## 1argea2023002

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### Executive summary — context, program performance, and revised baseline
- Since the fourth review, Argentina’s situation "has become increasingly fragile" with heightened market volatility, intensified inflation, and external pressures driven by the historic drought and insufficient policy adjustment.
- Historic drought: larger-than-expected losses to agricultural production, exports, and fiscal revenues; non‑agricultural activity remained resilient in part due to policy slippages.
- Electoral dynamics raised policymaking uncertainty:
  - PASO (August 13) results: Libertad Avanza 30.0 percent; Juntos por el Cambio 28.3 percent; Unidos por la Patria 27.3 percent.
  - Individual PASO candidate shares: Javier Milei 30.0 percent; Sergio Massa 21.4 percent; Patricia Bullrich 17.0 percent.
  - General elections: October 22 (run-off November 19 if needed); new administration to assume office on December 10.
- Program performance: the program "has gone off track" with missed end-June performance criteria on NIR accumulation, the primary fiscal balance, and monetary financing limits; reserves fell to "dangerously low levels."
- Revised baseline highlights:
  - Real GDP: projected to contract by 2½ percent in 2023.
  - Inflation: expected to reach 120 percent y/y by end-2023 (conditional on exchange rate passthrough and policy implementation).
  - Net international reserves: new package forecast to boost NIR by about US$8 billion between August and December, still short of the fourth review end-2023 target by around US$7 billion.
  - Recovery: output only expected to return to trend by 2030; growth projected to recover to around 2¾ percent in 2024.

### New policy package — objectives, immediate measures, and projected impacts
- Objectives: rapidly rebuild reserves and strengthen fiscal order via exchange rate realignment and tighter macroeconomic policies.
- Key measures implemented:
  - Nominal step devaluation: 27 percent relative to end‑July levels (mid‑August; prior action noted as move to 350 ARS/USD).
  - Policy rates: raised by 2100 bps in August (additional to earlier increases), bringing the effective annual rate to 209 percent in announcements.
  - Temporary FX taxes: impuesto pais extended to selected imports and services (7.5 percent on goods; 25 percent on services; 7.5 percent on transport in some descriptions).
  - Temporary preferential exchange rate for agricultural products (later superseded by the devaluation).
  - Withholding tax: 10 ppts on FX purchases (dolar ahorro/solidario) introduced.
- Early market developments:
  - BCRA official market purchases between July 24 and August 16: about US$1.5 billion.
  - BCRA sales to intervene in securities FX markets during the same period: over US$0.6 billion.
- Projected near-term effects:
  - Trade/current account: CA deficit narrowed from US$6.5 billion in S1:2023 to about US$1.5 billion for 2023 as a whole under the revised baseline.
  - Reserve accumulation: NIR accumulation of about US$6 billion during S2:2023 from improved financial account and policy measures in baseline; alternative estimate of US$8.9 billion increase between end-July and end-December appears in annex projections.
  - Inflation dynamics after devaluation: month-on-month jump from around 6 percent in July to around 10 percent m/m in August, then projected to decline to under 5 percent m/m by end-2023 under tight policies.

### Fiscal stance, measures, and targets
- 2023 primary fiscal deficit target: unchanged at 1.9 percent of GDP (anchor for remainder of year).
- Near-term fiscal tightening:
  - Real spending projected to contract by 8 percent during S2:2023; measures to effect an 11 percent contraction in spending from August to December are cited.
  - Temporary extension of impuesto pais and revenue measures projected to raise revenues by 0.8 percent of GDP during the remainder of the year (net of export-duty reductions for soy).
  - Wage bill: federal government wage bill rose 7 percent in real terms in H1; future increases constrained to an overall yearly real increase of at most 3 percent; this implies around a 5 percent y/y real decline in the wage bill during August–December given slippages.
  - Energy tariffs: electricity cost recovery improved to 53 percent as of August (from 28 percent in 2022H1); target to limit energy subsidies to around 1.5 percent of GDP in 2023.
- Fiscal financing and market operations:
  - Primary cash deficit through end-June 2023: 1.1 percent of GDP (missed target by 0.3 percent of GDP).
  - Domestic financing: net domestic bond placements 1.2 percent of GDP; rollover rate about 135 percent.
  - Direct monetary financing of the fiscal deficit through end-June 2023: 0.8 percent of GDP (central bank advances ARS 1,358 billion through end-June vs. target ARS 373 billion referenced).
  - Bridge financing mobilized: US$3.4 billion from bilateral creditors and CAF to cover June/July repurchases and August interest/payments.

### Monetary policy, BCRA balance sheet, and FX regime
- Monetary tightening:
  - Policy rate actions: 1900 bps increase during April–June 2023; additional 2100 bps in August 2023 (prior action).
  - Policy stance: rates to remain positive in real terms; target to contain exchange rate passthrough and support peso demand.
- BCRA vulnerabilities and interventions:
  - Stock of BCRA securities: around 10 percent of GDP at end-June 2023.
  - Central bank sterilization and liabilities rose due to interventions; recent NDF stock: US$0.8 billion at end-June (below program indicative target US$9 billion) and risen to about US$3.1 billion more recently.
  - Secondary market purchases: ARS purchases aggregated (April–August 2023) ARS3.2 trillion (1.9 percent of GDP) in securities; earlier episodes include purchases ARS1.3 trillion and ARS600 billion in 2022.
  - Box 7 assessment: secondary market interventions expanded BCRA balance sheet and increased remunerated liabilities; recommendations include reducing fiscal deficit, strengthening debt management, expanding investor pool, and integrating liquidity pools.
- FX regime and MCPs:
  - Multiple Currency Practices (MCPs) and exchange restrictions introduced or intensified since fourth review (examples and dates below).
  - Authorities committed to harmonize FX regime and phase out MCPs and exchange restrictions as conditions permit, with a strategy reset to end‑March 2024 for a roadmap and structural benchmark resets to end‑October 2023 for BCRA strategy.

