0.4; 2024 = 0.2
  - Change in net int’l reserves (US$bn): 2021 = 1; 2022 = -1.5; 2023 = 5.8; 2024 = 4.0; 2024 (alternate row) = 5.2
  - Monetary Financing: 2021 = 3.6; 2022 = 1.0; 2023 = 0.6; 2024 = 0.0
- Risk assessment:
  - Outlook depends significantly on evolution of external shocks, including the war in Ukraine, and magnitude/duration of spillovers.
  - Potential adverse scenarios include more fragmented global economy, further disruptions in supply chains, faster-than-anticipated tightening in global financial conditions, or re-intensification of the pandemic; these could reduce financial flows and global/trading-partner growth.
- Policy stance: readiness to adapt policies as needed to ensure macroeconomic stability through continued adherence to program targets.

### A. Fiscal and financing policy — commitments and measures
- Commitment to multiyear fiscal consolidation path and adopted measures to secure end-year primary deficit target of 2.5 percent of GDP.
- Acknowledged pressures from commodity price shock on inflation, subsidies, and social assistance; some revisions of quarterly fiscal targets expected to account for increased subsidy spending and upfront social support.
- Current Budget Law to be modified to reflect new policy priorities, consistent with a primary fiscal deficit for 2022 of 2.5 percent of GDP (prior action).
- Reprioritization readiness: continue to reprioritize public spending—including allocation among transfers, capital, and current expenditures—to ensure end-year fiscal target is met.

Findings and actions on revenue and spending:
- Revenue measures:
  - Intensified efforts to improve property tax collection (by raising real estate valuations so they align with market prices).
  - Strengthen tax and customs administration drawing on IMF Technical Assistance.
  - Submitted to Congress a proposal to capture unexpected windfall profits, targeted at firms with large profits benefiting from the global commodity price shock.
- Social protection measures:
  - Introduced additional targeted and temporary social assistance (equivalent to about ¼ percent of GDP) to mitigate higher food inflation impacts on informal workers, AUH recipients, low-income pensioners, and domestic and self-employed workers.
  - Adjusted value of the food stamp transfers (Tarjeta Alimentar) and transfers under workfare program (Potenciar Trabajo), the latter aligned with minimum wage adjustments.
- Expenditure measures:
  - Implementing multipronged strategy to contain energy subsidy spending through targeted adjustments in wholesale electricity and gas tariffs and efforts to reduce cost of energy imports, in line with program commitments.
  - Reprioritizing spending via amendments in goods and services, current transfers, subsidies, and prioritization of capital spending.
  - Careful management of public sector wage bill to ensure growth consistent with economy’s growth rate; pension spending to follow the pension formula.

Public spending efficiency and fiscal process enhancements:
- Strengthening efficiency of public spending:
  - Developing action plan to enhance financial and budget reporting of national public sector entities other than the National Administration (according to Law 25.917, Article 3) and to strengthen monitoring and governance of investment projects (end-June, SB).
  - Modified Resolution (SEPIPyPPP 1/2021) to improve prioritization and selection criteria for public investment projects to be included in the 2023 Budget (end-June, SB).
  - Assessing recommendations from updated fiscal safeguards review and committed to strengthening the Treasury Single Account (TSA).
- Budgetary process:
  - Preparing a pre-budget statement (Informe de Avance del Proyecto de Presupuesto) for 2023 Budget to be submitted to Congress by end-June, including macroeconomic outlook and qualitative risk assessment.
  - Draft 2023 Budget to be submitted by mid-September, consistent with agreed primary deficit of 1.9 percent of GDP and elaborating underlying policies to meet this target (new mid-September 2022, SB).
- Federal-Provincial fiscal coordination:
  - Congressional approval of the Fiscal Consensus with 21 provincial governments expected by end-September.
  - Working on options to revamp Fiscal Responsibility Legislation, including better defining escape clauses, reviewing role of Fiscal Council, and limiting foreign-currency denominated borrowing by provincial governments.
  - Enhance timeliness of general government fiscal reporting; expect to publish the end-year report by June of the following year.

Domestic peso debt market and financing:
- Net domestic peso market financing:
  - Through end-March reached 0.9 percent of GDP (and 1.0 percent of GDP through end-May) with average rollover rate around 150 percent (122 percent through end-May).
  - This has permitted limiting reliance on monetary financing of the fiscal deficit below the end-June target.
- Issuance strategy:
  - Net domestic placements increasingly focused on inflation-linked instruments; efforts underway to extend maturities to reduce rollover risks.
  - Plan to gradually increase issuance and maturity of fixed-rate instruments as conditions permit.
  - Minimum pricing restricted to exceptional cases.
  - Formulating an annual borrowing plan (ABP), to be finalized by end-June 2022 for implementation in remainder of 2022, and ongoing basis thereafter.
  - Medium-term debt strategy (MTDS) ongoing and expected to be completed before end-2022 (end-December, SB) with Fund technical support.
  - Revamped finance secretary external website with investor relations section; investor relations presentation made public (end July, SB) to be updated monthly.

