## 1argea2022004 - EXECUTIVE SUMMARY

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### Context
- Early decisive policy implementation by the new economic team was critical to stabilizing markets and begin rebuilding confidence in the run-up to the second review.
- Domestic demand has slowed in response to tighter macroeconomic policies, with high frequency indicators pointing to a further moderation in inflation, a contraction in goods imports, and improvements in the trade balance.
- Key remaining vulnerabilities: inflation is still high and unanchored, reserves are low, and confidence needs further strengthening.
- Social discontent has risen amid spending restraint and some decline in real wages.
- Review discussions focused on strengthening macroeconomic policies to safeguard stability and achieve program objectives, especially a durable reduction in inflation and improvement in reserve coverage.
- Date of document: December 12, 2022.

### Program performance (through end-September 2022)
- All quantitative performance criteria through end-September were met, but introduction of temporary measures gave rise to a new multiple currency practice (MCP) and intensified/modified existing exchange restrictions/MCPs, leading to nonobservance of the respective continuous PCs.
- Fiscal outcomes:
  - Primary fiscal deficit through end-September: ARS 1,096 billion (1.3 percent of GDP), meeting the adjusted program target by ARS 40 billion.
  - Stock of domestic arrears fell from around ARS 800 billion at end-June to an average of ARS 590 billion in Q3, below the program ceiling of ARS 654 billion.
  - Indicative floor on social spending (three flagship programs) was narrowly missed due to underexecution of AUH cash transfers; additional social assistance delivered via targeted one-off bonuses.
- Monetary and reserves:
  - Cumulative change in Net International Reserves (NIR) through end-September: US$4.6 billion versus adjusted program floor of US$3.6 billion.
  - Central bank financing of the federal government at end-September: ARS 620 billion, below program ceiling of ARS 665 billion (cap on monetary financing of the fiscal deficit of 0.8 percent of GDP in 2022).
  - Stock of non-deliverable futures comfortably below the IT.
- Structural progress: revenue administration, public debt management, and energy policy advanced; good progress on end-December structural benchmarks with IFI technical assistance.

### Recent developments and key indicators (selected)
- Real activity:
  - Economy expanded by 6.2 percent y/y through Q3.
  - Manufacturing: 6.3 percent y/y.
  - Retail: 7.5 percent y/y.
  - Activity declined in September by 0.3 percent m/m.
  - Supermarket sales growth moderated from 2 percent y/y (real) in June to 0.8 percent y/y in September.
  - Import volume growth moderated from 15.8 percent y/y in June to 8.3 percent y/y in October.
- Inflation and money:
  - Headline inflation: 6.3 percent m/m in October (peak 7.4 percent m/m in July).
  - Core inflation: 5.5 percent m/m in October (7.3 percent m/m in July).
  - Inflation expectations for end-2023: 96 percent (90.5 in September).
  - Staff sees moderation to around 60 percent by end-2023 as feasible with continued policy implementation, but risk of persistent higher inflation is significant.
  - Base money: reached 4.5 percent of GDP in November (lowest since early 2000s).
  - Real base money in November: down 26.7 percent y/y.
- Trade, FX and reserves:
  - Goods trade balance: surplus of US$1,800 million in October (deficit almost US$500 million in July).
  - BCRA sold US$900 million in the official market during October-November.
  - BCRA purchased over US$700 million during November 28–December 7 under temporary FX incentive scheme for soy exporters.
  - FX gap estimated in the range of 90-100 percent.
- Financial sector and domestic bonds:
  - Authorities mobilized net financing of about 0.9 percent of GDP since end-July.
  - Domestic bond market pressures reappeared in October; BCRA intervened in the secondary market.
  - BCRA purchased 2 percent of GDP in government securities from secondary markets, of which ½ percent of GDP since end-September.
  - Bank capital buffers: 28.7 percent (end-September).
  - System-wide NPLs: 3.1 percent.
  - Bank exposure to public sector: over 50 percent of banking system domestic currency assets.
  - Private sector loans: 6.2 percent of GDP; down 11.3 percent y/y in real terms in November.
  - Private sector peso term deposits have started to recover.

### Macroeconomic stance and key policy variables
- Fiscal:
  - Strong expenditure controls; subsidy segmentation scheme implemented; public sector-wide hiring freeze.
  - Cumulative real spending growth moderated to 3.8 percent y/y in October (from 14 percent y/y in May).
  - Revenue performance up 4 percent y/y (real) supported by higher customs duties from FX incentive scheme, advance income tax payments, and buoyant non-tax revenues.
- Monetary and FX:
  - Policy rates unchanged since October.
  - Monthly equivalent policy rate: 6.3 percent m/m (107.3 percent in annual effective terms).
  - End-year inflation expectations: 100 percent.
  - Rate of crawl accelerated to around 6.4 percent m/m (above monthly inflation) to contain earlier real appreciation trends (16 percent through October).
  - Renewed efforts to strengthen price-wage coordination.

### FX measures, exchange restrictions, and multiple currency practices (MCPs)
- Since mid-October, new FX restrictions and incentives introduced and expanded:
  - Reintroduction of temporary FX incentive scheme (December) for soy exporters: preferential rate of ARS 230 per USD (roughly 40 percent above the official rate); scheme expected to support settlement and sale of US$3 billion of soybean products; through December 7 BCRA purchased near US$700 million.
  - Extension of the 30 percent tax on purchase of FX to include purchases for personal, cultural and recreational services and import of select luxury goods.
  - Implementation of a 25 percent surcharge (anticipated tax withholding) on USD-denominated card payments surpassing US$300/month, tickets of trips abroad, tourism expenses abroad, and luxury imports.
  - Allowing nonresident tourist card purchases to be valued at preferential MEP rate.
  - New import monitoring and clearance system increased imports subject to non-automatic licenses to over 40 percent currently.
- Measures give rise to new MCPs and intensify exchange restrictions, resulting in nonobservance of continuous PCs on exchange restrictions/MCPs.
- Authorities requested:
  - Waiver for non-observance of continuous PC related to exchange restrictions/MCPs.
  - Board approval under Article VIII, Sections 2(a) and 3 for temporary retention of these measures.

### Macroeconomic baseline, projections, and key statistics (selected)
- Real GDP growth:
  - Projected 4.6 percent in 2022 (up from 4 percent at second review).
  - Projected 2 percent in 2023; medium-term expansion 2 percent per year.
- Inflation (eop):
  - Projected decline from around 5 percent m/m by end-2022 (97 percent y/y) to around 3½ percent m/m by end-2023 (60 percent y/y).
- External and reserves:
  - Current account: deficit of 0.3 percent of GDP in 2022; projected surplus of 1.2 percent of GDP in 2023.
  - Reserve accumulation projected US$9.8 billion during 2022-23, with US$5 billion projected by end-2022.
- Fiscal and debt:
  - Primary fiscal deficit: 2.5 percent of GDP in 2022 (projected) to 1.9 percent of GDP in 2023.
  - Federal government debt projected to decline from 80 percent of GDP in 2022 to below 73 percent by 2024 (staff note: federal government debt ratio now projected to be 3 percent of GDP higher by end-2024 than at second review).
  - Annual financing mix for 2023 assumes pickup in net official financing and improved domestic debt market to enable rollover rates of 130 percent and reduce monetary financing from 0.8 percent of GDP in 2022 to 0.6 percent in 2023.
- Selected table highlights (Revised Macroeconomic Baseline, 2021–2024):
  - GDP growth (avg, %): 2021: 10.4; 2022: 4.0 (SR), 4.6 (Proj.); 2023: 2.0; 2024: 2.0.
  - Inflation (eop, %): 2021: 50.9; 2022: 95.0 (SR), 95.9 (Proj.); 2023: 60.0; 2024: 44.0.
  - Primary fiscal balance (% of GDP): 2021: -3.0; 2022: -2.5; 2023: -1.9; 2024: -0.9.
  - Federal government debt (% GDP): 2021: 80.9; 2022: 76.0 (SR), 79.7 (Proj.); 2023: 69.5; 2024: 71.1.
  - Change in net int’l reserves (US$bn): 2021: -1.6; 2022: 5.0; 2023: 5.0; 2024: 4.8.
  - Monetary financing (% GDP): 2021: 3.7; 2022: 0.8; 2023: 0.6; 2024: 0.6.

### Policy recommendations and priorities
- Continued resolute program implementation is essential to strengthen credibility and anchor the program.
- Prudent macroeconomic policies needed to:
  - secure key program targets,
  - address high persistent inflation,
  - improve reserve coverage.
- Fiscal consolidation and expenditure policy:
  - Planned reduction in primary fiscal deficit essential: from 2.5 percent of GDP in 2022 to 1.9 percent in 2023.
  - Implement strong expenditure controls, improve targeting of subsidies and social assistance, contain wage/pension spending, and limit transfers to provinces and public entities.
  - High-quality spending measures to facilitate consolidation beyond 2023 and ensure debt sustainability.
- Monetary and FX:
  - Maintain sufficiently positive real interest rates to reduce inflation, encourage demand for peso assets, and reduce reliance on central bank financing.
  - Rate of crawl should remain above inflation to restore competitiveness.
  - Limit and gradually unwind administrative FX measures and multiple currency practices as conditions permit.
- Debt and financing:
  - Adopt proactive market-oriented debt management centered on extending maturities to mitigate rollover risks; mobilize net domestic financing roughly 3 percent of GDP during remainder of 2022 and 2023.
  - Mobilize support from multilateral and bilateral partners to meet financing commitments.
- Structural reforms:
  - Strengthen revenue mobilization, public financial management, central bank balance sheet, and energy sector efficiency/sustainability.
- Contingency:
  - Maintain readiness to tighten policy further if risks materialize; agile policymaking and contingency planning required.
- Political economy:
  - Broad political support for the program remains essential, especially approaching elections.

### Program risks (selected)
- Elevated program risks due to:
  - Less favorable external environment,
  - Ongoing policy implementation risks,
  - Complex domestic economic, social, and political situation.
- Specific risks:
  - Sharper-than-anticipated slowdown in trading partner growth or tightening global financial conditions.
  - Intensification of drought reducing agricultural exports and FX inflows.
  - Escalation of social discontent weakening political support and leading to policy slippages.
- Recommended contingency measures:
  - Agile policymaking, avoid reliance on administrative responses, and adopt tighter fiscal and monetary policies if financing shortfalls materialize.

### Program requests, waivers, and commitments
- Authorities request:
  - (i) completion of the financing assurances review;
  - (ii) a waiver for non-observance of the continuous PC related to imposition/intensification of exchange restrictions and introduction/modification of MCPs;
  - (iii) Board approval of temporary retention of the measures giving rise to exchange restrictions and MCPs under Article VIII, Sections 2(a) and 3.
- Program features:
  - Key objectives on primary fiscal deficit, monetary financing, and net international reserves unchanged for 2022–2023.
  - Two new structural benchmarks proposed: comprehensive evaluation of tax expenditures (end-June 2023, SB) and BCRA advancing disclosures toward IFRS 7 (end-May 2023, SB).
  - MDBs projected to provide net financing of US$1.3 billion in 2023; Paris Club agreement to restructure US$1.97 billion in legacy debt; net financing commitments from other bilateral creditors roughly US$0.4 billion per annum during 2022–24.
  - Baseline includes projected US$15 billion accumulation of international reserves and projected cumulative trade surpluses of US$40.9 billion and net FDI inflows of US$31.1 billion.

### Capacity to repay and exceptional access assessment
- Argentina’s capacity to repay Fund obligations remains subject to very high risks; hinges on strong policy implementation, reserve rise, and eventual resumption of market access by time repayments to the Fund come due.
- Fund staff judges Argentina continues to satisfy the four criteria for exceptional access, premised on decisive and full implementation of agreed baseline policies; risks remain exceptionally high.
  - CRITERION 1: met — exceptional BOP pressures.
  - CRITERION 2: met — debt sustainable but not with high probability.
  - CRITERION 3: met — prospects of regaining market access contingent on decisive policy implementation; re-access assumed to start gradually in 2025.
  - CRITERION 4: met — prospect of program success contingent on sustained implementation and political support.

### Inflation dynamics and policy levers (Box 1, selected)
- Key drivers: high inflation inertia, nominal exchange rate passthrough, monetary financing, FX gap, and inflation expectations.
- 2022 experience: inflation rose from 3.9 percent m/m in January to 7.4 percent m/m in July; FX gap rose up to 150 percent at end-July.
- Durably reducing inflation requires: politically-backed tight macroeconomic policies, reduction in monetary financing, reserve accumulation, strengthened demand for peso assets, and wage-price coordination.
- Staff estimate: a 10 percent increase in global cereal and fuel prices could raise Argentina’s headline inflation by about 1.6 percentage points over 12 months.

### Strengthening BCRA’s balance sheet (Box 2, selected)
- Diagnosis: BCRA equity weakened due to balance sheet expansion; recent steps include stopping temporary advances and profit distributions.
- Options to strengthen policy solvency:
  - Prudent macroeconomic policies and cessation of monetary financing.
  - Gradually swap non-transferable government securities for marketable securities when market conditions allow.
  - Move toward full IFRS application and enhance transparency.
  - Consider legal changes to define equity targets and profit distribution conditions.

### Public financial management, revenue mobilization, and debt strategy (selected)
- Public financial management:
  - 2023 Budget: rollout of new prioritization and selection criteria for investment projects.
  - Framework to strengthen controls over Treasury transfers to public corporations/trusts; decree issued to enhance quarterly reporting (end-March 2023, SB).
  - Strengthen procurement practices and Treasury Single Account; prompt publication of audited financial statements needed.
- Revenue mobilization:
  - Comprehensive review of tax expenditures (near 2½ percent of GDP) proposed end-June 2023, SB.
  - Strengthen property tax collection (bienes personales) with valuation and database improvements (end-March-2023, SB).
  - Action plan to strengthen revenue administration capacity and efficiency (end-December 2022, SB).
- Financing strategy:
  - Mobilize fresh peso financing (~3 percent of GDP) by encouraging nonfinancial corporates and tapping cash surpluses of subnational governments/public institutions.
  - Extend maturities of intra-public sector debt (close to 60 percent of amortizations falling due next year).
  - Annual borrowing plan for 2023 completed; MTDS advanced (end-December 2022, SB).
  - December operations achieved more than 200 percent rollover in first half of December (maturities ~412,000 M pesos faced and financing obtained ~830,000 M pesos; offers reached 1.2 B pesos).

### Monetary, exchange rate, and FX regime operational guidance
- Monetary policy:
  - Policy rates should remain firmly in positive real territory and guided by core inflation and forward-looking measures.
  - BCRA should be ready to raise rates if shocks materialize; strengthen monetary transmission and coordinate with Treasury.
  - Unilateral involuntary price controls should be avoided; wage-price coordination can be complementary.
- Exchange rate:
  - Rate of crawl should remain above inflation to restore competitiveness.
  - Limit interventions in parallel markets; NDF market interventions only to address disorderly conditions.
- Administrative CFMs:
  - Useful near term to safeguard reserves but not durable; create MCPs and distortions and should be minimized and gradually streamlined.
  - Roadmap for conditions-based easing of CFMs (end-June 2023, SB).
  - Improve sanctioning framework of Foreign Exchange Criminal Law; high-level working group to submit recommendations and revised law to Congress by end-March 2023 (reset from end-December 2022).

### Energy, AML/CFT, and structural reforms (selected)
- Energy:
  - Complete stage 1 of Nestor Kirchner gas pipeline by end-June 2023: increase daily domestically-produced gas by 11 million cubic meters initially and by 22 million cubic meters once compressors installed.
  - Projected to sharply reduce costly energy imports from mid-2023 with fiscal and external spillovers from 2024.
  - Tariff segmentation, subsidy reductions and Plan Gas to support production and exports through 2028.
- AML/CFT:
  - Preparations for FATF evaluation in 2023: preliminary AML/CFT legislative amendments, gap analysis completed, national risk assessment adopted, national AML/CFT Strategy published (end-September 2022, SB).
- Regulatory reforms:
  - Continued reforms in strategic sectors (hydrocarbon, mining, agro-industry, automotive, hydrogen, biotechnology) to boost net export capacity while avoiding additional fiscal costs.