Official external financing:
- Net official financing expected to reach cumulative total of US$600 million by end-June, and around US$2,500 million by end-2022, split between multilateral development banks (US$2,200 million) and bilateral creditors (US$300 million).
- Negotiations underway with Paris Club creditors on repayment schedule for legacy obligations; aiming to reach agreement by end-June 2022.

### B. Monetary and exchange rate policies — objectives and instruments
- Commitment to tackling persistent high inflation and rebuilding reserves; multipronged approach combining fiscal deficit reduction, monetary financing targets, proactive monetary and FX policies, and price/income policies.
- Monetary policy:
  - Guided by enhanced monetary and exchange rate policy framework to deliver real positive policy rates while keeping quasi-fiscal deficit in check.
  - BCRA has raised the effective policy rate by about 690 basis points since end-March and stands ready to continue adapting monetary policy based on core inflation, forward-looking measures, and international reserves dynamics.
- FX policy:
  - Active management of official rate of crawl mindful of inflation developments and currency developments in trading partners to maintain the real effective exchange rate this year at competitive levels to sustain current account surplus and reserve accumulation goals.
  - Prudent interventions in the non-deliverable futures market limited to guiding market participants as new monetary and FX policy framework is implemented.
- Price and income policies:
  - Extended voluntary price agreement on over 1300 key goods with over 150 private firms through end-June and widened scheme to include subset of staples sold in smaller grocery stores.
  - Efforts to ensure wage negotiations are consistent with objective of improving real incomes over time.
- Strengthening operational monetary framework:
  - Measures to improve transmission of monetary policy rates to deposit rates, including raising commercial banks’ deposit floor rates and lending ceiling rates and lengthening maturity of central bank sterilization instruments to encourage longer-duration deposit liabilities.
  - Developing plan to gradually simplify existing reserve requirements regime, expected to be communicated over coming weeks (end-June, SB).
    - Regulations would sharply reduce number of special rebates on reserve requirements (to be gradually phased out considering capital and liquidity positions of different commercial banks), while maintaining incentives for lending to small and medium sized enterprises and to consumers mainly for purchase of durable goods.
- Capital flow management measures:
  - Consideration of easing capital controls in key sectors: regulations issued to facilitate access to foreign currency in official market to companies in energy sector and knowledge economy under certain conditions to encourage investment and bolster net FX inflows.
  - Working group established to prepare a roadmap for conditions-based easing of CFMs (end-December 2022, SB).
- BCRA governance and finances:
  - Issued internal resolution establishing an internal audit committee to strengthen internal audit mechanisms and systems of internal controls (in line with IMF Safeguards Assessment recommendations).
  - Starting assessment of financial soundness of central bank’s balance sheet based on internationally recognized accounting standards.
  - Plan to develop a strategy for gradually and durably improving central bank’s financial position with IMF technical assistance (end-December 2022, SB).

### C. Growth and resilience policies
- Program focuses on building resilience and unleashing growth and export potential; advancing reforms from MEFP of March 2022 with emphasis on improving efficiency and sustainability of energy sector and building a stronger, more diverse export base.
- Selective easing of capital controls in energy sector and knowledge economy is part of broader strategy to attract investment and bolster FX inflows.

### Energy sector policies
- Energy sector reforms highlighted as central to improving efficiency and sustainability of the energy sector and attracting investment, including measures to facilitate foreign currency access for energy companies (see ¶15) and targeted tariff adjustments to contain subsidy spending.

*IMF staff and national authorities projections and policy measures as presented in the source document.*

### 18. A top policy priority remains improving the efficiency, fairness, and sustainability of

### 18. A top policy priority remains improving the efficiency, fairness, and sustainability of

### Near-term actions: mitigate global energy price shock, ensure equity
- Objectives: reduce energy costs and reliance on imported energy; set wholesale prices to better reflect production costs; improve targeting and progressivity of energy subsidies.
- Actions to reduce energy costs:
  - New agreement with Bolivia to secure increased gas supplies at favorable rates (around US$11.5 per MMBTU).
  - Electricity exchanges with Brazil to reduce reliance on more costly fuel imports.
  - Active pre-purchase of energy and adjustment of energy import mix (substituting imports of LNG with less expensive fuel/gas oils).
  - Initiated the process of construction of the Nestor Kirchner gas pipeline following a competitive and open bidding process; the first phase is expected to be completed by mid-2023.
- Actions to improve targeting of energy tariffs:
  - Public hearings (end-April, SB) held; resolutions notified regulatory entities of updated reference prices for wholesale electricity and gas that went into effect June 1 (prior action).
  - Weighted-average increase in wholesale energy prices during 2022 is estimated at around 42 percent, anchored on past average wage growth; commitment to continue this approach during 2023.
  - Expected energy subsidy savings of 0.15 percent of GDP in 2022 and to keep the energy subsidy bill near 2.1 percent of GDP.
- Updates to wholesale energy tariffs (resolutions):
  - Electricity (resolution 405/2022): increases in the price associated with the generation of electricity (PEST, precio estacional de energia) of 26.1 percent for residential consumers, and 36.6 percent for nonresidential consumers.
  - Gas (resolution 403/2022): increases in the wholesale price (PIST, precio al punto de ingreso al sistema de transporte) of 41.7 percent for both residential and nonresidential consumers.
  - New regulated wholesale prices imply cumulative increase during 2022 in the final consumer bill of:
    - 21.4 percent for lower-income residential consumers (Tarifa Social)
    - 42.7 percent for middle-income residential consumers
- Subsidy segmentation for residential users with greater payment capacity:
  - A decree will be issued shortly establishing a new residential subsidy segmentation scheme effective starting June.
  - The scheme will eliminate electricity and gas subsidies by end 2022 for the top 10 percent of residential consumers nationwide with the greatest payment capacity.
  - Policy of not providing subsidies to large users (GUDIs) to ensure wholesale energy tariff fully reflects cost recovery.
  - Consideration to expand the subsidy segmentation scheme beyond 2022, drawing on implementation lessons.