### Debt sustainability, DSA and risks (Annex I, selected)
- Staff assessment: debt is "sustainable, but not with high probability"; overall sovereign stress risks: high.
- GFN module: moderate risk; banking system assets: 40 percent of GDP; banks’ exposure to government debt around 15 percent of bank assets.
- Debt fanchart: public debt projected to decline from 80.97 percent of GDP 2021 to 63.0 percent by 2031 under baseline; fanchart width remains high (~60 percent).
- Key medium-term indicators (selected):
  - Public debt (percent of GDP): 2022: 79.77; 2023: 71.17; 2024: 72.77.
  - Primary deficit (percent of GDP): 2022: 2.5; 2023: 1.9; 2024: 0.9.
  - Gross financing needs (percent of GDP): 2022: 17.3; 2023: 16.1; 2024: 12.0.
  - Debt service (percent of GDP): 2022: 14.8; 2023: 14.2; 2024: 11.1.
- Contingent liability illustrative shock: 6 percent of GDP (provincial debt) would raise public debt by ~6 percent of GDP by end-2023, falling back to ~72 percent by 2027.

### Program monitoring, definitions and reporting (TMU highlights)
- NIR measurement: cumulative change measured relative to stock on December 31, 2021 (US2.277 billion revised stock baseline).
- Caps and targets:
  - Cumulative floor on change in NIR (US$bn): through end-2022 and 2023 adjusted targets supporting US$9.8 billion accumulation in 2022–23.
  - Cumulative ceiling on BCRA financing: 654,045 million pesos (0.8 percent of GDP) by end-December 2022; cap of 883,031 million pesos (0.6 percent of GDP) by end-December 2023; zero net financing in 2024.
  - Ceiling on BCRA stock of non-deliverable futures: capped at US$9 billion by end-2022 and end-2023; reference stock US$4.185 billion on December 31, 2021.
- Definitions and reporting frequency: comprehensive high-frequency reporting requirements (daily/weekly/monthly/semi-annual) and TMU conventions (program exchange rates as of March 2, 2022; inflation point estimates: 95.9 percent in 2022 and 60 percent in 2023).

### Staff appraisal — summary of key findings and recommendations
- Tighter macroeconomic policies are starting to bear fruit: inflation moderating from peaks and trade balance improving due to slowed domestic demand and imports.
- Persistent concerns: inflation and FX gap remain high; reserves coverage precariously low; reliance on distortionary FX measures; reemerging pressures in domestic debt markets prompting BCRA intervention.
- Staff priorities:
  - Continued decisive implementation to maintain program as anchor, especially ahead of elections.
  - Avoid ad-hoc and distortionary measures; prioritize market-based debt management and durable fiscal consolidation.
  - Maintain positive real policy interest rates and ensure rate of crawl exceeds expected inflation.
  - Minimize and gradually unwind administrative FX measures as reserve accumulation and confidence improve.
  - Strengthen public financial management, revenue mobilization, domestic debt markets, and BCRA balance sheet.
- Staff supports:
  - Authorities’ request for temporary retention of exchange restrictions/MCPs for balance of payments reasons with gradual lifting over program period.
  - Waivers of nonobservance of continuous PCs related to exchange restrictions/MCPs given planned corrective actions and temporary nature.
  - Completion of the Third Review under the Extended Arrangement and recommends completion of financing assurances review.

*Source: EXECUTIVE SUMMARY (1argea2022004) — IMF staff report, December 12, 2022.*

### EXECUTIVE SUMMARY

### 1argea2022004 - EXECUTIVE SUMMARY

### Context
- Early decisive policy implementation by the new economic team was critical to stabilizing markets and begin rebuilding confidence in the run-up to the second review.
- Domestic demand has slowed in response to tighter macroeconomic policies, with high frequency indicators pointing to a further moderation in inflation, a contraction in goods imports, and improvements in the trade balance.
- Key remaining vulnerabilities: inflation is still high and unanchored, reserves are low, and confidence needs further strengthening.
- Social discontent has risen amid spending restraint and some decline in real wages.
- Review discussions focused on strengthening macroeconomic policies to safeguard stability and achieve program objectives, especially a durable reduction in inflation and improvement in reserve coverage.
- Date of document: December 12, 2022.

### Program performance
- All quantitative performance criteria through end-September were met due to more decisive policy implementation, but the introduction of temporary measures has given rise to a new multiple currency practice (MCP) and intensified/modified existing exchange restrictions/MCPs, leading to nonobservance of the respective continuous PCs.
- Fiscal targets were met on account of:
  - strong expenditure controls and cash management,
  - higher export duties from the FX incentive scheme.
- Progress on structural agenda areas: revenue administration, public debt management, and energy policy.
- Completion of the second review catalyzed official financing, including budget support, and paved the way for a restructuring agreement with Paris Club creditors.
- Preliminary data suggest that end-2022 quantitative targets are within reach if prudent macroeconomic management is maintained.

### Recent developments and key indicators
- Economic activity:
  - The economy expanded by 6.2 percent y/y through Q3.
  - Manufacturing expanded by 6.3 percent y/y.
  - Retail expanded by 7.5 percent y/y.
  - Activity declined in September by 0.3 percent m/m.
  - Growth in supermarket sales moderated from 2 percent y/y in real terms in June to 0.8 percent y/y in September.
  - Import volume growth moderated from 15.8 percent y/y in June to 8.3 percent in October.
- Inflation:
  - Headline inflation increased slightly in October to 6.3 percent m/m (below the peak of 7.4 percent m/m in July).
  - Core inflation remained unchanged at 5.5 percent m/m in October (compared to 7.3 percent m/m in July).
  - Inflation expectations for end-2023 rose to 96 percent (compared to 90.5 in September).
  - Staff considers that a moderation of inflation to around 60 percent by end 2023 is feasible with continued decisive policy implementation, but the risk that higher inflation persists is significant.
  - Money demand: base money reached 4.5 percent of GDP in November, its lowest levels since the early 2000s.
  - Real base money in November was down 26.7 percent (y/y).
- Trade and reserves:
  - Goods trade balance moved into surplus in October of US$1,800 million after a July deficit of almost US$500 million.
  - BCRA sold US$900 million in the official market during October-November.
  - The BCRA has purchased over US$700 million during November 28-December 7 under the temporary FX incentive scheme for soy exporters.
  - FX gap estimated in the range of 90-100 percent.
- Domestic bond market and central bank intervention:
  - Authorities mobilized net financing of about 0.9 percent of GDP since end-July.
  - Domestic bond market pressures reappeared in October; the central bank intervened again in the secondary market at lower levels than earlier in the year.
  - The BCRA has purchased 2 percent of GDP in government securities from the secondary markets, of which ½ percent of GDP has taken place since end-September.
  - Recent debt management efforts focused on intra-public sector exchanges to extend maturities from Q4:2022 to Q3:2023.
- Financial sector:
  - Bank capital buffers: 28.7 percent (as of end-September).
  - System-wide NPLs: 3.1 percent.
  - Bank exposure to the public sector: over 50 percent of banking system domestic currency assets.
  - Private sector loans: 6.2 percent of GDP; private sector loans down 11.3 percent y/y in real terms in November.
  - Private sector peso term deposits have started to recover.

### Macroeconomic policies (recent stance)
- Fiscal:
  - Strong expenditure controls remain in place.
  - Implementation of the subsidy segmentation scheme.
  - Public sector-wide hiring freeze.
  - New policies to improve effectiveness and targeting of social spending and channel savings to support SMEs.
  - Cumulative real spending growth moderated to 3.8 percent y/y in October (down from 14 percent y/y in May).
  - Revenue performance up 4 percent y/y in real terms, supported by higher customs duties from the temporary FX incentive scheme, advance income tax payments, and buoyant non-tax revenues.
- Monetary and FX:
  - Policy rates remain firmly in positive territory and have been kept unchanged since October.
  - Monthly equivalent policy rate: 6.3 percent m/m (107.3 percent in annual effective terms).
  - End-year inflation expectations: 100 percent.
  - Rate of crawl accelerated to around 6.4 percent m/m (above monthly inflation) to contain earlier real appreciation trends (16 percent through October).
  - Policies complemented by renewed efforts to strengthen price-wage coordination.

### Policy recommendations
- Continued resolute program implementation is essential to strengthen policy credibility and the anchoring role of the program.
- Prudent macroeconomic policies are necessary to:
  - secure key program targets,
  - address high persistent inflation,
  - improve reserve coverage.
- Planned reduction in the primary fiscal deficit, supported by expenditure controls and actions to improve the targeting of subsidies and social assistance, is essential to:
  - ensure a healthy moderation in domestic demand,
  - alleviate financing pressures,
  - support reserve accumulation.
- High-quality spending measures are essential to improve the structure of spending, facilitate fiscal consolidation beyond 2023, and ensure debt sustainability.
- Continued application of the enhanced monetary and FX policy framework, maintaining sufficiently positive real interest rates, is critical to:
  - reduce inflation,
  - encourage demand for peso assets,
  - reduce reliance on central bank financing,
  - improve competitiveness.
- Meeting domestic financing objectives for the remainder of 2022 and 2023 will require a more proactive market-oriented debt management strategy centered on extending maturities to mitigate rollover risks.
- Mobilizing support from multilateral and bilateral partners is essential to ensure financing commitments are met.
- Structural reforms needed: strengthen revenue mobilization, public financial management, the central bank balance sheet, and the efficiency/sustainability of the energy sector.
- Reliance on ad-hoc and distortionary measures, including exchange restrictions and multiple currency practices, should be avoided going forward; a gradual easing of these restrictions should be sought as conditions permit, including to support return to international capital markets by the time repurchases to the Fund come due.
- Broad political support for the program remains essential, especially as elections draw closer.

### Program risks
- Elevated program risks due to:
  - a less favorable external environment,
  - ongoing policy implementation risks,
  - complex domestic economic, social, and political situation.
- Specific risks:
  - Sharper-than-anticipated slowdown in trading partner growth or tightening in global financial conditions could adversely impact Argentina via commodity prices and the domestic bond market.
  - Intensification of the ongoing drought could reduce agricultural exports and foreign currency inflows, stoking inflation and jeopardizing program objectives.
  - Escalation of social discontent could weaken political support for the program, leading to policy slippages and interventionist measures, especially ahead of elections.
- Contingency planning and agile policy making will remain essential; further policy tightening may be necessary should risks materialize.
- The Fund continues to face significant enterprise risks, as program risks cannot be fully mitigated.

### Program requests and commitments
- The program’s key objectives related to the primary fiscal deficit, monetary financing of the deficit, and net international reserves remain unchanged over the period 2022 to 2023.
- Authorities request:
  - (i) completion of the financing assurances review;
  - (ii) a waiver for the non-observance of the continuous performance criterion related to the imposition or intensification of exchange restrictions and the introduction or modification of MCPs;
  - (iii) Board approval of the temporary retention of the measures giving rise to exchange restrictions and MCPs under Article VIII, Sections 2(a) and 3.
- The program also proposes new and modified structural benchmarks.

*Source: EXECUTIVE SUMMARY (1argea2022004) — IMF staff report, December 12, 2022.*

### 5.       Against the backdrop of continued reserve accumulation challenges, reliance on ad-

### 1argea2022004 - 5.       Against the backdrop of continued reserve accumulation challenges, reliance on ad-

### FX measures, exchange restrictions, and multiple currency practices (MCPs)
- Since mid-October, new FX restrictions and incentives have been introduced and expanded.
- Authorities measures include:
  - Reintroduction of a temporary FX incentive scheme for the month of December to encourage soy exporters and producers to sell their stocks; under the new scheme soybeans and derivates sold for exports would benefit from a preferential rate of ARS 230 per USD (roughly 40 percent above the official rate). The scheme is expected to support the settlement and sale of US$3 billion of soybean products; through December 7, BCRA purchased near US$700 million.
  - Extension of the 30 percent tax on the purchase of FX to include the purchase of foreign currency for personal, cultural and recreational services and the import of select luxury goods—intensifying an exchange restriction and compounding multiplicity of exchange rates.
  - Implementation of a 25 percent surcharge, in the form of an anticipated tax withholding, on USD-denominated payments with credit/debit cards surpassing US$300/month, tickets of trips abroad, tourism expenses in foreign countries, and luxury imports.
  - Allowing nonresident tourists credit card purchases to be valued at a preferential legal parallel exchange rate (MEP).
  - A new import monitoring and clearance system increased imports subject to non-automatic licenses to over 40 percent currently (from a much lower share earlier this year).
- Measures give rise to new MCPs (e.g., preferential exchange rate for exporters of soybeans and derivates; preferential exchange rate for non-resident tourists) and intensify exchange restrictions (e.g., reduction in annual limits on undelayed FX access for goods imports; system of annual limits on FX access for payments of imports of services; inclusion of CEDEARS transactions in preclusion periods).

### Program performance through end-September and near-term status
- All quantitative performance criteria through end-September were met, but underlying conditions remain fragile.
- Fiscal outcomes and arrears:
  - Primary fiscal deficit through end-September: ARS 1,096 billion (1.3 percent of GDP), meeting the adjusted program target by ARS 40 billion.
  - Stock of domestic arrears fell from around ARS 800 billion at end-June to an average of ARS 590 billion in Q3, below the program ceiling of ARS 654 billion.
  - The indicative floor on social spending (covering three flagship programs) was missed narrowly, reflecting underexecution of AUH cash transfers; additional social assistance delivered through targeted one-off bonuses.
- Monetary and reserves:
  - Cumulative change in Net International Reserves (NIR) through end-September: US$4.6 billion versus an adjusted program floor of US$3.6 billion—largely driven by the FX incentive scheme.
  - Central bank financing of the federal government at end-September: ARS 620 billion, below the program ceiling of ARS 665 billion (cap on monetary financing of the fiscal deficit of 0.8 percent of GDP in 2022).
  - The information threshold (IT) on the stock of non-deliverable futures (NDF) was comfortably met.
- Structural benchmarks: good progress on end-December structural benchmarks with IFI technical assistance to strengthen (i) revenue compliance, (ii) sustainability and efficiency of the energy sector, (iii) the domestic debt market over the medium term, and (iv) the central bank’s financial position. Additional benchmarks set to support revenue mobilization and central bank transparency.

### Macroeconomic baseline, projections, and key statistics
- Real GDP growth:
  - Projected to expand by 4.6 percent in 2022 (up from 4 percent at the second review).
  - Projected to moderate to 2 percent in 2023.
  - Projected medium-term expansion: 2 percent per year.
- Inflation:
  - Projected to decline from around 5 percent m/m by end-2022 (97 percent y/y) to around 3½ percent m/m by end-2023 (60 percent y/y).
  - Adjustment assumed gradual due to high inertia and weak money demand and need to correct relative price misalignments.
- External balance and reserves:
  - Current account balance: deficit of 0.3 percent of GDP in 2022; projected surplus of 1.2 percent of GDP in 2023.
  - Reserve accumulation projected US$9.8 billion during 2022-23, with US$5 billion projected by end-2022 (unchanged relative to the second review), supported by administrative FX measures.
- Fiscal and financing:
  - Primary fiscal deficit projected to decline from 2.5 percent of GDP in 2022 to 1.9 percent of GDP in 2023.
  - Medium-term: federal government debt projected to decline from 80 percent of GDP in 2022 to below 73 percent by 2024 (note a staff footnote indicating the federal government debt ratio is now projected to be 3 percent of GDP higher by end-2024 than at the second review).
  - Annual financing mix for 2023 underpinned by pickup in net official financing and improvement in domestic debt market conditions to enable rollover rates of 130 percent and reduce monetary financing of the fiscal deficit from 0.8 percent of GDP in 2022 to 0.6 percent of GDP in 2023.
- Selected table highlights (Revised Macroeconomic Baseline, 2021–2024):
  - GDP growth (avg, %): 2021: 10.4; 2022: 4.0 (SR), 4.6 (Proj.); 2023: 2.0; 2024: 2.0.
  - Inflation (eop, %): 2021: 50.9; 2022: 95.0 (SR), 95.9 (Proj.); 2023: 60.0; 2024: 44.0.
  - Primary fiscal balance (% of GDP): 2021: -3.0; 2022: -2.5; 2023: -1.9; 2024: -0.9.
  - Federal government debt (% GDP): 2021: 80.9; 2022: 76.0 (SR), 79.7 (Proj.); 2023: 69.5; 2024: 71.1.
  - Current account balance (% GDP): 2021: 1.4; 2022: -0.3; 2023: 0.6; 2024: 0.4.
  - Change in net int’l reserves (US$bn): 2021: -1.6; 2022: 5.0; 2023: 5.0; 2024: 4.8.
  - Monetary financing (% GDP): 2021: 3.7; 2022: 0.8; 2023: 0.6; 2024: 0.6.
  - Terms of trade (percent change): 2021: 9.6; 2022: -0.2; 2023: -0.7; 2024: 1.8.
  - Note: NIR are gross reserves net of swap lines, deposit insurance, reserve requirements on FX deposits, and other reserves liabilities.