### Medium-term actions: World Bank TA and medium-term energy plan
- Requested World Bank technical assistance to support development of a medium-term plan focused on electricity sector with emphasis on reducing costly energy subsidies and improving efficiency and affordability.
- Planned medium-term plan actions:
  - (i) Improve energy efficiency: encourage private and public investments in generation and transmission; tackle consumption inefficiencies; reduce losses in the distribution sector through improvements in metering, billing, and collections.
  - (ii) Expand hydroelectricity generation and other renewables.
  - (iii) Review energy pricing to ensure over time end-user tariffs better and more predictably reflect wholesale gas and electricity costs.
  - (iv) Strengthen the social tariff scheme, including by improving information systems and databases to better target energy subsidies.
  - (v) Improve the quality of service, including through reviewing minimum quality standards and incentives.
  - (vi) Strengthen federal regulatory coordination for the distribution sector to support its development.
  - (vii) Improve risk management for energy imports.
- Timeline: Energy Secretariat expects to publish this plan for consultation (end-September 2022, SB), with a view of making the final version public by end-2022.

### Other policies: investment-promoting legislation and strategic sectors
- Advancing legislation and regulations to encourage investment and net exports in strategic sectors: hydrocarbons, mining, agro-industry, automotive industry, and electro-mobility; consultations ongoing; expected consideration by congress during the course of 2022.
- Objectives: expand productive capacity, increase productivity, enhance external resilience, reduce energy-related imports.
- Additional initiatives:
  - Promote investment in the hydrogen sector.
  - Seek to extend legal framework for investments in biotechnology.
- Argentina’s potential: vast potential in gas and fertilizer production can contribute to easing international supply constraints, supporting global energy and food security.

### Transparency and governance policies: AML/CFT strengthening ahead of FATF evaluation
- Submitted revisions to the AML/CFT legislation (Law 25.246) to congress (end-May 2022, SB) in consultation with stakeholders and IMF staff.
  - Amendments strengthen the sanctioning regime, inventory of reporting entities subject to AML/CFT obligations, preventive measures for reporting entities, and ultimate beneficial owner information disclosure requirements.
- Planned actions:
  - Prepare by end-August, in consultation with IMF staff, a gap analysis of the entire AML/CFT regime against FATF’s 40 Recommendations; incorporate findings into amended legislation during congressional review.
  - Financial Intelligence Unit (FIU) advancing necessary implementing resolutions for prompt and full implementation once legislation is approved.
- National risk assessments and strategy:
  - Finalizing and adopting the national risk assessment of money laundering and consolidating with terrorist financing assessments.
  - Publish the National AML/CFT Strategy (end-September 2022, SB) with recommendations to mitigate identified risks.

### Gender policies: promote female labor force participation and care infrastructure
- Registradas Program (created September 2021): since inception over 14,000 female workers registered under the program and over 127,000 female domestic workers have been formalized.
- Labor market outcomes:
  - Female labor force participation rates exceeded 50 percent in Q3:2021.
  - Female employment rates reached 46.4 percent in Q4:2021, both at their highest levels since 2003.
- Targeted income reinforcements during April-May 2022 focused on groups with significant female populations:
  - Domestic workers (98 percent women), Universal Child Allowance (95 percent), Potenciar Trabajo (67 percent), low-income pensioners (67 percent).
- Care infrastructure and legislation:
  - Decree in March requiring that all workplaces with more than 100 workers have childcare facilities.
  - Submitted legislation in May for creation of an Integrated Care System of Argentina (ICSA) to improve infrastructure for care workers, secure minimum funding for public care infrastructure, and extend paid leave for parents of chronically ill and/or disabled children, and for survivors of domestic abuse.
- Gender budgeting: identified that 15 percent of national spending contributes to closing gender gaps.

### Program monitoring and adjustments to performance criteria
- Program targets and structural benchmarks adjusted to reflect new macroeconomic framework and policy priorities; monitored through quarterly reviews.
- Requested modifications to end-June 2022 performance criteria on:
  - Primary fiscal balance
  - Change in net international reserves
  - Monetary financing of the fiscal deficit
  - Stock of domestic arrears
- Rationale: spillovers from war in Ukraine leading to higher inflation, need for upfront and temporary social assistance to shield vulnerable households from higher food prices, and increased energy import and subsidy spending.
- Requested establishing performance criteria through end-December 2022 and indicative targets through end-June 2023, consistent with new framework and commitments.
- End-year reserve accumulation target will remain unchanged; other peso-denominated targets (primary fiscal balance, domestic arrears, monetary financing) will be kept unchanged as a share of GDP.
- Updated definition of the primary fiscal balance by capping non-tax revenues from the issuance of debt at 0.3 percent of GDP in 2022.
- Revised targets and definitions are set out in Table 1 and further specified in the Technical Memorandum of Understanding.

### External arrears and debt-related efforts
- Good faith efforts to resolve external arrears, specifically:
  - (i) Outstanding arrears to vulture funds and holdout creditors that did not participate in the 2005/10 debt exchange or settle under the terms provided in 2016.
  - (ii) Disputed and undisputed claims to the binational entity, Yacyreta (undisputed claims amounted to US$76 million at end-2021, expected to be repaid by the end-August 2022).
  - (iii) Outstanding sovereign arrears to private external firms.
- Claims by the French export credit agency remain under litigation in Argentine courts.

### Key quantitative figures and dates (as presented)
- Gas supply rate from Bolivia: around US$11.5 per MMBTU.
- Nestor Kirchner gas pipeline first phase expected completion: mid-2023.
- Wholesale energy price weighted-average increase during 2022: around 42 percent.
- Expected energy subsidy savings in 2022: 0.15 percent of GDP.
- Expected energy subsidy bill level: near 2.1 percent of GDP.
- Electricity PEST increases (resolution 405/2022): 26.1 percent (residential), 36.6 percent (nonresidential).
- Gas PIST increase (resolution 403/2022): 41.7 percent (residential and nonresidential).
- Final consumer bill cumulative increases during 2022: 21.4 percent (lower-income residential, Tarifa Social); 42.7 percent (middle-income residential).
- Subsidy elimination target group: top 10 percent of residential consumers nationwide by payment capacity (elimination by end 2022).
- Energy plan consultation publication target: end-September 2022, final version public by end-2022.
- AML/CFT legislation submitted to congress: end-May 2022.
- Gap analysis of AML/CFT regime completion target: end-August 2022.
- National AML/CFT Strategy publication target: end-September 2022.
- Registradas Program results: over 14,000 female workers registered; over 127,000 female domestic workers formalized.
- Female labor force participation: exceeded 50 percent in Q3:2021.
- Female employment rate: 46.4 percent in Q4:2021.
- Percentage of national spending identified as contributing to closing gender gaps: 15 percent.
- Cap on non-tax revenues from issuance of debt in 2022 for primary fiscal balance definition: 0.3 percent of GDP.
- Yacyreta undisputed claims amount at end-2021: US$76 million; expected repayment by end-August 2022.

*Source: IMF staff and Argentine authorities (chapter content).*

### 2.      For program purposes, all foreign currency-related assets, liabilities, and flows will  be

### 1argea2022002 - 2.      For program purposes, all foreign currency-related assets, liabilities, and flows will be

### Program exchange rates, inflation anchor, and valuation
- Program exchange rates are those that prevailed on March 2, 2022.
- For program purposes, foreign currency-related assets, liabilities, and flows will be evaluated at “program exchange rates,” except items affecting government fiscal balances, which will be measured at current exchange rates.
- Inflation in 2022 for setting program PCs and ITs is based on a point estimate of 57 percent (end of period), within the program inflation range.
- Program exchange rates (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
- Notes:
  - 1/ Rate published by the BCRA as of March 2, 2022.
  - 2/ Spot price published by Bloomberg as of March 2, 2022.