### Risks and contingency considerations
- Program risks are very elevated.
- External risks include: (i) slowdown in key advanced and emerging economies; (ii) faster-than-anticipated tightening in global financial conditions; (iii) sudden worsening in terms-of-trade (shifts in world energy and agricultural prices); intensification of drought would hurt agricultural exports and FX inflows.
- Domestic risks include potential policy slippages, intensification of domestic bond market pressures from policy uncertainties, and social discontent from spending restraint or higher-than-projected inflation—especially ahead of October 2023 Presidential elections.
- Recommended contingency planning and policy posture:
  - Agile policymaking and contingency planning anchored on timely adaptation of macroeconomic policies.
  - Avoid reliance on administrative responses to prevent further distortions and buildup of new vulnerabilities.
  - Proactive market-oriented debt strategy to manage lumpy amortizations and raise needed net financing in 2023.
  - In case of financing shortfalls, adopt tighter fiscal policies (e.g., reduced transfers to public entities, lower nonpriority capital spending) and higher real interest rates to alleviate market pressures, support demand for government securities, and boost policy credibility.

### Policy discussion — Fiscal policies and structural measures
- General:
  - Continued tightening of macroeconomic policies is critical to durably strengthen stability; key program objectives (primary fiscal deficit and net international reserves) remain unchanged for remainder of 2022 and through 2023.
  - Enhancing credibility requires upfront high-quality measures; even tighter policies may be required given risks.
  - Reliance on ad-hoc FX measures, restrictions, and import controls should be avoided.
- 2022 fiscal management:
  - Continued tight expenditure controls are critical to ensure achievement of the 2022 primary deficit target of 2.5 percent of GDP.
  - A new Emergency Decree will modify the current budget to reflect higher-than-anticipated revenues and update spending priorities (prior action), raising nominal spending ceilings for wages, pensions and some social assistance while reprioritizing resources for targeted social spending and support for small farmers and businesses.
  - Spending in the final month of the year should be limited to cash resources to keep cumulative real primary spending generally unchanged relative to 2021.
- 2023 budget and consolidation:
  - 2023 budget consistent with primary deficit target of 1.9 percent of GDP; consolidation underpinned primarily by:
    - Reduction in subsidies: 0.6 percent of GDP (mostly energy, also water and transport).
    - Rationalizing social assistance: 0.8 percent of GDP through unwinding of emergency bonuses and improved targeting of benefits.
  - Additional measures to contain public sector wage bill (sector-wide hiring freeze), pensions (indexation formula, avoidance of moratoria), and transfers to provinces, SOEs and other agencies.
  - Primary deficit will be limited to 0.8 percent of GDP during the first half of 2023 to help credibility and disinflation goals.
- Energy subsidy segmentation and measures:
  - High-income residential users (about 25 percent of residential users) and commercial users experienced a cumulative 60 percent reduction in electricity and gas subsidies during October and November; subsidies for this high-income residential group and commercial users will be fully eliminated by February 2023 (end-January 2023 SB; modified and reset to February 15, 2023, SB).
  - For subsidized middle- and low-income residential users, energy tariffs will be raised effective February 2023 by 80 percent and 40 percent of nominal wage growth (projected at around 100 percent), respectively.
  - These efforts projected to reduce energy subsidies by around 0.5 percent of GDP and—by staff estimates—raise cost recovery levels from around 30 percent in September 2022 to about 60 percent by end-2023.
- Social spending targeting and workfare reform:
  - A new strategy to strengthen targeting of income support programs is being developed (end-March 2023, SB); key aspects implemented including a November decree closing several social programs to new entrants (notably Potenciar Trabajo).
  - Rapid audit of Potenciar Trabajo beneficiaries to be completed by January 2023; over 20,000 ineligible recipients already removed.
  - Plans to cap Potenciar Trabajo benefit for those receiving other government transfers and to encourage formal labor market re-entry.
  - Preparation of a study to identify options to strengthen equity and financial sustainability of the pension system (modified end-December 2022, SB); specific reform proposals plausible only after the elections.

*1argea2022004 - 5.       Against the backdrop of continued reserve accumulation challenges, reliance on ad-*

### 14.      Further improvements in public financial management could support the

### 14.      Further improvements in public financial management could support the

### Public financial management improvements
- 2023 Budget: rollout of new prioritization and selection criteria for investment projects to focus on large and ongoing projects.
- Developing a framework to strengthen controls over Treasury transfers to public corporations/trusts as part of an action plan to enhance financial and budget reporting of national public sector entities.
- A decree was recently issued to strengthen financial oversight through improved information reporting, aiming to support timely publication of enhanced quarterly reports for public corporations and trust funds (end-March 2023, SB).
- Additional needs:
  - Strengthen procurement practices by updating the regulatory framework and improving monitoring mechanisms.
  - Improve expenditure controls and accountability by further strengthening the Treasury Single Account and prompt publication of the annual audited financial statements.

### Revenue mobilization
- Revenue policy:
  - Comprehensive review of tax expenditures (estimated at near 2½ percent of GDP) to identify options for streamlining tax incentive schemes (proposed end-June 2023, SB).
  - Continued efforts to strengthen property tax collection (bienes personales) requiring:
    - (i) improvements in the methodology for property valuations; and
    - (ii) enhancements in property tax databases linking provincial cadasters with federal property tax registers, starting with the Greater Buenos Aires Metropolitan Area (end-March-2023, SB).
- Revenue administration:
  - An action plan being finalized, with Fund technical assistance, to strengthen revenue administration capacity and efficiency (end-December 2022, SB). Key elements:
    - Comprehensive compliance gap analysis for key taxes.
    - Policies and guidelines for risk segmentation of taxpayers and foreign trade operators.
  - New risk management unit created to support the Compliance Risk Management Committee (CRM).
  - Recently-signed tax information exchange agreement with the United States could improve revenues in the near to medium term if managed properly and transparently.

### Financing strategy and fiscal financing risks
- Mobilizing net domestic financing and mitigating rollover risks:
  - Recent reliance on short-term issuances and USD-denominated bonds increased maturity and currency risks, with a notable build-up of amortizations falling due in Q3:2023.
  - Strategy envisages:
    - (i) extending maturities of the debt held by intra-public sector entities, representing close to 60 percent of amortizations falling due next year;
    - (ii) tailored approach for obligations falling due to banks, mutual funds, and insurance companies.
  - Mobilizing fresh peso financing during remainder of 2022 and 2023 (roughly 3 percent of GDP) will require encouraging nonfinancial corporates and tapping cash surpluses of subnational governments and other public institutions.
  - High-frequency (monthly) monitoring mechanism now in place.
- Strengthening the peso market:
  - Annual borrowing plan for 2023 completed; medium-term debt strategy advanced (end-December 2022, SB).
  - Achieving net peso financing goals depends on decisive implementation of tight macroeconomic policies and the enhanced monetary policy framework.
- External financing:
  - Shortfalls close to US$800 million through end-September; official disbursements picked up in Q4:2022 with IADB budget support of US$1.2 billion, and project support of US$250 million expected from non-Paris Club creditors.
  - Deal with Paris Club creditors to restructure US$1.97 billion in legacy debt consistent with repayment capacity and reserve accumulation goals.
  - Continued efforts needed to ensure official creditors meet financing commitments (worth over US$2 billion through end-2023) and secure additional official financing to support programmed reduction in monetary financing and reserve accumulation.
  - Re-accessing international capital markets assumed to start gradually in 2025.

### Monetary and exchange rate policies
- Monetary policy framework:
  - Policy interest rates should remain firmly in positive real territory, guided by enhanced monetary policy framework based on actual core inflation and forward-looking measures.
  - Nominal policy rates should remain sufficiently positive to ensure inflation and inflation expectations are on a clear downward path; BCRA should be ready to raise rates if new inflation shocks materialize.
  - Strengthen monetary transmission by improving coordination with the Treasury, maintaining a narrow corridor on monetary policy instruments, unwinding regulated bank deposit and lending rates, and simplifying the reserve requirements regime while considering banks' capital and liquidity positions.
  - Well-designed wage-price coordination could complement disinflation; unilateral involuntary price controls should be avoided.
- Exchange rate and crawl:
  - With positive real interest rates, the rate of crawl should remain above inflation to strengthen external competitiveness and unwind earlier real exchange rate appreciation.
  - Tight fiscal policy needed to moderate domestic demand and mitigate inflationary impact.
  - BCRA should avoid interventions in parallel markets; interventions in non-deliverable futures markets should be limited to addressing disorderly FX conditions.
- Administrative FX measures:
  - Useful to safeguard reserves in near term but not durable; they create multiple currency practices and distortions and should be minimized and gradually streamlined as conditions permit.
  - Develop a roadmap for conditions-based easing of CFMs (end-June 2023, SB).
  - Improve sanctioning framework of the Foreign Exchange Criminal Law regime; high-level working group to produce recommendations and submit revised law to Congress by end-March (end-December 2022, SB; reset to end-March 2023, SB).

### Central bank balance sheet and monetary operations
- Central bank securities:
  - Stock of central bank securities reached 12 percent of GDP as of end-November, a historic high.
  - Carrying costs projected to exceed 4 percent of GDP in 2022.
  - Rise reflects sterilization needs from monetary financing of the fiscal deficit, interest payments on central bank securities, subsidized FX sales, reserve accumulation, and central bank interventions in the secondary market for government securities.
  - Additional purchases in the secondary market should be avoided unless critical for smooth market functioning; interventions should be temporary, at market prices, with offsetting sterilization measures and consideration for a conditions-based unwinding strategy.
  - BCRA finalizing its strategy to durably improve its financial position (modified end-December 2022, SB) and taking steps to strengthen transparency of 2022 financial statements by enhancing disclosures in line with IFRS 7 (proposed end-May 2023, SB).

### Energy, AML/CFT, and structural reforms
- Energy:
  - Complete construction of stage 1 of the gas pipeline by end-June 2023 remains a priority.
  - Pipeline will connect “Vaca Muerta” shale reserves with large urban areas, supporting an increase in daily domestically-produced gas initially by 11 million cubic meters, and by 22 million cubic meters once compressors are installed.
  - Potential to sharply reduce costly energy imports from mid-2023 with positive fiscal and external spillovers from 2024 onwards.
  - Comprehensive national energy sector strategy being finalized with World Bank support (end-December 2022, SB), including energy efficiency, renewable generation expansion, electricity distribution/transmission, and financial sustainability; strategy includes detailed plan for tariff segmentation scheme implementation in 2023.
- AML/CFT:
  - Preparations for FATF evaluation in 2023 continue.
  - Preliminary amendments to AML/CFT legislation presented to Congress; gap analysis against FATF’s 40 Recommendations completed; national risk assessment of money laundering adopted; updated assessment of terrorist financing completed; national AML/CFT Strategy published (end-September 2022, SB).
  - FIU will issue necessary resolutions to facilitate prompt and full implementation.
- Regulatory reforms:
  - Continued reform of regulatory frameworks in strategic sectors (hydrocarbon, mining, agro-industry, automotive, hydrogen and biotechnology) to boost net export capacity while maintaining a level playing field and avoiding additional fiscal costs or regulatory burdens.

### Program features, targets, and financing assurances
- Program documentation:
  - Letter of Intent (LOI) and Memorandum of Economic and Financial Policies (MEFP) describe progress and future commitments; Technical Memorandum of Understanding (TMU) clarifies program definitions and quarterly targets.
- Quantitative targets:
  - Key quantitative targets unchanged relative to the second review.
  - Quarterly performance criteria set through June 2023 on fiscal balance, domestic arrears, net international reserves, and monetary financing; quarterly indicative targets for second half of 2023 with revised adjustors reflecting updated projections including agreed Paris Club repayments.
  - Authorities requesting waivers of nonobservance for continuous PCs related to exchange restrictions and MCPs based on corrective actions and roadmap for conditions-based easing of CFMs.
- Structural benchmarks:
  - Two new structural benchmarks proposed:
    - (i) comprehensive evaluation of tax expenditures to identify options for streamlining inefficient schemes (proposed end-June 2023, SB);
    - (ii) BCRA advancing toward application of internationally recognized accounting standards for the 2022 financial statements by enhancing disclosures towards compliance with IFRS 7 (proposed end-May 2023, SB).
  - Proposed modification/resetting of several structural benchmarks, including resetting elimination of gas and electricity subsidies for the high-income group and commercial users to February 15, 2023, SB, and resetting submission of enhancements to the Foreign Exchange Criminal Law to Congress to end-March 2023.
- Financing assurances and projections:
  - MDBs (World Bank, IADB, CAF) projected to provide net financing of US$1.3 billion in 2023, including budget support and project loans.
  - Paris Club agreement reached to restructure legacy debt with repayment by September 2028.
  - Net financing commitments from other bilateral creditors in baseline amount to roughly US$0.4 billion per annum during 2022-24.
  - Baseline for program period includes projected US$15 billion accumulation of international reserves; projected cumulative trade surpluses of US$40.9 billion and net FDI inflows of US$31.1 billion expected to more than offset net external debt obligations, with CFMs supporting limitation of capital outflows.

*ARGENTINA  INTERNATIONAL MONETARY FUND*

### 30.      Capacity to repay. Argentina’s capacity to repay its Fund obligations remains subject to

### 30.      Capacity to repay. Argentina’s capacity to repay its Fund obligations remains subject to

### Capacity to repay
- Argentina’s capacity to repay its Fund obligations remains subject to very high risks and continues to hinge on strong policy implementation to enable a rise in international reserves and eventual resumption of market access by the time repayments to the Fund come due (Table 12).
- The proposed revisions to the baseline do not alter staff’s assessment of Argentina’s capacity to repay.
- Full implementation of the EFF would help address the balance of payments need arising from the large obligations due to the Fund related to the 2018 SBA in 2022-23 and the current EFF.
- Fund debt service obligations would remain very large over the medium term:
  - around 6.8 percent of exports, or 12 percent of gross reserves,
  - with Fund credit outstanding declining only gradually below 6 percent of GDP by 2027.

### Jurisdictional issues and exchange measures
- Since the completion of the second review, Argentina introduced additional measures that give rise to a new MCP and the intensification/modification of currently existing exchange restrictions and MCPs, subject to Fund approval under Article VIII, Section 2(a), and 3.
- On November 28, the Argentine government reinstated its temporary FX incentive scheme for soy exporters, under which exporters of soybean and derivatives can fulfill their surrender requirement by exchanging their dollar receipts at a more preferential exchange rate of 230 pesos per dollar.
  - Due to the large spread between the preferential exchange rate and the official exchange rate (currently trading at around 168 pesos per dollar), which exceeds two percent, and given that the old measure had expired before the reintroduction of the scheme, this measure constitutes a new MCP subject to Fund jurisdiction.
- The authorities also extended coverage of the 30 percent tax on the purchase of foreign exchange by individuals and on payments for consumption abroad to include:
  a) personal, cultural, and recreational services; and
  b) the importation of a list of luxury goods.
  - The extension amounts to both an intensification of the exchange restriction and a modification of the existing MCP on the exchange tax.
- These measures resulted in nonobservance of performance criteria on:
  - the non-imposition/intensification of restrictions on the making of payments and transfers for current international transactions, and
  - non-introduction/modification of MCPs.