### Federal government primary balance: definitions, measurement, and monitoring
- Coverage: Federal government (Sector Público Nacional No Financiero) includes central administration, social security institutions, decentralized institutions (Administración Nacional), PAMI, fiduciary funds, and other federal entities and enterprises.
- Primary balance definition (above-the-line, “Esquema IMIG”):
  - Primary balance = total revenues (ingresos totales, according to “Esquema IMIG”) minus primary spending (gastos primarios).
  - Revenues recorded on a cash basis and include: tax revenues (ingresos tributarios), revenue income (rentas de la propiedad), other current revenues (otros ingresos corrientes), and capital revenues (ingresos de capital).
  - For assessing the floor of the primary deficit, revenues exclude: financial transfers from the Central Bank (including Utilidades and Adelantos Transitorios), interest income from intra-public sector holdings of securities and debt obligations, proceeds from the sale of financial assets, and SDRs allocated by the Fund or received bilaterally from other IMF members.
  - Revenue income from issuance of government debt included in non-tax revenues (resto rentas de la propiedad) will be capped at 0.3 percent of GDP in 2022 for program calculations.
- Primary expenditure (cash basis) includes: social protection (prestaciones sociales), economic subsidies (subsidies económicos), operational expenses (gastos de funcionamiento), current transfers to provinces (transferencias corrientes a provincias), other current spending (otros gastos corrientes), and capital spending (gastos de capital), including capital transfers to provinces.
- Treatment specifics:
  - Government-funded PPPs treated as traditional public procurements; obligations recorded as they occur (cash basis).
  - Costs from divestment or liquidation allocated to current and capital expenditures accordingly.
  - Primary expenditures directly settled with bonds or other non-cash liabilities recorded above-the-line and reduce the primary balance, except settlements related to pensions, revenue sharing and expenditure allocation with provinces and the Autonomous City of Buenos Aires associated with court proceedings finalized or pending as of March 3, 2022, and payments of arrears per ICSID or similar rulings.
- Measurement: Primary balance measured at each test date as cumulative value from the start of each calendar year.
- Monitoring: Fiscal data provided to the Fund with a lag of no more than 25 calendar days after the end of each month.
- Adjustor for external project financing disbursements:
  - Target for the primary balance adjusted up (down) by shortfall (excess) in expenditure financed by project loan disbursements from multilateral and bilateral partners versus program baseline (Table 2).
  - Adjustor capped at cumulative 153,042 million pesos in 2022 (equivalent to US$1.2 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 recorded on a cash basis (base caja, Treasury). Includes transferencias figurativas and primary spending categories (personnel, acquisition of goods and services, nonprofessional services, capital expenditures, transfers).
- Measurement: Arrears measured daily. Program caps the quarterly average of the daily stock of arrears for 2022 to reduce stock from 1.2 percent of GDP at end-2021 to 0.8 percent of GDP in Q4 2022.
- Note: Transferencias figurativas were excluded from the definition for measurement against end-March 2022 PC; going forward they are included.
- Baseline projections for multilateral and bilateral project financing (Table 2, AR$ millions, cumulative from January 1):
  - end-March 2022 27,028
  - end-June 2022 104,196
  - end-September 2022 200,525
  - end-December 2022 335,683
- Monitoring: Daily data on stock of arrears and underlying spending (accrual and cash) provided to the Fund with a lag of no more than 25 calendar days after month-end.

### Federal government non-accumulation of external debt payments arrears: definitions and coverage
- Debt definition: Current contractual liability created through provision of value requiring future payments in assets or services; forms include:
  - i. loans (including deposits, bonds, debentures, commercial loans, buyers’ credits, repurchase agreements, official swap arrangements);
  - ii. suppliers’ credits (deferred payments for goods/services);
  - iii. leases (debt = present value at inception of lease payments excluding operation/repair/maintenance).
- Under this definition, arrears, penalties, and judicially awarded damages from failure to pay under contractual obligations that are debt are themselves debt.
- External debt (for program): Determined by residency criterion per the IMF’s Balance of Payments Manual and includes nonresident holdings of Argentine-law peso and foreign currency debt.
- External arrears: Defined for program monitoring as external debt obligations (principal and interest) falling due after March 3, 2022, that have not been paid considering contractual grace periods.
- Coverage: This PC covers the 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 basis.

### Net international reserves (NIR) of the BCRA: definition, measurement, monitoring, and adjustors
- Definitions:
  - NIR = U.S. dollar value of gross official reserves of the BCRA minus gross official liabilities with maturities of under one year (balance of payments concept).
  - Gross liabilities include Fund disbursements, except the net financing component of the program (SDR 3.166 billion), which is considered budget support and increases NIR.
  - Non-U.S. dollar denominated foreign assets and liabilities converted into U.S. dollar at program exchange rates.
  - Gross official reserves (BPM6-consistent) include: 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 arising from derivatives vis-à-vis domestic currency, precious metals other than gold, assets in nonconvertible currencies, and illiquid assets.
  - Gross official liabilities (foreign currencies) include: foreign currency liabilities with original maturity ≤ one year; Fund disbursements deposited in the SDR account except SDR 3.166 billion; deliverable forward FX liabilities on a net basis undertaken by the BCRA or on its behalf. Federal government foreign liabilities and its FX deposits at the BCRA are not considered BCRA gross foreign liabilities.
  - Specific items considered foreign exchange liabilities with maturity ≤ one year for program purposes: foreign currency swap with the People’s Bank of China and with the BIS, foreign exchange bank reserve requirements, SEDESA, ALADI and other non-resident deposits.
- Measurement: Change in NIR measured as cumulative change in NIR at each test date relative to stock on December 31, 2021.
- Monitoring: Foreign exchange asset and liability data at the BCRA provided to the Fund at daily frequency within two days.
- Adjustors:
  - Official non-project loans and grants: NIR targets adjusted upward (downward) by surplus (shortfall) in program loan disbursements and grants from multilateral institutions (including the IBRD, IDB and CAF) and bilateral partners relative to baseline in Table 3. Downward adjustor capped at a cumulative US$500 million in each calendar year. Program loan disbursements exclude project financing disbursements and IMF budget support and are defined as external loan disbursements usable for financing the general government.
  - Paris Club payments: NIR targets adjusted downward (upward) by surplus (shortfall) in interest and principal payments to the Paris Club relating to reprofiled 2014 outstanding debt, relative to baseline in Table 4.
- Baseline projection for program loan disbursements from multilateral and bilateral sources (Table 3, In millions of US$; cumulative from January 1):
  - end-March 2022 55
  - end-June 2022 755
  - end-September 2022 1,394
  - end-December 2022 1,457
- Paris Club payments (amortization and interest) baseline assumptions (Table 4, In millions of US$; cumulative from January 1):
  - end-March 2022 190
  - end-June 2022 190
  - end-September 2022 190
  - end-December 2022 190

### Cumulative ceiling on the BCRA’s financing of the federal government
- Definition: BCRA financing to the government includes:
  - (i) overdraft transfers from the BCRA to the Federal Government (Adelantos Transitorios line in BCRA summary account),
  - (ii) distribution of profits (Utilidades),
  - (iii) acquisition of government debt in the primary market or by direct purchases from public institutions.
- Measurement and caps:
  - Program caps BCRA financing at 765,213 million pesos (1 percent of GDP in 2022) by end-December 2022, measured as cumulative flows from end-December 2021 in millions of pesos.
  - Cap for 2023: 0.6 percent of GDP, with zero net financing in 2024.
- Clarification: Any decrease in the stock of Adelantos shall reflect only cash payments 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 provided to the Fund within two days. Flow measured cumulatively from start of calendar year.

### Continuous performance criteria and quantitative indicative targets (selected)
- Continuous PCs (commitments not to):
  - (i) impose or intensify any exchange restrictions,
  - (ii) introduce or modify Multiple Currency Practices (MCPs),
  - (iii) conclude bilateral payment agreements inconsistent with Article VIII,
  - (iv) impose or intensify import restrictions for balance of payments reasons.
- Cumulative floor on real federal government revenues:
  - Definition: Federal government revenues as defined in ¶5.
  - Measurement: “Real” revenues = nominal monthly revenues deflated by corresponding monthly headline consumer price index published by INDEC (nivel general del Índice de precios al consumidor (IPC)). Measured cumulatively from start of calendar year at each quarterly test date and compared with program baseline projection.
  - Monitoring: Revenue data provided with lag of no more than 25 calendar days after month-end.
- Cumulative floor on federal government spending on social assistance programs:
  - Definition: Social spending computed as cumulative sum of all federal government spending (recurrent and capital) on specified social assistance programs including:
    - Asignación Universal para Protección Social (sub-programs: Asignación Universal por Hijo, Asignación por Embarazo, Ayuda Escolar Anual)
    - Tarjeta Alimentar
    - Progresa
  - Monitoring: Data provided with lag of no more than 25 calendar days after month-end.
- Ceiling on the BCRA’s stock of net non-deliverable futures:
  - Definition: Net of the U.S. dollar notional value of all long and short position contracts entered by the BCRA involving the Argentine peso.
  - Measurement and caps:
    - Net stock measured as value of short positions minus value of long positions.
    - Capped at US$9 billion by end-2022.
    - Stock stood at US$4.185 billion on December 31, 2021.
  - Monitoring: Indicative target monitored quarterly. Daily data provided to the Fund within two working days.

### Other definitions relevant for program conditionality: energy pricing
- 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 covers registered private sector, unregistered private sector and public sector.
  - CVS increased by 53.4 percent from end-December 2020 to end-December 2021.
- Real change in wholesale energy prices — definitions:
  - Energy wholesale prices = pass-through prices paid by distributors:
    - Electricity: precio estacional (PEST)
    - Natural gas: precio del gas natural en punto de ingreso al sistema de transporte (PIST)
  - User category universes:
    - Electricity (PEST) users: (i) residential users from whom subsidies are eliminated; (ii) residential users who receive the social tariff (Tarifa Social); (iii) other residential users; (iv) large non-residential users (GUDIs); (v) other non-residential users.
    - Natural gas (PIST) users: (i) residential users from whom subsidies are removed; (ii) residential users who receive the Tarifa Social; (iii) other residential users; (iv) non-residential users.

*Italic: IMF staff technical memorandum definitions and program parameters as presented in the source content.*

### 34.      Measurement:

### 34.      Measurement:

### Measurement methodology
- 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, as defined above for program purposes, 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 58 percent for 2022, under the program.
- Projected end-of-period inflation in 2022 is 57 percent (see TMU¶2).

### Monitoring of PEST/PIST by user category
- 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 — overview
- In addition to providing any data and information staff request to monitor program implementation, the authorities will provide the following data so as to ensure adequate monitoring of economic variables.