### Arrears Policy
- Under the Fund’s Lending into Arrears policy, staff assess that the authorities are continuing to make good faith efforts to resolve arrears to:
  (i) external private creditors that did not participate in the 2005/10 debt exchange or did not settle under the terms provided in 2016 and those to which there is debt outstanding from the 2001 default (US$2.3 billion total); and
  (ii) Mobil Exploration, where negotiations remain underway on a repayment plan on principal claims (US$196 million).
- Two external arrears claims remain litigated:
  - the French export credit agency (US$30 million), where the Court of appeals, but not yet the Supreme Court of Justice, rejected the firm’s appeal on grounds of statute limitations;
  - Titan Consortium I, LLC, where a legacy claim is currently under court dispute on grounds of statute of limitations.
- The authorities affirmed that no other external arrears were accumulated since the last review.

### Exceptional Access — staff assessment of the four criteria
- Staff assesses that Argentina continues to satisfy the four criteria for exceptional access, premised on decisive and full implementation of agreed baseline policies. Risks remain exceptionally high.
- CRITERION 1 (Exceptional balance of payments pressures)
  - Staff judges this criterion as met.
  - Argentina is experiencing exceptional balance of payments pressures on the financial account, in the context of low net international reserves, despite tight CFMs and trade surpluses (although these have been narrowing more recently).
  - Meeting very large external debt service obligations during 2022–24 will require financial support from the Fund beyond its normal access limits, and broader international community support.
- CRITERION 2 (Debt sustainability analysis)
  - Staff judges this criterion as met.
  - Under the revised baseline and policy framework, staff continues to assess that Argentina’s public debt is sustainable but not with high probability (see DSA Annex I).
  - Adequate safeguards are assessed to be in place to meet EA2, including the potential availability of restructurable FX private-sector debt after the program to improve debt sustainability.
  - This assessment is subject to exceptionally high risks and hinges on implementation of the proposed fiscal consolidation path, enhanced monetary and FX policy framework, strengthening the domestic peso debt market, and encouraging net exports and foreign direct investment.
  - Projected debt and debt service metrics remain above the indicative targets set out in the March 2020 Staff Technical Note on Public Debt Sustainability; margins to maneuver remain extremely limited.
- CRITERION 3 (Prospects of regaining market access)
  - Staff judges this criterion as met.
  - Current challenges: sluggish reserve accumulation, weak external bond prices, recent sovereign rating downgrade.
  - Decisive policy implementation, especially ahead of the 2023 elections, is critical to gradually regain access to international private capital markets by the time obligations to the Fund fall due (beginning in late 2026).
  - Strengthening the domestic debt market is critical, including development of a medium-term debt management strategy (MTDS) with Fund technical assistance, to allow a gradual extension of maturities and reduced reliance on inflation-linked bonds.
  - Reserve accumulation will require policies supporting external competitiveness, trade surpluses, foreign direct investment, and efforts to catalyze net official financing.
  - CFMs are needed near term to limit outflows, but improvements in reserve coverage and confidence should allow gradual lifting of CFMs and gradual re-access to private international capital markets starting in 2025.
  - Assessment remains subject to high uncertainty as shocks and policy setbacks could compromise reserve accumulation and timely re-access to markets.
- CRITERION 4 (Prospect of program success)
  - Staff judges this criterion as met.
  - Authorities remain committed to program policies and objectives; Minister Massa, with expanded powers and political support, has improved policy coordination and strengthened implementation, evidenced by decisive early actions on fiscal, monetary, and subsidy policies.
  - Support for the program is fairly broad (e.g., congressional approval of the 2023 Budget), but could wane as elections draw closer.
  - Delivering agreed policy tightening will be challenging if inflation remains high, the economy slows sharply, or external conditions worsen. Stabilizing the domestic debt market will require broad political consensus.

### Staff appraisal — key findings and recommendations
- Macroeconomic developments and risks
  - Tighter macroeconomic policies are starting to bear fruit: inflation is moderating (albeit from high levels) and the trade balance is improving due to a slowdown in domestic demand and imports.
  - Inflation and the FX gap remain high and reserves coverage precariously low.
  - Reliance on distortive FX measures continues; pressures in the domestic debt market have reemerged, causing further central bank intervention in the secondary market.
- Policy priorities and recommendations
  - Continued decisive program implementation is critical to safeguard objectives and maintain the program as an anchor for stability, especially ahead of next year’s elections.
  - Avoid reliance on ad-hoc and distortionary approaches; prioritize necessary macroeconomic policies.
  - Fiscal consolidation:
    - Reduce the primary fiscal deficit from 2.5 percent of GDP in 2022 to 1.9 percent of GDP in 2023.
    - Require strong expenditure controls and upfront adoption of policies to improve targeting of energy subsidies and social assistance.
    - Mobilize revenues, contain wage/pension spending, and transfers to provinces and public entities to make room for priority infrastructure spending.
    - Frontloading efforts in the first half of 2023 is critical to boost credibility and support domestic demand management.
  - Mobilizing financing:
    - Adopt a more proactive market-based debt management strategy to mobilize net domestic financing, strengthen market functioning, and reduce central bank intervention in the secondary market.
    - Ensure delivery of official program financing and secure additional projects from bilateral creditors.
  - Monetary and FX policy framework:
    - Deliver positive real policy interest rates to reduce inflation and improve external competitiveness.
    - Real policy rates should remain sufficiently positive to ensure inflation and inflation expectations are on a clear declining path.
    - Allow the rate of crawl to exceed expected inflation to gradually improve external competitiveness.
    - Administrative FX measures and import controls could be counterproductive and should be avoided and unwound as reserve accumulation takes hold.
    - Price-wage coordination can be complementary; involuntary price controls should be eschewed.
  - Structural reforms:
    - Strengthen public financial management, improve targeting of spending, and mobilize revenues (including via the recently signed international information exchange agreement with the United States).
    - Strengthen domestic debt management, monetary policy transmission, and the central bank balance sheet.
    - Realize net export potential, particularly in energy, through predictable investment and governance frameworks.
- Risks and contingency planning
  - Program risks remain elevated; agile policy-making and contingency planning are required.
  - External downside risks include a sharper-than-anticipated slowdown in key economies or tightening global financial conditions, impacting commodity prices and domestic bond markets.
  - Intensification of the drought could sharply reduce FX inflows.
  - Contingency planning and agile policy adjustment, including further tightening if risks materialize, are essential.
  - Maintaining broad political support for the program and financing strategy is crucial.
- Staff recommendations on measures and waivers
  - Staff supports the authorities’ request for Board approval to maintain exchange restrictions and MCPs on a temporary basis for balance of payment reasons, expected to be gradually lifted over the program period.
  - Staff supports waivers of nonobservance of the PC on the non-imposition/intensification of restrictions on current international payments and on non-introduction/modification of MCPs, on the basis of planned corrective actions and the temporary nature of measures.
  - Staff supports completion of the Third Review under the Extended Arrangement and recommends completion of the financing assurances review, given Argentina’s ongoing good faith efforts to resolve external arrears.

### Box 1 — Argentina: Understanding Recent Inflation Dynamics
- Key drivers over the past decade: high inflation inertia and nominal exchange rate passthrough.
  - Persistence in inflation reflects prevalent formal and informal wage indexation mechanisms.
  - High exchange rate passthrough reflects high degree of dollarization and weak policy frameworks.
  - Most impact on current inflation is immediate and comes with a one-month lag.
- Complementary factors: monetary financing, FX gap, and inflation expectations.
  - Even if sterilized, central bank financing of the fiscal deficit tends to push up inflation, as central bank balance sheet concerns reduce demand for money.
  - The FX gap between official and parallel market rate—a proxy for devaluation expectations—can raise inflation, especially when the gap is high and rising; importers may price at the more depreciated parallel rate.
  - Inflation expectations reduce the size and significance of the FX gap once included.
- 2022 experience:
  - A series of external and domestic shocks amid robust domestic demand caused inflation to jump sharply (from 3.9 percent m/m in January to 7.4 percent m/m in July).
  - The sharp rise in global food and energy prices following Russia’s invasion of Ukraine had a strong initial impact, given the high share of food in the CPI basket.
  - These shocks de-anchored inflation expectations, reduced money demand, and—amid policy uncertainties—led the FX gap to rise sharply (up to 150 percent at end-July) following cabinet changes.
- Durably reducing inflation requires:
  - Politically-backed commitment to tight macroeconomic policies,
  - Reduction in monetary financing of the fiscal deficit,
  - Reserve accumulation to strengthen credibility of the peg,
  - Strengthening demand for peso assets,
  - Improved wage-price coordination as a complementary measure.
- Staff estimate: a 10 percent increase in global cereal and fuel prices could raise Argentina’s headline inflation by about 1.6 percentage points over 12 months.

*Source: 1argea2022004 - 30.      Capacity to repay. Argentina’s capacity to repay its Fund obligations remains subject to*

### Box 1. Argentina: Understanding Recent Inflation Dynamics (concluded)

### Box 1. Argentina: Understanding Recent Inflation Dynamics (concluded)

### Determinants of Inflation (Table 1)
- Model specification columns: (1), (2), (3), (4) — dependent variable: Inflation (y/y)
- Inflation (lagged)
  - (1): 0.925*** (0.021)
  - (2): 0.910*** (0.021)
  - (3): 0.910*** (0.021)
  - (4): 0.873*** (0.027)
- ER (y/y)
  - (1): 0.063*** (0.009)
  - (2): 0.066*** (0.009)
  - (3): 0.063*** (0.009)
  - (4): 0.035*** (0.009)
- FX gap
  - (1): 0.017** (0.007)
  - (2): -0.022 (0.015)
  - (3): 0.004 (0.031)
  - (4): (not listed)
- FX gap^2
  - (1): 0.026*** (0.007)
  - (2): 0.045*** (0.015)
  - (3): -0.035 (0.022)
  - (4): (not listed)
- Mon. Fin (y/y) 12-months lag
  - (1): 0.016*** (0.005)
  - (2): 0.014*** (0.005)
  - (3): 0.015*** (0.005)
  - (4): 0.006 (0.007)
- Inflation Exp. 12-months ahead
  - (1): (not listed)
  - (2): (not listed)
  - (3): (not listed)
  - (4): 0.229*** (0.049)
- Mon. pol. rate 12-months lag
  - (4): -0.128*** (0.026)
  - (1)-(3): (not listed)
- Constant
  - (1): -0.007 (0.007)
  - (2): -0.002 (0.007)
  - (3): 0.001 (0.008)
  - (4): 0.014 (0.010)
- Observations
  - (1): 108
  - (2): 108
  - (3): 108
  - (4): 65
- R-squared
  - (1): 0.973
  - (2): 0.974
  - (3): 0.975
  - (4): 0.987
- Notes
  - Standard errors in parentheses
  - Significance: *** p<0.01, ** p<0.05, * p<0.1

### Determinants of Wages (Table 2)
- Model specification columns: (1), (2), (3) — dependent variable: Wages (y/y)
- Inflation (lagged)
  - (1): 0.550*** (0.050)
  - (2): 0.560*** (0.035)
  - (3): 0.652*** (0.054)
- Inflation Exp. 12-months ahead
  - (1): 0.153*** (0.050)
  - (2): 0.031 (0.037)
  - (3): -0.107 (0.081)
- ER (y/y) 12-months lag
  - (1): 0.060*** (0.017)
  - (2): 0.101*** (0.012)
  - (3): 0.069*** (0.016)
- Mon. Fin (y/y) 12-months lag
  - (3): 0.081*** (0.008)
  - (1)-(2): (not listed)
- FX gap
  - (3): 0.092*** (0.023)
  - (1)-(2): (not listed)
- Constant
  - (1): 6.957*** (1.703)
  - (2): 4.740*** (1.193)
  - (3): 8.315*** (1.623)
- Observations
  - (1): 101
  - (2): 101
  - (3): 101
- R-squared
  - (1): 0.763
  - (2): 0.888
  - (3): 0.796
- Notes
  - Standard errors in parentheses
  - Significance: *** p<0.01, ** p<0.05, * p<0.1

*ARGENTINA — INTERNATIONAL MONETARY FUND*

### Box 2. Argentina: Strengthening BCRA’s Balance Sheet

### Box 2. Argentina: Strengthening BCRA’s Balance Sheet

### Context and objective
- Accurately assessing and strengthening the BCRA’s policy solvency is essential to improve the credibility of its monetary and financial stability mandates.
- This box summarizes a set of options to help strengthen the central bank’s policy solvency and transparency.

### Recent developments and diagnosis
- BCRA’s equity position has weakened in recent years, in part because of significant balance sheet expansion related to the COVID-19 pandemic (see Box 10 in IMF Country Report No. 22/92).
- Recent actions—stopping temporary advances and stopping profit distributions—are important steps to halt further weakening.
- Durably improving the BCRA’s equity position will require steadfast implementation of prudent macroeconomic policies and concrete steps to enhance application of IFRS accounting and strengthen balance sheet transparency.
- Footnote definition: A policy solvent central bank generates sufficient operating income to cover its operating expenses.

### Multi-pronged policy mix to strengthen equity (enumerated options)
- Prudent macroeconomic policies:
  - Continued fiscal consolidation and application of the monetary policy framework.
  - Actions to strengthen the domestic capital markets to encourage demand for peso assets.
  - Strengthen reserve coverage (and credibility of the crawling peg regime).
  - Reduce the risk of a relapse to monetary financing.
- Ceasing monetary financing:
  - Eventually abstain from temporary advances and profit distributions.
  - Abstain from quasi-fiscal activities that are not directly related to the BCRA’s core monetary mandate.
- Strengthening the quality of existing assets:
  - Consider gradually swapping non-transferable government securities for marketable securities as market conditions allow.
  - Once fiscal consolidation is firmly underway, consider charging interest on existing temporary advances to the government.
- Moving towards IFRS:
  - Improve financial transparency through establishment of a project team and clear timetable and plan to fully transition to IFRS.
  - Assess information technology requirements, potential legal constraints, and other requirements for the application of IFRS 7 and IFRS 13.
- Defining a framework for equity:
  - BCRA governing law could consider clearly outlining: (i) an equity target range, allowing a buffer to deal with shocks; and (ii) conditions for profit distribution, while prohibiting the distribution of unrealized valuation gains.

*Source: IMF staff (Box 2, “Argentina: Strengthening BCRA’s Balance Sheet”).*

### Annex I. Application of the Sovereign Risk and Debt

### Annex I. Application of the Sovereign Risk and Debt Sustainability Framework

### DSA Summary Assessment
- Staff assessment: debt is "sustainable, but not with high probability".
- Overall risks of sovereign stress: high.
- Medium-term risks: moderate, unchanged from the second review.
- GFN module: moderate risk, broadly in line with the second review.
- Debt fanchart signal: moderate risk, with a continued high/moderate borderline result driven by a very wide fanchart.
- Long-term: fanchart analysis points to debt sustainability albeit with substantial risks; high risks of a renewed round of sovereign stress due to need to re-enter international debt markets.
- Buffer assessment: projected long-term debt and debt service metrics remain above the targets set out in the March 2020 Technical Note on Debt Sustainability—indicating buffers remain limited.
- Principal drivers of exceptional uncertainty and high risks to the baseline:
  - Argentina’s exposure to shocks and significant uncertainty around evolution of external conditions.
  - Policy implementation risks.
  - Latent structural vulnerabilities: low and undiversified export base; thin domestic capital markets; high shares of foreign currency and non-resident debt; contingent liabilities from provinces’ FX debt and central bank balance sheet weaknesses.
- Required actions to strengthen debt-servicing capacity:
  - Sustained fiscal consolidation, including beyond the program.
  - Deepen domestic capital markets and boost exports and productivity.
  - Mobilize domestic saving, strengthen reserves, and improve prospects of international market access.
- Note: The near-term assessment is not applicable in cases where there is a disbursing IMF arrangement.

### Assessment Basis and Tools
- Four tools underpinning assessment:
  - Debt Fanchart analysis (prospects for debt stabilization).
  - GFN Financeability module (rollover risks).
  - Crisis prediction model (probability of unsustainable debt/events involving sovereign default and restructuring).
  - Contingent liability analysis (potential debt surprises outside central government debt perimeter).
- Assessment predicated on:
  - Steadfast implementation of prudent macroeconomic policies in staff’s baseline.
  - Improvement in domestic debt market conditions.
  - Resumption of international market access in 2025.
  - Gradual unwinding of capital controls.