### A. Daily
- 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; and interest rates on overnight deposits.
- Aggregated data on banks’ foreign exchange positions, provided in the following 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 non-deliverable futures 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 be transmitted by the BCRA and 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
- Federal government operations including monthly cash flow from the beginning to the end of the current fiscal year (and backward revisions as necessary), with a lag of no more than 25 days after the closing of each month, according to both the format of the Informe Mensual de Ingresos y Gastos (IMIG) and to the format of the Cuenta Ahorro Inversion Financiamiento (AIF). Specific reporting will include details on:
  - i. Revenues from sales of physical assets, and 12-month projections for future sales of such assets.
  - ii. Income related to the issuance of government debt securities (resto de rentas de la propiedad).
- 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. Data to be provided with a lag of no more than 25 days after the closing of each month. Detailed quarterly financing plan for the coming twelve months, including the aforementioned sources, to be provided one month in advance.
- External financing received and projections for the coming four quarters, with loans and grants categorized by program and project. Data to be provided with a lag of no more than 25 days after the closing of each month.
- On federal debt:
  - i. Domestic and external debt service (amortization and interest payments) of the federal government, with a lag of no more than 25 days after the closing of each month. 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). This would include both direct and guaranteed debt. In the case of issuance of government guaranteed debt, the name of the guaranteed individual/institution shall be included.
  - ii. Information on the stock of external arrears will be reported on a continuous basis.
  - iii. 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.
  - iv. 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:
  - i. 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.
  - ii. 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).
  - iii. 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: 1argea2022002 - 34. Measurement (PDF chapter/section).*

### 2.5 percent of GDP for the National Public Sector, on a cash basis, as defined by the program) and

### 1argea2022002 - 2.5 percent of GDP for the National Public Sector, on a cash basis, as defined by the program) and

### Fiscal targets and consolidation strategy
- Target: 2.5 percent of GDP for the National Public Sector, on a cash basis, as defined by the program.
- Strategy to contain energy subsidy spending through targeted adjustments in wholesale electricity and gas tariffs and efforts to reduce the cost of energy imports, in line with program commitments.
- Public-sector wage bill: will be carefully managed to ensure it grows consistently with the growth rate of the economy.
- Pension spending: will continue to follow the pension formula.
- Temporary social assistance package equivalent to about ¼ percent of GDP introduced to mitigate higher food inflation impacts on vulnerable groups.

### Social protection and targeted transfers
- Additional targeted and temporary social assistance equivalent to about ¼ percent of GDP.
- Target groups: informal workers, recipients of the Asignación Universal por Hijo, low-income pensioners, and domestic and self-employed workers.
- Adjustments made to the value of the food stamp transfers (Tarjeta Alimentar) and transfers under the workfare program (Potenciar Trabajo) aligned with minimum wage adjustments.

### Efficiency and transparency of public spending and tax collection
- Developing an action plan to enhance financial and budget reporting of national public sector entities other than the National Administration, and strengthening monitoring and governance of investment projects (building on IMF PIMA recommendations).
- Government modified a resolution to improve prioritization and selection criteria for public investment projects included in the 2023 Budget.
- Recommendations from the recently updated fiscal safeguards review have been assessed.
- Work underway on a pre-budget statement for the 2023 Budget, drawing on recommendations from a workshop on international experiences with Medium-Term Fiscal Frameworks.
- Congressional approval of the Fiscal Consensus agreed with 21 provincial governments is expected by end-September.
- Options being considered to revamp Fiscal Responsibility Legislation: better define escape clauses, review the role of the Fiscal Council, and limit foreign-currency denominated borrowing by provincial governments.
- Intensified efforts to improve property tax collection by raising real estate valuations to align with market prices.
- Strengthening tax and customs administration with ongoing IMF Technical Assistance.
- Proposal submitted to Congress to capture unexpected windfall profits, targeted at firms with large profits benefiting from the global commodity price shock.

### Financing strategy and domestic market development
- Priority: develop a sound and stable capital market to promote investment and offer a competitive rate of return to savings in domestic currency.
- Strategy focused on strengthening the peso securities market, obtaining additional external financing from multilateral and bilateral sources, unwinding monetary financing of the deficit, and supporting the ongoing economic recovery.
- Net domestic peso market financing:
  - Reached 0.9 percent of GDP through end-March.
  - Reached 1.0 percent of GDP through end-May.
- Average rollover rate:
  - Around 150 percent (122 percent through end-May).
- Net domestic placements increasingly focused on inflation-linked instruments; efforts underway to extend maturities to reduce rollover risks.
- Government formulating an Annual Borrowing Plan.
- Medium-Term Debt Strategy work ongoing with Fund technical support; expected to be completed before the end of the year.
- Finance Secretary’s external website revamped with a dedicated investor relations section, making public the investor relation presentations.

### Monetary, exchange rate, and anti-inflationary policies
- Central Bank (BCRA) raised the effective policy rate by about 990 basis points since end-March and stands ready to continue adapting monetary policy based on core inflation, forward-looking measures, and international reserves dynamics.
- BCRA actively manages the official rate of crawl, mindful of inflation developments and currency developments in trading partners to maintain the real effective exchange rate at competitive levels.
- Measures to improve transmission of monetary policy:
  - Further raising commercial banks’ deposits floor rates and lending ceiling rates.
  - Lengthening maturity of central bank sterilization instruments.
  - Developing a plan to gradually simplify the existing reserve requirements regime.
- Government extended a voluntary price agreement on over 1300 key goods with over 150 private firms through end-June and widened the scheme to include a subset of staples sold in smaller grocery stores.
- Efforts to ensure wage negotiations are consistent with improving real incomes over time.
- Working group established to prepare a roadmap for conditions-based easing of capital controls and to establish macroprudential regulations to reduce exposure to short-term capital flows while encouraging long-term flows.
- Measures to facilitate access to foreign currency in the official market for companies in the energy sector and knowledge economy to encourage investment and bolster net inflows of foreign exchange.
- Following IMF Safeguards Assessment recommendations:
  - Work is starting to assess the financial soundness of the central bank’s balance sheet based on internationally recognized accounting standards.
  - A resolution to establish an internal audit committee to strengthen internal controls was recently issued.