### Medium-Term Risk Analysis
- GFN Financeability Module:
  - Continues to point to moderate risk.
  - Baseline GFNs average around 13 percent of GDP over the 2022–27 period, broadly in line with the second review.
  - At end-September 2022, banks’ exposures to government debt remained moderate at around 15 percent of banking system assets.
  - Banking system assets: 40 percent of GDP.
  - Banking sector exposure to broader public sector (including LELIQs) stands at around 50 percent of total assets.
  - In the stress scenario, the domestic banking sector would have to use an extra 16 percent of assets to absorb residual issuances.
  - Near- to medium-term mitigating factors: lack of new debt issuances to foreign private creditors; large share of FX debt held by IFIs; large share of overall debt held by the intra-public sector; capital controls.
  - Key vulnerabilities: low export base; high dollarization; weak policy credibility; political uncertainties (e.g., 2023 Presidential elections); historical volatility.
  - Risks that could increase financing needs: unfavorable structure of new debt issuances; failure to durably reduce inflation; faster-than-anticipated tightening of global financial conditions.
- Debt Fanchart Module:
  - Points to moderate risk of sovereign stress, close to the border with high risk.
  - Public debt projected to decline from around 80 percent of GDP at end-2021 to under 70 percent of GDP by end–2027.
  - Probability of debt stabilization under the baseline: above 99 percent.
  - Projected institutions-adjusted median debt level in 2026: around 48 percent of GDP.
  - Fanchart width (uncertainty) remains high at around 60 percent.
- Medium-Term Index (MTI):
  - MTI value: 0.36, consistent with the second review, and close to the high-risk threshold.
  - At this MTI level:
    - Predictions of stress events will result in false alarms with a 20 percent probability.
    - Predictions of no stress will result in missed crises with a 27 percent probability.
  - Mechanical signal: moderate sovereign stress risk, reflecting the effects of the 2020 debt restructuring and assumed program implementation.
  - Caveat: high probability of debt stabilization may be distorted by estimated negative real interest rates reflecting strict capital controls and high inflation.
- Contingent Liability Analysis:
  - Illustrative one-off debt materialization shock: 6 percent of GDP (equivalent to total stock of provincial debt).
  - Under this shock:
    - Public debt would rise by around 6 percent of GDP by end-2023 and fall back to around 72 percent of GDP by 2027.
    - GFNs would remain elevated at around 10 percent of GDP by 2027.
    - Even so, debt would remain well below the 75th percentile in the debt fanchart.
  - Staff view: provincial debt not assessed to have a high risk of becoming a contingent liability to the central government (non-bailout approach in 2020 provincial debt restructuring supports this).

### Longer-Term Risk Analysis
- Long-term fanchart (ending 2031):
  - Probability of debt stabilization: around 60 percent.
  - Interpreted as consistent with debt sustainability but with substantial risks.
- Long-term refinancing risks:
  - Need to refinance maturing obligations from the 2020 debt restructuring and Fund repurchases, likely at less favorable financing terms.
  - Capacity to repay depends on:
    - Successful IMF program implementation.
    - Improvement in domestic debt market conditions.
    - Re-access to international private credit markets.
- Buffers and thresholds:
  - Federal government debt (excluding BCRA and FGS) projected to fall close to the 40 percent of GDP threshold (March 2020 Technical Note indicative target).
  - FX debt service projected to stabilize at around 3½ percent of GDP during 2025-30, slightly higher than at the second review.
  - Overall GFNs projected to average around 7½ percent of GDP during 2025-2030—over 2 ppts above the March Technical Note target.
  - Implication: buffers remain limited; large and sustained domestic financing required going forward; improved maturity structure needed to ease capital flow measures.
  - Policy priority: strengthening domestic debt management remains critical.

### SRDSF Key Macroeconomic and Financing Assumptions (Box 1)
- Core objectives maintained: fiscal consolidation, reserve accumulation, domestic debt market development, eventual easing of CFMs with re-access to international capital markets.
- Assumptions contingent on successful tightening of macroeconomic policies.
- Macroeconomic assumptions:
  - Real GDP growth: projected to moderate to 4.6 percent in 2022 and to 2 percent in 2023 and 2024.
  - Potential growth: 2 percent (in line with average growth in the past 20 years).
  - Inflation (eop): projected to rise close to but below 100 percent for 2022, before falling to around 60 percent in 2023 and 45 percent in 2024.
  - REER: projected to remain broadly unchanged for the remainder of 2022, with gradual real depreciation through 2025 to reach average 2021 levels.
  - Primary fiscal deficit path: projected to fall from 2.5 percent of GDP in 2022 to 0.9 percent of GDP in 2024, with further consolidation required to reach a 1.3 percent of GDP surplus by 2027.
  - Capital flow management measures (CFMs): assumed to remain in place through the program (with targeted easing in key sectors); CFMs could be gradually eased as reserve coverage and domestic financing conditions improve, consistent with return to international markets in 2025.
- Financing assumptions:
  - External official financing and market access:
    - Annual official net financing: average annual contributions of 0.3 percent of GDP from MDBs, through 2024 and beyond.
    - IMF EFF: provides positive net financing in 2022 (0.8 percent of GDP), with zero net financing thereafter.
    - Paris Club legacy debt repayments: updated to reflect recent joint agreement, stretching out to 2028.
    - Debt service on FX-denominated debt to foreign private sector: assumed to follow the 2020 restructuring schedule, with modest new issuance in international markets from 2025 onwards.
  - Monetary financing:
    - BCRA transfers: 0.8 percent of GDP in 2022; 0.6 percent of GDP in 2023; zero from 2024 onwards.
  - Domestic market financing:
    - Projected to average around 3 percent of GDP during the program.
    - Assumes ambitious average annual rollover rates of around 150 percent (above the 2020-21 average of 125 percent).
    - Near-term strategy:
      - Publicly held debt (60 percent of total amortizations in 2023) rolled into CER-linkers with maturities beyond the election.
      - Fresh net financing mobilized through encouraging nonfinancial corporates to hold government paper (around 0.5 percent of GDP) and tapping liquidity from the provinces and other public entities (0.2 percent of GDP).
      - Remaining private sector issuances more focused on short-term fixed rate instruments.
    - From 2024, strategy shifts to reliance on longer term-CER linkers, and fixed rate issuances over the medium to long-term.
    - Domestic real interest rates: projected to rise in 2023 on account of election-related uncertainties, decline in 2024, and then gradually rise to 4½ percent by 2028—consistent with gradual unwinding of capital controls and cost of accessing international markets.

### Debt Coverage and Disclosures (selected points)
- Debt coverage in the DSA: central government coverage question answered "No" to whether non-central government entities are insignificant.
- Subsectors included in baseline coverage:
  - Budgetary central government: Yes
  - Extra budgetary funds (EBFs): No
  - Social security funds (SSFs): No
  - State governments: No
  - Local governments: No
  - Public nonfinancial corporations: No
  - Central bank: No
  - Other public financial corporations: No

*Source: Fund staff.*

### 5. Debt consolidation across sectors:

### 5. Debt consolidation across sectors:

### Coverage and exclusions
- Coverage: gross federal (central government) debt held by the private, official and public sectors.
- Exclusions:
  - GDP warrants, debt of the provinces or municipalities, or debt of the central bank are not included.
  - Excludes FGS/ANSES liabilities.
  - Excludes state govt liabilities.
  - Excludes local govt liabilities.
- Rationale and judgment:
  - Staff does not judge the exclusion of provincial debt as a significant contingent liability risk, citing the federal government's non-bailout approach to the recent provincial debt restructuring.
  - The drawn amount of one central bank bilateral FX swap is below the 1 percent of GDP de minimis threshold and thus not included in public debt for DSA purposes.
  - The central bank’s weak balance sheet is a key contingent liability, necessitating a strategy to strengthen both its finances and governance.

### Public debt composition and strategic projections
- Currency composition and projection:
  - Foreign-currency denominated debt will continue to dominate over the long term, but its share is expected to fall as domestic peso market development facilitates repayment of official creditors (including the IMF) and private external creditors.
  - Near-term financing strategy (while inflation is high and unanchored): reliance on short-term fixed rate instruments and inflation (CER)-linkers, with an increase in maturity envisaged over the medium term.
- Risk mitigation note:
  - The large share of FX debt held by IFIs and the large share of overall debt held by intra-public sectors (including non-marketable instruments) mitigates rollover risks.
- Residual maturity:
  - Residual maturity: 6. years

### Realism of baseline assumptions and forecast track record
- Staff assessment:
  - Forecast track record analysis points to baseline optimism, particularly on debt reduction and exchange rate paths; risks to the baseline remain exceptionally high.
  - Envisaged fiscal consolidation appears relatively optimistic, but projected consolidation is broadly in line with other EM post-debt restructuring episodes over the last 20 years.
  - Projected growth is optimistic relative to the 10-year average but in line with the 20-year average, conditional on entrenching stability and growth-enhancing reforms.
- Indicators and percentiles (qualitative/color-coded summary present in source):
  - Exchange rate depreciation: > 75th percentile
  - SFA: 50-75th percentile
  - Real-time t+3/t+5: 25-50th percentile
  - Historical output gap revisions: < 25th percentile

### Baseline scenario (selected key figures, percent of GDP unless indicated)
- Public debt series (percent of GDP):
  - Actual 2021: 80.97
  - 2022: 79.77
  - 2023: 71.17
  - 2024: 72.77
  - 2025: 74.07
  - 2026: 71.36
  - 2027: 68.16
  - 2028: 66.36
  - 2029: 64.26
  - 2030: 63.26
  - 2031: 63.0
- Change in public debt (percent of GDP):
  - 2021: -21.9
  - 2022: -1.2
  - 2023: -8.5
  - 2024: 1.5
  - 2025: 1.3
  - 2026: -2.6
  - 2027: -3.2
  - 2028: -1.8
  - 2029: -2.1
  - 2030: -1.1
  - 2031: -0.2
- Contribution of identified flows (percent of GDP):
  - 2021: -21.5
  - 2022: -10.4
  - 2023: -10.5
  - 2024: -6.6
  - 2025: -6.0
  - 2026: -5.2
  - 2027: -4.7
  - 2028: -3.2
  - 2029: -2.2
  - 2030: -0.7
  - 2031: -0.1
- Primary deficit (percent of GDP):
  - 2021: 3.0
  - 2022: 2.5
  - 2023: 1.9
  - 2024: 0.9
  - 2025: 0.0
  - 2026: -0.8
  - 2027: -1.3
  - 2028: -1.3
  - 2029: -1.3
  - 2030: -1.3
  - 2031: -1.3
- Noninterest revenues (percent of GDP): 2021: 25.9; 2022: 26.4; 2023: 24.9; 2024: 26.0; 2025–2031: 26.8, 27.6, 27.8, 27.8, 27.8, 27.8, 27.8
- Noninterest expenditures (percent of GDP): 2021: 29.0; 2022: 28.9; 2023: 26.8; 2024: 26.9; 2025–2031: 26.8, 26.7, 26.5, 26.5, 26.5, 26.5, 26.5
- Automatic debt dynamics (percent of GDP): 2021: -24.5; 2022: -13.0; 2023: -11.9; 2024: -7.0; 2025: -6.0; 2026: -4.4; 2027: -3.4; 2028: -1.9; 2029: -0.8; 2030: 0.6; 2031: 1.2
- Interest rate–growth differential (percent of GDP): 2021: -40.8; 2022: -33.7; 2023: -34.4; 2024: -22.2; 2025: -19.2; 2026: -17.2; 2027: -14.4; 2028: -10.6; 2029: -8.1; 2030: -4.8; 2031: -2.9
- Real interest rate (percent): 2021: -31.2; 2022: -30.2; 2023: -32.8; 2024: -20.9; 2025: -17.7; 2026: -15.7; 2027: -13.0; 2028: -9.2; 2029: -6.8; 2030: -3.6; 2031: -1.7
- Real growth rate (percent): 2021: 9.7; 2022: 4.6; 2023: 2.0; 2024–2031: 2.0 (each year except 2031: 2.0), 2031: 2.0
- Relative inflation (percent): 2021: 22.4; 2022: 20.7; 2023: 22.4; 2024: 15.2; 2025: 13.2; 2026: 12.8; 2027: 11.0; 2028: 8.7; 2029: 7.3; 2030: 5.4; 2031: 4.2
- Gross financing needs (percent of GDP):
  - 2021: 18.2
  - 2022: 17.3
  - 2023: 16.1
  - 2024: 12.0
  - 2025: 16.2
  - 2026: 8.4
  - 2027: 8.7
  - 2028: 10.5
  - 2029: 13.7
  - 2030: 12.3
  - 2031: 14.6
- Debt service (percent of GDP):
  - 2021: 15.1
  - 2022: 14.8
  - 2023: 14.2
  - 2024: 11.1
  - 2025: 16.2
  - 2026: 9.3
  - 2027: 10.0
  - 2028: 11.8
  - 2029: 15.1
  - 2030: 13.7
  - 2031: 15.9
- Local currency vs. foreign currency shares of debt service (percent of GDP, selected years):
  - Local currency: 2021: 10.8; 2022: 9.4; 2023: 8.4; 2024: 6.8; 2025: 11.6; 2026: 5.9; 2027: 5.9; 2028: 7.0; 2029: 9.1; 2030: 7.9; 2031: 7.3
  - Foreign currency: 2021: 4.3; 2022: 5.4; 2023: 5.8; 2024: 4.3; 2025: 4.6; 2026: 3.4; 2027: 4.1; 2028: 4.8; 2029: 6.0; 2030: 5.8; 2031: 8.6
- Memo macro assumptions:
  - Real GDP growth (percent): 2021: 10.4; 2022: 4.6; 2023: 2.0; 2024–2031: 2.0 (each year until 2031)
  - Inflation (GDP deflator; percent): 2021: 53.9; 2022: 69.1; 2023: 78.0; 2024: 51.0; 2025: 40.8; 2026: 37.2; 2027: 32.2; 2028: 26.0; 2029: 22.2; 2030: 17.3; 2031: 13.9
  - Nominal GDP growth (percent): 2021: 68.4; 2022: 76.4; 2023: 82.0; 2024: 53.6; 2025: 43.8; 2026: 39.8; 2027: 34.8; 2028: 28.5; 2029: 24.7; 2030: 19.6; 2031: 16.2
  - Effective interest rate (percent): 2021: 2.4; 2022: 3.2; 2023: 3.3; 2024: 5.8; 2025: 5.7; 2026: 7.4; 2027: 7.6; 2028: 8.6; 2029: 9.4; 2030: 10.6; 2031: 10.8
- Staff commentary summary:
  - Public debt is projected to decline gradually over the medium term and stabilize by 2031, reflecting baseline assumptions of steadfast program implementation of the Fund-supported EFF.
  - Stable macroeconomic conditions, sustained fiscal consolidation (including beyond the program), deepening of domestic capital markets, and boosting exports and productivity are essential to mobilize domestic saving, strengthen reserves, and improve international market access.

### Medium-term risk analysis (selected indicators)
- Debt Fanchart and GFN financeability indexes (percent of GDP unless otherwise indicated):
  - Fanchart width: 59.7 0.9
  - Probability of debt not stabilizing (pct): 0.05 0.0
  - Terminal debt level x institutions index: 47.9 1.0
  - Debt fanchart index: ...1.91
  - Average GFN in baseline: 13.1 4.5
  - Bank claims on government (pct bank assets): 15.3 5.0
  - Change in claims on govt. in stress (pct bank assets): 16.5 5.5
  - GFN financeability index: ...15.0
- Medium-term index signals:
  - Both medium-term tools point to a moderate level of risk, consistent with the second review, though the medium-term index has weakened slightly due to a somewhat weaker debt path.
  - Fanchart results driven by extreme width reflecting Argentina's history of high volatility.
  - Probability of debt stabilization remains above 99 percent.
  - GFN module shows moderate risk, with vulnerabilities contained somewhat by the 2020 restructuring and expectations of financing from less risky creditors.
- Crisis probability metrics (2022–2027):
  - Prob. of missed crisis (if stress not predicted): 27.3 pct.
  - Prob. of false alarm (if stress predicted): 20.5 pct.

### Decomposition of public debt and debt service by creditor, 2022–2024 (selected figures)
- Total debt stock (In US$ bn):
  - Total: 381.68 (100.00 percent total debt), percent of GDP: 79.72
  - External: 137.51 (36.03 percent total debt), percent of GDP: 28.72
  - Domestic: 244.18 (63.97 percent total debt), percent of GDP: 51.00
- Multilateral creditors (In US$ bn / percent total debt / percent GDP where given):
  - Multilateral creditors total: 68.15 (17.85 percent total debt; 14.23 percent GDP)
  - IMF: 40.95 (10.73 percent total debt; 8.55 percent GDP)
  - World Bank: 8.82 (2.31 percent total debt; 1.84 percent GDP)
  - CAF: 3.78 (0.99 percent total debt; 0.79 percent GDP)
  - ADB/AfDB/IADB: 13.71 (3.59 percent total debt; 2.86 percent GDP)
  - FONPLATA: 0.44 (0.12 percent total debt; 0.09 percent GDP)
  - BEI: 0.21 (0.06 percent total debt; 0.04 percent GDP)
  - BCIE: 0.08 (0.02 percent total debt; 0.02 percent GDP)
  - Other Multilaterals: 0.16 (0.04 percent total debt; 0.03 percent GDP)
  - OFID: 0.13 (0.03 percent total debt; 0.03 percent GDP)
  - FIDA: 0.03 (0.01 percent total debt; 0.01 percent GDP)
- Bilateral creditors total: 4.09 (1.07 percent total debt; 0.85 percent GDP)
  - Paris Club: 1.36 (0.36 percent total debt; 0.28 percent GDP)
  - Non-Paris Club: 2.72 (0.71 percent total debt; 0.57 percent GDP)
  - o/w: China: 2.49 (0.65 percent total debt; 0.52 percent GDP)
- Domestic instruments (In US$ bn / percent total debt / percent GDP where given):
  - T-Bills: 98.29 (25.75 percent total debt; 20.53 percent GDP)
  - Bonds: 123.65 (32.40 percent total debt; 25.82 percent GDP)
  - Loans: 20.17 (5.28 percent total debt; 4.21 percent GDP)
- Memo items:
  - Memo items: 2.07 (0.54 percent total debt; 0.43 percent GDP)
  - Collateralized debt: 0.84 (0.22 percent total debt; 0.17 percent GDP) — o/w Unrelated: 0.84 (0.22; 0.17)
  - Contingent liabilities: 1.24 (0.32 percent total debt; 0.26 percent GDP) — o/w Public guarantees: 1.24 (0.32; 0.26)
- Debt service composition and timing:
  - Debt service payment for year 2022 is composed of actual debt service as of end-October 2022 and projections through the end of the year.
  - External versus domestic classification is based on residency definition.

*Source: 5. Debt consolidation across sectors: (IMF chapter/section).*

### Annex II. Update of Foreign Exchange Regime as it Applies to

### Annex II. Update of Foreign Exchange Regime as it Applies to Exchange Restrictions and Multiple Currency Practices

### Overview
- Since early October 2022, Argentina has implemented measures that give rise to new multiple currency practices (MCPs), introduce exchange restrictions, and intensify pre-existing exchange restrictions.
- These measures constitute nonobservance of the continuous performance commitments (PCs) on the introduction or intensification/modification of exchange restrictions/MCPs under Article VIII.

### Key Measures and Classification
- FX Incentive Scheme (reinstated November 28, 2022)
  - Exporters of soybean and derivates can fulfill their surrender requirement by exchanging their dollar receipts at a preferential exchange rate of 230 pesos per dollar.
  - The official exchange rate trades at around 168 pesos per dollar.
  - The large spread between the preferential exchange rate and the official exchange rate, which exceeds two percent, and the fact that the old measure had expired before reintroduction, mean this measure constitutes a new multiple currency practice (MCP) subject to Fund jurisdiction.
  - Reference: Decree 787/2022, November 28, 2022. Note: The program that was in place in September had a ARS 200 exchange rate.

- Exchange Tax and Extensions (Decree 682/2022)
  - A 30 percent tax on the purchase of foreign exchange by individuals and on payments for consumption abroad is maintained.
  - Under Decree 682/2022, the 30 percent tax has been extended to purchases of foreign currency for:
    - personal, cultural and recreational services; and
    - the importation of a list of luxury goods.
  - The extension of coverage of the 30 percent tax amounts to an intensification of the existing exchange restriction and a modification of the MCP.

### Program Context and Policy Commitments (selected substantive items)
- Program orientation
  - Pillars: fiscal order and reserve accumulation.
  - Stated objectives include encouraging demand for peso assets, reducing monetary financing, and supporting a gradual reduction in annual inflation.
- Fiscal targets and consolidation
  - End-2022 primary deficit target: 2.5 percent of GDP (stated within reach).
  - Target primary deficit for next year (2023): 1.9 percent of GDP, in line with the recently approved 2023 Budget.
  - Commitment to achieve a fiscal deficit cap of 0.3 percent of GDP in Q1:2023, and at most 0.8 percent of GDP by June 2023.
  - Primary fiscal balance (Text Table projections): -2.5 (2022), -1.9 (2023), -0.9 (2024).
- Inflation and monetary policy projections
  - Program projects annual inflation decline from around 95 percent by end-2022 to 60 percent by end-2023.
  - Projection detail (Text Table): Inflation (eop, %) [95 - 100] for 2022; [55 - 65] for 2023; [40 - 48] for 2024.
  - Monetary financing (% GDP) projections: 0.8 (2022), 0.6 (2023), 0.0 (2024).
- External sector and reserves
  - Target to increase net international reserves by US$9.8 billion by end-2023.
  - Net international reserve (NIR) accumulation reached US$4.6 billion through end-September 2022 (above adjusted program target of US$3.6 billion).
  - Change in net int’l reserves (US$bn) (Text Table): -1.6 (2021), 5.0 (2022), 4.8 (2023), 5.2 (2024).
  - Goods trade surplus projected to increase from around 2 percent of GDP in 2022 to around 3 percent in 2023.
- Program financing and IMF interactions
  - Request for completion of the third review and a disbursement in the amount of SDR 4,500 million.
  - Request for waivers of nonobservance of:
    - (i) the continuous PC on not introducing or modifying multiple currency practices; and
    - (ii) the continuous PC on not imposing or intensifying exchange restrictions.
  - Request for Executive Board approval of these exchange restrictions and MCPs under Article VIII, Sections 2(a) and 3, on grounds they were imposed for balance of payments reasons and are temporary and non-discriminatory.
- Recent macroeconomic performance (selected figures)
  - Cumulative real GDP expansion through September: 6.2 percent y/y.
  - Output levels about 8½ percent above pre-pandemic levels.
  - Monthly headline inflation trend: peak 7.4 percent m/m in July to 6.3 percent m/m in October; core inflation reached 5.5 percent m/m in October.
  - Goods trade balance: from a deficit of about US$0.5 billion in July to a surplus of about US$1.8 billion in October.
  - Exports rebound: 8.2 percent y/y, volume (latest cited); imports moderation: 8.3 percent y/y, volume.
  - Parallel-official exchange rate gap: after declining from over 150 percent in July, continues to hover around 90-100 percent.
  - Fiscal outcomes through end-September: primary fiscal deficit ARS 1,096 billion (1.3 percent of GDP), about ARS 40 billion below the adjusted target; stock of domestic arrears around ARS 590 billion, over ARS 60 billion below program ceiling.
  - Monetary policy and limits through end-September: central bank financing of the fiscal deficit capped at ARS 620 billion (below program ceiling ARS 665 billion); stock of non-deliverable futures (NDF) limited to US$3.1 billion (below program ceiling US$9 billion).

### Policy Rationale and Temporary Nature
- Authorities state targeted and temporary measures to improve the trade balance remain necessary while imbalances are addressed.
- Authorities indicate willingness to consult with the IMF on adoption and revisions of measures and to refrain from policies inconsistent with program objectives.

*Source: Annex II. Update of Foreign Exchange Regime as it Applies to Exchange Restrictions and Multiple Currency Practices; Attachment I. Memorandum of Economic and Financial Policies Update (selected excerpts).*

### 12.      We are accelerating efforts to improve the effectiveness and targeting of social

### 12.      We are accelerating efforts to improve the effectiveness and targeting of social

### Social assistance and pensions
- Social assistance
  - The Ministry of Social Development is implementing policies that will form the core of our new strategy to strengthen the targeting of income support programs (end-March 2023, SB).
  - A decree was issued in November to close several social programs to new entrants, notably Potenciar Trabajo, which saw a steady rise in the number of beneficiaries from around 200,000 in 2015 to 1.35 million in 2022.
  - Immediate governance improvements for Potenciar Trabajo:
    - Verifying the identities and eligibility of all existing recipients, with the goal of reducing ineligible claims.
    - A new resolution requires all beneficiaries to self-register and submit income data (including from other benefits) for means testing by January 6, 2023, with information then cross-checked with tax, social security, and central bank databases (ANSES, AFIP, and BCRA).
    - By early December, this process had already removed 20,000 ineligible recipients, with further reductions expected once the audit process is completed in early 2023.
    - Plans are being developed to reduce the Potenciar Trabajo benefit for those receiving other government transfers to reduce potential disincentives to re-enter the labor market.
    - Many of these savings would be used to promote the Bridge to Employment (Puente al Empleo) program, which aims to shift informal workers into the formal labor market.
- Pensions
  - The Ministry of Labor in collaboration with the University of Buenos Aires is finalizing its focused study (end-December 2022, SB) to help determine options for strengthening the equity and sustainability of the system, including reducing fragmentation.

### Public financial management (transparency and controls)
- Improvements needed to strengthen transparency and public spending controls.
- Ongoing efforts:
  - Enhance financial and budget reporting of national public sector entities other than the National Administration.
  - Strengthen monitoring and governance of investment projects.
  - Create a general framework to implement and control transfers from the Treasury to public corporations, trust funds, and other entities to clarify execution criteria, information requirements, and sanctions for non-compliance.
- Decree and reporting enhancements:
  - Adopted decree (712) strengthens financial oversight of these entities by enhancing information requirements—implemented with support from a joint Resolution of the Secretaries of Treasury and Finance—with the objective of facilitating the publication of enhanced quarterly reports for public corporations and trust funds (end-March 2023, SB).
  - Reports with information on major investment projects financed by federal transfers and earmarked taxes will be included starting mid-2023.

### Financing policy and public debt management
- Net domestic financing
  - A proactive market-oriented debt management approach helped secure net market financing of roughly 0.9 percent of GDP since end-July.
  - New instruments are being considered to mobilize peso funding through the end of the year, including to entice participation from corporates and subnational governments with large peso holdings.
- Financing strategy (beyond 2022)
  - Centered on reducing currency and maturity risks and addressing amortizations falling due in 2023.
  - Options under consideration include:
    - Exchanging bonds maturing next year for bonds maturing in 2024, including those held by other public sector entities.
    - Encouraging banks’ demand for government securities.
    - Developing tools and mechanisms to help manage market volatility.
  - Strategy will rely on high coordination between MECON and BCRA, including on identification of additional funding sources.
  - These operations will help limit monetary financing of the fiscal deficit to 0.8 percent in 2022 and 0.6 percent of GDP in 2023.
  - MECON and the BCRA will continue to closely monitor developments in the peso debt market and act proactively to ensure normal functioning; plans will be adapted if further financing challenges arise.
- Medium-term debt market development
  - Completed an annual borrowing plan to be implemented starting in 2023.
  - Work on a medium-term debt strategy (MTDS) expected to be completed by end-2022 (end-December 2022, SB).
  - Key priorities: (i) continuing to set the debt-to-GDP ratio on a firm downward path; (ii) extending maturities while improving refinancing effectiveness; and (iii) supporting the development of the local capital market.
- Official sector support
  - Despite shortfalls through Q3:2022, official sector disbursements resumed: disbursements of US$1.2 billion of IDB budget support in October/November, and disbursements of US$250 million still expected by end-year from other bilateral creditors (mainly related to the large hydropower dam project).
  - Agreement with Paris Club creditors to restructure US$ 1.97 billion of legacy debt.
  - Ongoing efforts to ensure multilateral and bilateral creditors meet program financing commitments and to secure additional financing to reduce reliance on monetary financing and boost reserve accumulation.

### Monetary and exchange rate policies
- Objectives
  - Continue addressing persistent high inflation and rebuilding reserve assets.
  - Complement fiscal deficit reduction and limited monetary financing with resolute implementation of monetary and FX framework, financial stability measures, wage-price coordination, and strengthening BCRA’s balance sheet.
- Monetary policy stance
  - Positive real monetary policy rates and enhanced transmission are essential to encourage peso demand.
  - The BCRA policy rate now stands at over 107 percent in annual effective terms, well above actual inflation (88 percent y/y in October) and forward-looking measures of monthly core inflation.
  - Commitment to keeping real monetary policy rates firmly in positive territory and maintaining nominal interest rates unchanged until inflation and inflation expectations are on a clear downward path.
  - BCRA finalizing simplification of the reserves requirement regime, with the final pending measure (related to ATM transactions) taking effect in January 2023.
  - Rates on short-term government paper should remain consistent with policy rates to support demand for peso assets and government securities.
- FX policy measures
  - Maintain a rate of crawl above inflation (and below policy interest rates) to improve competitiveness and encourage reserve accumulation.
  - Monitor and assess recent measures: (i) tax measures to limit imports of non-essential services and luxury goods; (ii) FX incentives to encourage tourism inflows; and (iii) temporary export incentives.
  - Implementing new import clearance and monitoring system (SIRA) to streamline import approval, improve monitoring, coordination, and FX demand forecasting.
  - Measures to be re-assessed for consistency with macro goals and compliance with the Fund’s policies on exchange restrictions and multiple currency practices.
  - BCRA operations in the non-deliverable futures market to continue focusing on addressing disorderly FX conditions and supporting the crawling peg regime.
- CFM framework revision
  - Working group established to prepare enhancements to the Foreign Exchange Criminal Law, including authorization of administrative fines to enhance sanctioning efficiency; recommendations expected finalized by end-December, followed by a revised law submission to Congress after the recess (end-December 2022, SB; proposed to be reset to end-March 2023).
  - A conditions-based roadmap for gradually easing capital controls is being prepared with IMF technical assistance (end-June 2023, SB).

### Financial stability and central bank balance sheet
- BCRA operations and holdings
  - Central bank purchases of government securities in the secondary market will remain limited to ensuring market functioning and temporary in nature, conducted at market prices and sterilized as needed to support disinflation.
  - Over time, gradual tapering of these holdings from the BCRA’s balance sheet will be considered as market conditions allow.
- Strengthening BCRA's balance sheet
  - High-level committee set up to develop a strategy to gradually strengthen the BCRA's balance sheet, drawing from the IMF safeguards assessment and technical assistance (end-December 2022, SB).
  - Strategy will rely on elimination of monetary financing of the fiscal deficit, gradual and appropriate adoption of IFRS, and pro-active strengthening of the central bank’s equity position.
  - Plan to advance application of internationally recognized accounting standards for the 2022 financial statements by gradually enhancing financial disclosures towards compliance with IFRS-7 (proposed end-May 2023, SB).
  - Updating IT infrastructure to allow removal of the forward leg of repo transactions for the 2023 financial statements.
- Note: The BCRA already introduced inflation-adjusted accounting for the 2020 financial statements.

### Income policies (wage-price coordination)
- Voluntary and well-designed wage-price coordination agreements complement disinflation efforts.
- Agreements (Precios Justos) reached with largest mass consumption companies:
  - Freeze the prices of 2000 products.
  - Cap price increases at 4 percent m/m of 30,000 products between November 2022 and February 2023.
  - Covers food and cleaning staples sold in supermarkets; expected expansion to textiles, medicines, and certain intermediary inputs.
  - Negotiations ongoing with wholesale agents to transmit lower prices to neighborhood shops.
  - Participating companies will be given a shorter payment term than the regulated condition to facilitate import of goods sold under the program.
  - Agreements to be revisited after four months depending on inflation developments.