### Growth and resilience-enhancing policies and sectoral initiatives
- Emphasis on policies to improve efficiency, fairness, and sustainability of the energy sector and to build a stronger and more diverse export base.
- Legislative initiatives under consultation to be considered by Congress during 2022: hydrocarbons, agro-industry, automotive industry, and electro-mobility.
- Legislation to promote investment in the hydrogen sector and to extend the legal framework for investments in biotechnology is being worked on.
- A comprehensive package for the mining sector to be adopted soon: fiscal stability, special access to the foreign exchange market, and refund of tax credits related to additional investment.
- Announced investments during 2020 and 2021: USD 10 billion in copper and lithium projects.
- Authorities working with provinces and private companies to foster investments that would multiply mining exports:
  - From USD 3.2 billion in 2021,
  - To USD 6.0 billion in 2025,
  - And to USD 13.2 billion in 2030.
- New legislation allows increase of the weight of biofuels in gasoil production from 5 percent to 15 percent, increasing domestic supply and reducing need for additional imports.
- Selective easing of capital controls in the energy sectors and the knowledge economy to strengthen the economy and support global energy and food security and climate change mitigation.

### Energy sector policies and subsidy reform
- Priority: improve energy sector efficiency to build a resilient external sector, accumulate foreign exchange reserves, reduce inflation, and contribute to international energy supply.
- Specific actions:
  - Signing a new agreement with Bolivia to secure increased natural gas supplies.
  - Exchanges of electricity with Brazil to reduce reliance on costly fuel imports.
  - Pre-purchase of energy and adjustment of the energy import mix (substituting imports of liquified national gas with less expensive fuel/gas oils).
  - Initiation of the process for construction of the Nestor Kirchner gas pipeline; first phase expected to be completed by 2023.
- Requested World Bank technical assistance to support development of a medium-term plan to improve energy matrix efficiency and reduce costly energy subsidies; Energy Secretariat expects to make the final version public by end-2022.
- Resolutions issued notifying regulatory entities of updated reference prices for wholesale electricity and natural gas, effective June 1, 2022.
- New regulated wholesale prices imply a cumulative increase during 2022 in the final consumer bill of:
  - 21.4 percent for lower-income residential consumers.
  - 42.7 percent for middle-income residential consumers.
- Decree establishing a new residential subsidy segmentation scheme:
  - Will eliminate electricity and gas subsidies by end-2022 for the top 10 percent of residential consumers nationwide with the greatest payment capacity.
  - Remaining 90 percent of residential consumers will need to formally request to continue to receive subsidy, self-selecting those with greater capacity to pay.
- Policy of not providing subsidies to large users continues; their wholesale energy tariff fully reflects cost recovery.
- Expected energy subsidy savings of 0.15 percent of GDP in 2022 and to keep the energy subsidy bill near 2.1 percent of GDP.
- Authorities will continue developing and applying the segmentation scheme.

### Gender policies
- Goal: reduction of Argentina’s large gender gaps exacerbated during the pandemic.
- Registradas Program (created September 2021):
  - Over 14,000 female workers registered under the program.
  - Over 127,000 female domestic workers formalized.
- Decree requiring all workplaces with more than 100 workers to have childcare facilities.
- Legislation submitted for creation of an Integrated Care System of Argentina to improve infrastructure for care workers, secure minimum funding for public care infrastructure, and extend paid leave absences for parents of chronically ill and/or disabled children and for survivors of domestic abuse.
- Income reinforcements during April-May 2022 targeted groups with significant female populations:
  - Domestic workers: 98 percent women.
  - Asignación Universal por Hijo: 95 percent women.
  - Potenciar Trabajo: 67 percent women.
  - Low-income pensioners: 67 percent women.
- Government has identified that 15 percent of national spending is being allocated to policies that contribute to closing gender gaps and continues to enhance the gender budgeting approach.

### Governance and transparency, AML/CFT reforms
- Need to improve governance and transparency to tackle tax avoidance and external assets formation.
- Revisions to AML/CFT legislation recently submitted to Congress in consultation with stakeholders and IMF staff.
- By end-August, in consultation with IMF staff, a gap analysis of the entire AML/CFT regime compared to Financial Action Task Force 40 Recommendations will be prepared; findings to be incorporated into amended AML/CFT legislation during congressional review.
- Finalizing the national risk assessment of money laundering and consolidating results with already-finalized terrorist financing assessments.
- Work underway to publish a National AML/CFT Strategy including recommendations to mitigate identified risks, vulnerabilities, and threats.

*Source: 1argea2022002 - 2.5 percent of GDP for the National Public Sector, on a cash basis, as defined by the program) and*

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_Source: https://www.imf.org/-/media/files/publications/cr/2022/english/1argea2022002.pdf_