### Growth, resilience, and energy sector policies
- Energy sector priority: improve efficiency, equity, and sustainability; boost domestic production, transport and distribution; reduce energy costs and reliance on imported energy; ensure financial sustainability through end-user prices better reflecting production costs and improved targeting/progressivity of energy subsidies.
- Supply-side measures
  - Arrangements with Bolivia, Chile, and Brazil to secure energy supplies at favorable rates during winter and reduce reliance on costly LNG imports.
  - Advancing construction of the Nestor Kirchner gas pipeline:
    - First stage expected to be completed by end-June 2023 to support an increase in daily supply of domestically produced gas of 11 million cubic meters.
    - Second stage will include compressors to further increase transportable daily volume to around 22 million cubic meters.
    - Construction of second stage expected to begin in May 2023 and be completed by 2024.
  - New Plan Gas launched in November to incentivize domestic production (and exports, especially to Chile) by extending current producer price agreements to 2028.
- Subsidy elimination and segmentation
  - High-income residential users:
    - Electricity and natural gas prices were raised in October and November for residential consumers nationwide with the greatest payment capacity, equivalent to a 60 percent cumulative reduction in the subsidy for electricity and 64 percent for natural gas.
    - A resolution will be issued, subject to legal requirements, to remove the remaining subsidies for electricity and natural gas for this group in February 2023 (modified end-January 2023, SB; proposed to be reset to 15 February 2023).
    - Electricity and natural gas prices will be subject to a cap during peak consumption months to ensure fiscal targets are met and the segmentation scheme is sustainable.
  - Middle- and low-income residential users:
    - For 2023, overall increase in the subsidized reference prices will be capped at 40 percent and 80 percent of growth in the wage index for low- and middle-income consumers, respectively.
    - Increases consistent with this commitment will be implemented in February 2023 (modified end-January SB; proposed to be reset to 15 February 2023).
  - Commercial users:
    - Electricity and natural gas prices were raised in October and November for commercial consumers (defined in ¶33, TMU).
    - Remaining subsidies for electricity and natural gas will be removed for this group in February 2023 (modified end-January 2023, SB; proposed to be reset to 15 February 2023).
    - Prices for this group will also be subject to a cap during peak consumption months to ensure fiscal targets and segmentation sustainability.
- Tariff agreements and sector financials
  - Tariff agreements with electricity distributors (Valor Agregado de Distribución, VAD) for the metropolitan region of Buenos Aires to be updated by February 2023 to improve CAMMESA’s income.
  - Process launched to update VAD and include agreement to eliminate distributors’ arrears to/from CAMMESA recently determined by Law 27.701 article 89, alleviating pressures on government finances.
- Comprehensive energy strategy
  - Strategy being finalized with World Bank technical assistance, emphasis on electricity sector with actions to:
    - Improve energy efficiency of the sector.
    - Support electricity generation cost and management.
    - Strengthen electricity distribution and transmission.
    - Strengthen the recent electricity and gas segmentation scheme.
    - Improve overall sustainability of the sector.
  - Energy Secretariat to publish a draft strategy for consultation by end of 2022, along with a detailed plan to improve implementation of the segmentation scheme (end-December 2022, SB).
  - Continue to align energy and growth policies with Argentina’s climate commitments and assess recommendations from the World Bank’s Country Climate and Development Report (CCDR).

### Transparency, governance, and AML/CFT
- Preparations ahead of the FATF evaluation in 2023:
  - Published the National Risk Assessments (NRAs) regarding Anti-Money Laundering (AML) and Counter-Terrorism Financing (TF/PF), and the National AML/CFT/CFP Strategy (end-September 2022, SB), which included recommendations to mitigate identified risks, vulnerabilities and threats.
  - Identifying, in consultation with IMF staff, key items of the gap analysis of the entire AML/CFT regime against FATF’s 40 Recommendations to be incorporated into amended AML/CFT legislation or relevant regulations during the Congressional review process.
  - The Financial Intelligence Unit (FIU) is preparing necessary resolutions to facilitate prompt and full implementation of the amended legislation once approved.

### Key statistics and targets (excerpt from Table 1)
- Fiscal targets (in billions of Argentine pesos unless otherwise stated)
  - Performance Criteria
    - 1. Cumulative floor on the federal government primary balance: Target -222.3; Adjusted -210.9; Actual -192.7; Status Met. Target -874.4; Adjusted -848.6; Actual -800.7; Status Met.
    - 2. Ceiling on the federal government stock of domestic arrears: Target 535.9; Actual 336.2; Status Met. Target 612.2; Actual 489.4; Status Met.
  - Continuous Performance Criterion
    - 3. Non-accumulation of external debt payments arrears by the federal government: Target 0.0; Actual 0.0; Status Met.
  - Indicative Targets
    - 4. Cumulative floor on real federal government revenues: Target 2417.3; Actual 2566.0; Status Met. Target 5179.7; Actual 5169.6; Status Not met.
    - 5. Cumulative floor on social assistance spending (Asignación Universal para Protección Social, Tarjeta, Progresar): Target 151.9; Actual 164.2; Status Met. Target 332.2; Actual 343.4; Status Met.
- Monetary targets
  - Performance Criteria
    - 6. Cumulative floor on the change in net international reserves of BCRA: Target 1.200; Adjusted 1.245; Actual 1.568; Status Met. Target 3.450; Adjusted 2.950; Actual 2.703; Status Not met.

*Document: 1argea2022004 - 12.      We are accelerating efforts to improve the effectiveness and targeting of social*

### 7. Cumulative ceiling on central bank financing of the federal government  3/236.8...122.0Met475.8...435.1Met

### 7. Cumulative ceiling on central bank financing of the federal government

### Quantitative targets and reported status
- Table framework: Quantitative Performance Criteria (PCs) and Indicative Targets (ITs) for Argentina are reported in Table 1, covering fiscal and monetary targets, including the "Cumulative ceiling on central bank financing of the federal government" (PC #7) and "Ceiling on the central bank stock of non-deliverable futures" (IT #8).
- Reported table entries (selected excerpts as presented):
  - "7. Cumulative ceiling on central bank financing of the federal government  3/665.4...620.1Met654.0..."
  - "7. Cumulative ceiling on central bank financing of the federal government  3/236.8...122.0Met475.8...435.1Met"
  - "8. Ceiling on the central bank stock of non-deliverable futures  7/6.000...1.200Met7.000...4.358Met"
  - "8. Ceiling on the central bank stock of non-deliverable futures  7/9.000...3.130Met9.0009.0009.0009.0009.0009.000"
- Explicit stock reference: "The stock of non-deliverable futures on December 31, 2021 stood at US$ 4.185 billion, as defined in the TMU."
- Reporting frequency and coverage: Targets and outcomes are shown for test dates including end-Mar, end-June, end-Sept, and end-Dec for 2022 and 2023 in the tables.

### Monetary and reserve targets
- Net international reserves (NIR) target measurement:
  - "Cumulative floor on the change in net international reserves of BCRA 6/ 8/4.1003.6004.591Met5.0005.0005.5008.6008.7009.800"
  - Measurement baseline: "The change is measured against the value of NIR on December 31, 2021 of US2.277 billion, which now reflects a revised stock of reserve liabilities at end-2021."
  - Exclusions: "It excludes payments to Paris Club from September 2022 onwards."
- Non-deliverable futures:
  - Ceiling statements for the central bank stock of non-deliverable futures are included as an Indicative Target (IT #8).
  - Stock-level anchor: "The stock of non-deliverable futures on December 31, 2021 stood at US$ 4.185 billion, as defined in the TMU."

### Definitions and measurement under the Technical Memorandum of Understanding (TMU)
- Program exchange rates and inflation assumptions:
  - "For the purposes of the program, all foreign currency-related assets, liabilities, and flows will be evaluated at 'program exchange rates' ... The program exchange rates are those that prevailed on March 2, 2022."
  - Program exchange rates (Text Table 1):
    - "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"
    - Footnotes: "1/ Rate published by the BCRA as of March 2, 2022." and "2/ Spot price published by Bloomberg as of March 2, 2022."
  - Inflation point estimates for program-setting: "inflation is based on a point estimate of 95.9 percent in 2022 and 60 percent in 2023 (end of period), within the revised program inflation range."
- Cumulative measurement convention:
  - "Flows from January 1 through December 31."
  - "The Federal government’s primary balance will be measured at each test date as the cumulative value starting from the beginning of each calendar year."
- Fiscal data reporting requirement:
  - "All fiscal data referred to above and needed for program monitoring purposes will be provided to the Fund with a lag of no more than 25 calendar days after the end of each month."

### Definition of the Federal government primary balance (relevant for targets)
- Coverage: "The Federal government (Sector Público Nacional No Financiero) ... consists of the central administration, the social security institutions, the decentralized institutions (Administración Nacional), and PAMI, fiduciary funds, and other entities and enterprises of the federal government."
- Primary balance definition and recording conventions:
  - "The primary balance of the federal government is measured above-the-line and defined in accordance with the monthly and annual reporting of the 'Esquema IMIG'. This is equivalent to total revenues (ingresos totales, according to 'Esquema IMIG') minus primary spending (gastos primarios). Revenues are recorded on a cash basis..."
  - Revenues exclude: "any type of financial transfers from the Central Bank (including Utilidades and Adelantos Transitorios), interest income from intra-public sector holding of securities and debt obligations, proceeds from the sale of financial assets, and special drawing rights (SDRs) allocated by the Fund or received bilaterally from other IMF members."
  - Debt issuance cap in revenues: "revenue income from the issuance of government debt that is part of non-tax revenues (resto rentas de la propiedad) will be capped at 0.28 percent of GDP in 2022 and will be excluded from revenues in 2023 for calculation of the primary fiscal deficit under the program."
  - Primary expenditure recorded on cash basis and includes: "social protection (prestaciones sociales), economic subsidies (subsidios 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), which includes capital transfers to provinces."
  - Treatment of PPPs: "Government-funded, public-private partnerships will be treated as traditional public procurements... recorded transparently in budget data and measured as part of the Federal government deficit as they occur (on a cash basis)."
  - Non-cash settlements: "All primary expenditures (including fines) that are directly settled with bonds or any other form of non-cash liabilities will be recorded as spending above-the-line and will therefore contribute to a decrease in the primary balance." Exceptions listed in the TMU are preserved as stated.

### Adjustor and caps relevant to the primary balance and targets
- External project financing adjustor:
  - "The target for the primary balance of the federal government will be adjusted up (down) by the shortfall (excess) in the disbursements of project loans from multilateral and bilateral partners, compared to the project loans in the program baseline (Text Table 2)."
  - Adjustor cap: "The value of the adjustor would be capped at cumulative 0.2 percent of GDP in 2022 and 2023 (163,511 million pesos and 294,343 million pesos, respectively)."

### Monitoring of arrears and external debt service
- Non-accumulation rule:
  - Continuous performance criterion: "Non-accumulation of external debt payments arrears by the federal government 0.0...0.0Met0.00.0..."
- Domestic arrears ceiling: Table reports "2. Ceiling on the federal government stock of domestic arrears  4/654.0...589.7Met654.0..." and related entries for test dates.

*Source: Argentina — IMF staff tables and Technical Memorandum of Understanding (TMU) as presented in the provided content.*

### 9.      Definition: Domestic arrears are defined as the floating debt, that is the difference between

### 1argea2022004 - 9.      Definition: Domestic arrears are defined as the floating debt, that is the difference between

### Domestic arrears — definition, coverage, and measurement
- Definition:
  - Domestic arrears are defined as the floating debt, that is the difference between primary spending recorded on an accrual basis (gasto devengado, from the SIDIF system) and primary spending recorded on a cash basis (base caja, from the Treasury).
  - This includes transferencias figurativas, and primary spending for personnel (gasto en personal), acquisition of goods and services (bienes y servicios), nonprofessional services (servicios no profesionales), capital expenditures (bienes de uso), and transfers (transferencias).
  - Transferencias figurativas were excluded from the definition of domestic arrears for the purposes of measurement against the end-March 2022 performance criterion. The TMU of IMF Country Report No. 22/192 was updated to clarify that, starting from the end-June 2022 performance criterion, transferencias figurativas will be included in the definition of domestic arrears.
- Measurement:
  - The arrears are measured on a daily basis.
  - The program will cap the quarterly average of the daily stock of arrears for 2022, consistent with reducing the stock from 1.2 percent of GDP at end-2021 to 0.8 percent of GDP (654,045 million pesos) in Q4 2022.
  - The quarterly average cap for the daily stock of arrears will remain unchanged at 0.8 percent of GDP during 2023 (1,177,375 million pesos).
  - Reported AR$ millions (cumulative from January 1 of each year):
    - end-March 2022: 27,028
    - end-June 2022: 78,423
    - end-September 2022: 122,201
    - end-December 2022: 230,982
    - end-March 2023: 30,008
    - end-June 2023: 148,972
    - end-September 2023: 223,182
    - end-December 2023: 327,130
- Monitoring:
  - Daily data on the stock of arrears (and underlying spending on an accrual and cash basis), recorded at daily frequency will be provided to the Fund with a lag of no more than 25 calendar days after the end of each month.

### Federal government non-accumulation of external debt payments arrears — definitions, coverage, monitoring
- Definitions:
  - Debt: a current (not contingent) liability under a contractual arrangement requiring payment in assets or services at some future point(s), discharging principal and/or interest. Primary forms include:
    - i. loans (including deposits, bonds, debentures, commercial loans, buyers’ credits, repurchase agreements, official swap arrangements);
    - ii. suppliers’ credits (supplier permits obligor to defer payments after delivery/provision of services);
    - iii. leases (debt equals the present value at inception of all lease payments expected during the agreement, excluding payments covering operation, repair or maintenance).
  - Under this definition, arrears, penalties, and judicially awarded damages arising from failure to pay under a contractual obligation that constitutes debt are debt. Failure to make payment on an obligation not considered debt under this definition (e.g., payment on delivery) will not give rise to debt.
  - External debt: for program purposes, determined according to the residency criterion consistent with the IMF’s Balance of Payments Manual (would encompass nonresident holdings of Argentine law peso and foreign currency debt).
  - External arrears: external debt payment arrears for program monitoring are defined as external debt obligations (principal and interest) falling due after March 3, 2022, that have not been paid, considering contractual grace periods.
- Coverage:
  - This performance criterion covers the federal government.
  - Exclusions: (i) arrears on trade credits; (ii) arrears on debt subject to renegotiation or restructuring; (iii) arrears resulting from nonpayment of commercial claims that are the subject of any litigation initiated prior to March 3, 2022.
- Monitoring:
  - This performance criterion will be monitored on a continuous basis.

### Cumulative floor on the change in Net International Reserves (NIR) of BCRA — definitions, measurement, monitoring, adjustors
- Definitions:
  - NIR of the BCRA: balance of payments concept of NIR = U.S. dollar value of gross official reserves of the BCRA minus gross official liabilities. Non-U.S. dollar denominated foreign assets and liabilities converted into U.S. dollar at program exchange rates.
  - Gross official reserves: defined consistent with BPM6 as readily available claims on nonresidents denominated in foreign convertible currencies. They include:
    - (i) monetary claims, (ii) free gold, (iii) holdings of SDRs, including all Fund disbursements since March 25, 2022, (iv) the reserve position in the IMF, (v) holdings of fixed income instruments, and (vi) net cash balances within ALADI.
  - Exclusions from reserve assets: assets that are pledged, collateralized, or otherwise encumbered; claims on residents; claims in foreign exchange arising from derivatives in foreign currency vis-à-vis domestic currency; precious metals other than gold; assets in nonconvertible currencies; illiquid assets.
  - Gross official liabilities in foreign currencies include:
    - (i) foreign currency liabilities with original maturity of one year or less,
    - (ii) Fund cumulative disbursements, except for the net financing component of the program (SDR 3.166 billion), net of cumulative Fund payments that have taken place from March 25, 2022 onwards,
    - (iii) any deliverable forward FX liabilities on a net basis defined as the long position minus the short position payable in foreign currencies directly undertaken by the BCRA or by any other financial institutions on behalf of the BCRA.
  - Certain instruments (e.g., Federal government foreign liabilities, Federal government FX deposits at the BCRA) are not considered gross foreign liabilities of the BCRA for program purposes. The 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 would be considered as a foreign exchange liability of the BCRA with a maturity of one year or less.
- Measurement:
  - The change in net international reserves will be measured as the cumulative change in the stock of NIR at each test date relative to the stock on December 31, 2021.
- Monitoring:
  - Foreign exchange asset and liability data at the BCRA will be provided to the Fund at daily frequency within two days.
- Adjustors:
  - Official non-project loans and grants: The NIR targets will be adjusted upward (downward) by the surplus (shortfall) in program loan disbursements and grants from multilateral institutions (including the BCIE, EIB, IBRD, IDB and CAF) and bilateral partners, relative to the baseline projection reported in Text Table 3.
  - The value of the downward adjustor (shortfall of loans and grants) would be capped at a cumulative of US$750 million in each calendar year.
  - Program loan disbursements are defined as external loan disbursements (excluding project financing disbursements and IMF budget support) from official creditors for financing of the general government.
  - Paris Club payments: Starting with the end-December 2022 performance criterion, the NIR accumulation targets will be adjusted downward by the amount of any payments to the Paris Club creditors relating to the outstanding debt that was reprofiled in 2014.

### Cumulative ceiling on the BCRA’s financing of the federal government
- Definitions:
  - Central bank (BCRA) financing to the government includes:
    - (i) overdraft transfers from the BCRA to the Federal Government (line Adelantos Transitorios in the summary account of the BCRA),
    - (ii) distribution of profits (Utilidades),
    - (iii) acquisition of government debt in the primary market or by direct purchases from public institutions.
- Measurement and caps:
  - The program will cap such financing at 654,045 million pesos (0.8 percent of GDP in 2022) by end-December 2022, with cumulative flows from end-December 2021 in millions of pesos.
  - The cap of cumulative flows by end-December 2023 will be set at 0.6 percent of GDP (883,031 million pesos), with zero net financing in 2024.
- Clarification:
  - Any decrease in the stock of Adelantos shall only reflect cash payments of this amount in pesos by the Treasury to the BCRA. Transfer of Letras Intransferibles to the BCRA will not reduce the stock of Adelantos.
- Monitoring:
  - Daily data will be provided to the Fund within two days.
  - The flow of BCRA financing to the government will be measured at each test date as the cumulative value starting from the beginning of the calendar year.

### Continuous performance criteria (commitments consistent with IMF arrangements)
- The authorities will seek not to:
  - (i) impose or intensify any exchange restrictions,
  - (ii) introduce or modify Multiple Currency Practices (MCPs),
  - (iii) conclude bilateral payment agreements that are inconsistent with Article VIII,
  - (iv) impose or intensify import restrictions for balance of payment reasons.
- Reported program-indicative cumulative amounts (in millions of US$; cumulative from January 1 of each year):
  - end-March 2022: 55
  - end-June 2022: 62
  - end-September 2022: 543
  - end-December 2022: 1,967
  - end-March 2023: 20
  - end-June 2023: 20
  - end-September 2023: 665
  - end-December 2023: 665

### Quantitative indicative targets: definitions and monitoring
- Cumulative floor on real federal government revenues:
  - Definition: Federal government revenues are defined as above (¶5).
  - Measurement: “Real” federal government revenues measured as nominal monthly revenues deflated by the corresponding monthly headline consumer price index published by INDEC (nivel general del Índice de precios al consumidor (IPC)).
  - Real federal government revenues at each quarterly test date measured on a cumulative basis starting from the beginning of the calendar year and compared with the program baseline projection.
  - After June 2022, this target is no longer part of program conditionality.
  - Monitoring: Federal government revenue data provided to the Fund with a lag of no more than 25 calendar days after the end of each month.
- Cumulative floor on federal government spending on social assistance programs:
  - Definition: Social spending computed as cumulative sum of all federal government spending (current and capital) on:
    - Asignación Universal para Protección Social (includes Asignación Universal por Hijo, Asignación por Embarazo, Ayuda Escolar Anual),
    - Tarjeta Alimentar,
    - Progresar.
  - Monitoring: Data provided to the Fund with a lag of no more than 25 calendar days after the end of each month.
- Ceiling on the BCRA’s stock of non-deliverable futures:
  - Definition: Stock of net non-deliverable futures = net of the U.S. dollar notional value of all long and short position contracts entered by the BCRA involving the Argentine peso.
  - Measurement: Net stock measured at each test date as value of all short position contracts minus value of all long position contracts.
  - Caps: capped at US$9 billion by end-2022, and at US$9 billion by end-2023.
  - Reference position: The stock of net non-deliverable futures stood at US$4.185 billion on December 31, 2021.
  - Monitoring: Indicative target monitored quarterly. Daily data will be provided to the Fund within two working days.

### Other definitions relevant for program conditionality
- Wage growth:
  - Definition: Average wage growth, used to determine adjustments to energy bills for residential consumers (excluding those subject to the subsidy segmentation scheme), defined by the Salary Variation Coefficient (Coeficiente de Variacion Salarial (CVS)) as established by the vetoed Law 27.443.
  - The CVS is published by INDEC and estimates the evolution of salaries paid covering the registered private sector, the unregistered private sector and the public sector.
- Energy prices and user categories:
  - Definition: Energy prices are the regulated pass-through prices paid by distributors for electricity and gas: the precio estacional (PEST) and the precio del gas natural en punto de ingreso al sistema de transporte (PIST), respectively.
  - User categories for electricity and natural gas (regulated prices) are:
    - (i) high-income residential users and those who did not apply for the subsidy (Nivel 1);
    - (ii) low-income residential users (Nivel 2);
    - (iii) middle income residential users (Nivel 3);
    - (iv) commercial users;
    - (v) other non-residential users subsidized as low-income residential users (Nivel 2);
    - (vi) large non-residential users (GUDIs) (applies in the case of electricity only).
  - For program purposes, the energy price will be measured as weighted averages of the actual PESTs/PISTs charged to different categories of users, with weights based on estimates of energy consumption.
  - For program purposes, commercial electricity users comprise all non-residential users other than large industrials (GUDIs), public hospitals, educational entities, welfare entities, and social clubs.
  - Monitoring: For each user category, data will be provided to the Fund on estimated energy consumption in each category and the actual values of the PEST and the PIST.

### Other information requirements — high-frequency reporting and periodic data
- Daily (data to be provided as specified):
  - Nominal exchange rates; total currency issued by the BCRA; deposits held by financial institutions at the BCRA; total liquidity assistance to banks through normal BCRA operations, including overdrafts; interest rates on overnight deposits.
  - Aggregated data on banks’ foreign exchange positions by category: public national; public provincial; private domestic; private foreign; small banks.
  - Data on BCRA sales and purchases of securities settled in different currencies will be provided with weekly frequency, no more than two business days following the end of the considered week.
  - Data on BCRA position of non-deliverable futures by maturity, to be provided within two working days.
- Weekly:
  - BCRA balance sheet.
  - Daily data on BCRA government securities purchased and sold in the secondary market by maturity and instrument.
  - Daily data on BCRA-issued securities by type of security and interest rate.
  - 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 will include a report of daily estimation of total stocks and implicit exchange rate of the most representative securities transacted in the CCL and MEP modalities and operations.
  - Daily data on Treasury deposits in SDRs at the BCRA.
  - Daily data on flows in and out of the BCRA’s SDR holding account including amount and purpose.
- Fortnightly:
  - Interest rates on domestic debt instruments including LELITE, LEDES, LECER, LEPAS, BONAR, BONTE, BONAD and BONCER (at different maturities).
  - Daily data on external financing from each multilateral and bilateral creditor, broken down by budget support and project financing, and by largest bilateral projects.
- Monthly (to be provided with a lag of no more than 25 days after month close):
  - Federal government operations including monthly cash flow from the beginning to the end of the current fiscal year (and backward revisions as necessary), according to the format of the Informe Mensual de Ingresos y Gastos (IMIG) and the format of the Cuenta Ahorro Inversion Financiamiento (AIF). Specific reporting includes:
    - 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).
  - Data on the stock of domestic arrears by ministry or agency.
  - 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.
    - Detailed quarterly financing plan for the coming twelve months, including 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.
  - 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), including 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.
- 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 provincial government debt stock by currency, provided within six months of the closing of each semester (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 (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 (end-June and end-December), including 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: IMF staff supplement to the Third Review under the Extended Arrangement under the Extended Fund Facility — Supplementary Information (selected excerpts).*

### 2022. Specifically, it provides details on recently released economic indicators and an

### 0.8 percent in 2022 and 0.6 percent of GDP in 2023.

### 1argea2022004 - 0.8 percent in 2022 and 0.6 percent of GDP in 2023.

### Debt management and financing strategy
- Domestic financing targets: 0.8 percent in 2022 and 0.6 percent of GDP in 2023.
- Objectives for 2023:
  - Continue extending maturities to reduce rollover risks.
  - Use inflation- and foreign exchange-linked instruments, with fixed-rate instruments playing a role as conditions allow.
  - Seek to accumulate buffers through issuances of LEDES.
  - Normalize the yield curve through operations in the secondary treasury market.
  - Pursue a proactive market-oriented debt strategy while limiting central bank intervention in the securities market to ensuring normal market functioning.
- Specific measures:
  - Extend maturities of debt held by intra-public sector entities (representing close to 60 percent of amortizations falling due next year).
  - Tailored approach for institutional investors such as banks, mutual funds, and insurance companies.
- Progress and planning:
  - Completed an annual borrowing plan to be implemented in the fourth quarter of 2022 and thereafter on an ongoing basis.
  - Medium-term debt strategy (MTDS) work remains on track and will be completed by end-2022, with Fund technical support.
  - Confidence expressed in achieving domestic financing objectives, citing December 2022 debt operations.
- External financing:
  - Disbursements back on track after Q3 shortfalls:
    - US$1.2 billion of IDB support in October/November.
    - US$250 million expected by end year from other bilateral creditors.
  - Agreement reached with Paris Club creditors to restructure US$1.97 billion, reflecting capacity to repay and debt sustainability.
  - Financing needs through the following years are in line with domestic market capacity to roll over existing debt stocks and provide additional finance, which will shrink over time given the fiscal path.
  - Confidence stated that there will be no further disruptions of domestic financial market.

### Monetary, exchange rate, and anti-inflationary policies
- Policy stance:
  - Implement monetary and exchange rate policies to secure sufficiently positive real monetary policy interest rates.
  - Reduce fiscal deficit, limit monetary financing, and improve wage-price coordination to gradually reduce inflation and improve the Central Bank’s balance sheet.
  - Stand ready to adapt policies based on evolution of core inflation, forward-looking measures of inflation, and international reserves dynamics, ensuring real policy rates stay firmly in positive territory.
- Policy actions and metrics:
  - Nominal annual policy rate has been raised and now stands over 107 percent in annual effective real terms, above actual inflation.
  - Calibrated rate of crawl of the exchange rate will remain consistent with evolution of inflation and trading partner currency developments.
  - Reintroduced temporary export incentive schemes to encourage liquidation of stockpiled soy exports.
- Wage-price coordination and price stabilization:
  - Implemented voluntary wage-price coordination mechanisms.
  - Agreements with the largest mass consumption companies to hold the price of 2000 products and limit price increases at 4 percent m/m of 30,000 products between November 2022 and February 2023.
  - Negotiations with wholesale agents to lower prices for neighborhood shops; agreements to be revisited after the four months.
- Banking sector transmission and reserve requirements:
  - Commit to measures that improve transmission of monetary policy rates to deposit rates, including further raising commercial banks’ deposits floor rates and lending ceiling rates.
  - BCRA has developed and published a plan to simplify the reserve requirements regime.
  - Adopted regulations streamline incentives for lending to small and medium sized enterprises and to consumers, while gradually phasing out a number of special rebates on reserve requirements with due consideration for capital and liquidity positions of commercial banks.
- Capital flow measures and roadmap:
  - Capital flow measures adapted, including broadening of import financing requirements to avoid a disorderly adjustment, with commitment to ease regulations as conditions permit.
  - Roadmap preparation advancing and expected to be completed by end-June 2023 to enable input from recently requested IMF technical assistance.
- Central Bank balance sheet and safeguards:
  - Working on assessing the health of the central bank’s balance sheet and discussing options to strengthen it, based on internationally recognized accounting standards and supported by IMF technical assistance.
  - Expect balance sheet to strengthen in the next years due to efforts to meet program targets, secure public debt sustainability, and restore market access.
  - Confidence in improving Central Bank net worth in the long term given macroeconomic fundamentals.

### Growth, energy, and resilience policies
- Strategic priorities:
  - Diversify and boost net exports.
  - Improve efficiency, fairness, and sustainability of the energy sector.
  - Build a stronger and more diverse export base.
  - Eliminate subsidies for residential users with the greatest payment capacity.
- Energy security and infrastructure:
  - Arrangements with Bolivia and Brazil will help secure energy supplies at favorable rates during winter and reduce reliance on costly imports of liquefied natural gas.
  - Construction of the Nestor Kirchner gas pipeline expected to be completed by end-2024.
    - Pipeline will initially increase daily supply of domestically produced gas by 11 million cubic meters, and by 22 million cubic meters once compressors are installed.
    - Pipelines have the potential to sharply reduce costly energy imports from mid-2023 with positive spillovers for fiscal and external balances from 2024 onwards.
  - Launch of a new Plan Gas to extend current production volumes to 2028 to encourage increased gas supply and incentivize exports.
  - Working on strengthening bilateral agreements with Chile to expand foreign markets.
  - Objective to improve financial position of the sector, including by updating tariff agreements with electricity distributors for the metropolitan region of Buenos Aires next year to support CAMMESA’s incomes.
- Subsidy reform specifics:
  - For 2023, overall increase in subsidized reference prices will be capped at 40 percent and 80 percent of growth in the wage index for low- and middle-income consumers, respectively.
  - Middle-income residential consumers subject to an additional consumption cap and will pay full cost for electricity use above 400KWh/month (with higher thresholds for some regions without access to gas) and gas use above 70 percent of the previous 5-year average for each category of users in the relevant region.
  - Significant reduction of subsidies for commercial users in 2023 and full elimination during 2024.
- Medium-term energy strategy:
  - Finalizing a national strategy to improve efficiency and financial sustainability of the energy sector in the medium term, supported by World Bank technical assistance.
  - Strategy emphasizes the electricity sector and includes actions to improve energy efficiency, support electricity generation cost management, strengthen electricity distribution and transmission, strengthen the recent electricity and gas segmentation scheme, and improve overall financial sustainability.
  - Recommendations from the recently completed World Bank Country Climate and Development Report (CCDR) are being assessed for possible future conditionality.

### Governance, transparency, and AML/CFT
- Progress and preparations:
  - Further progress made in strengthening the AML/CFT regime ahead of the Financial Action Task Force (FATF) evaluation in 2023.
  - Published the National AML/CFT Strategy, including recommendations to mitigate risks, vulnerabilities, and threats identified in national risk assessments.
  - Prepared a gap analysis of the entire AML/CFT regime compared to Financial Action Task Force 40 Recommendations in consultation with IMF staff; findings to be incorporated as necessary into amended AML/CFT legislation during the congressional review process.
- Governance objectives:
  - Recognize need to improve governance and transparency to tackle tax avoidance and external assets formation.

### Conclusion and Board request
- Authorities’ commitments:
  - Reaffirm commitment to the policies and objectives of the economic program supported by the IMF under the EFF.
  - Emphasize that such policies are Argentina’s best anchor and underline a remarkable commitment to execute notable fiscal performance.
  - Stress importance of developing infrastructure to catalyze investment and maintaining social safety nets.
  - Note consistent downward inflation path, healthy growth dynamics, consolidation of the domestic debt market, meeting of targets, and implementation of the structural agenda.
- Request to Executive Directors:
  - Encourage Executive Directors to support the third review under the extended arrangement under the Extended Fund Facility, including the requests for waivers for non-observance of continuous performance criteria against imposing or intensifying restrictions on the making of payments and transfers for current international transactions and introducing or modifying multiple currency practices.

*Source: 1argea2022004 - 0.8 percent in 2022 and 0.6 percent of GDP in 2023.*

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_Source: https://www.imf.org/-/media/files/publications/cr/2022/english/1argea2022004.pdf_