### External sector, reserves, and importers’ debt overhang
- External and trade developments through mid-2023:
  - Goods trade balance: deficit of US$4.4 billion through June 2023 (versus a US$3.9 billion surplus in S2:2022).
  - Goods export volumes: down 18 percent y/y through June 2023; agricultural export volumes down 37 percent y/y.
  - Services deficit: US$2.5 billion during S1:2023.
- Reserves and NIR (Text Table figures, US$ billions):
  - Gross International Reserves: end-2022 = 44.6; end-Jun (2023) = 27.9; Latest (2023) = 23.8.
  - a. Gross liabilities: end-2022 = 35.8; end-Jun (2023) = 33.1; Latest (2023) = 34.1.
  - 1. Net International Reserves (=1-a): end-2022 = 8.8; end-Jun (2023) = -5.2; Latest (2023) = -10.3.
  - Memorandum: NIR (program definition): 7.7; -2.4; -6.3.
  - BCRA NDF position: 0.6; 0.8; 3.1.
- Importers’ debt overhang (Box 2):
  - Monthly accrued imports average since June 2022: US$6.6 billion; monthly FX payments average US$5.4 billion; required financing period ~90 days.
  - Importers’ short-term debt grew by about US$16 billion between end-2021 and July 2023; stock of import financing reached US$38 billion (about 60 percent of total imports, compared to historical average 39 percent).
  - Baseline assumptions: 30 percent reduction in accrued import volumes during remainder of 2023 (relative to July); 50 percent reduction in import debt overhang by end-2024; return to historic import financing levels by 2025.

### Banking sector and asset market indicators
- Banking metrics (latest as of May/June 2023):
  - Regulatory capital: 30 percent of risk-weighted assets.
  - Liquid assets: 55 percent of total assets.
  - Non-performing loans: 3 percent.
  - Bank exposure to consolidated public sector: close to half of banking system domestic currency assets.
  - Real private sector peso credit: down 13 percent y/y as of June 2023.
  - Private sector peso deposits: up 0.8 percent y/y as of June 2023.
  - Banking sector FX deposits: about US$15 billion as of early-August 2023; banks’ FX deposits at the BCRA fell by US$1.9 billion since end-March 2023.
  - Banks’ net long foreign currency positions rose by 5 percent to 32 percent of regulatory capital between end-September 2022 and end-March 2023.
- Sovereign spreads and markets:
  - Sovereign spreads: fell by about 480 bps since earlier peaks and stood around 2100 bps.
  - Parallel rate/official rate gap: remained high and volatile.

### Program reviews, waivers, access, and modifications proposed
- Staff proposals and requests:
  - Combine the fifth and sixth review (end-June test date) with access of SDR 5.5 billion to support policy efforts and balance of payments needs.
  - Seventh review expected in November with end-September test date and access to SDR 2.5 billion.
  - Modifications proposed:
    - NIR accumulation targets lowered to reflect drought impact; implied ambitious accumulation in H2:2023 (around US$2 billion through end-September, and US$8 billion through end-December noted across text).
    - Ceiling for monetary financing of the Treasury for 2023 increased to the equivalent of 0.8 percent of GDP reflecting developments.
    - Indicative targets updated: social spending floor augmentation; stricter limits on central bank intervention in NDF market.
  - Waivers requested:
    - Waivers for non-observance of end-June NIR, monetary financing, and primary fiscal balance PCs.
    - Waivers for continuous PCs related to imposition/intensification of exchange restrictions and introduction/modification of MCPs.
  - Board approval requested to temporarily retain exchange restrictions and MCPs under Article VIII, Sections 2(a) and 3, pending stabilization and good faith efforts to resolve external arrears.

### Risks, contingency needs, and policy priorities
- Risks:
  - Elevated risks from fragile social/economic conditions, program implementation difficulties, election-related uncertainties, climate outcomes, and global financial conditions.
  - Importers’ debt and large short-term financing needs (overhang estimated above US$10 billion) represent significant downside risk to reserve accumulation.
- Contingency and policy agility:
  - Elements of the new package may need recalibration; agile policymaking and contingency planning emphasized.
  - Potential policy responses if conditions worsen: further macro tightening, higher real interest rates, sharper spending cuts (including accelerated energy subsidy reductions).
- Fund staff view on exceptional access:
  - Staff assesses Argentina continues to satisfy the four criteria for exceptional access, premised on steadfast implementation of the new policy package, while acknowledging finely balanced judgements and exceptionally high risks.

### Structural priorities and medium-term agenda
- Fiscal consolidation and public finance reforms:
  - Primary fiscal deficit targets: 1.9 percent of GDP in 2023; 0.9 percent of GDP in 2024; medium-term aim of 1.3 percent of GDP surplus by 2027.
  - Revenue-side priorities: simplify tax system; reduce tax expenditures; improve property taxation; restore real value of excises; strengthen revenue administration.
  - Expenditure-side priorities: streamline energy subsidies; reform pension indexation; rationalize transfers to provinces and SOEs; strengthen PFM and Treasury Single Account.
- Supply-side and investment priorities:
  - Energy: completion and second phase of Nestor Kirchner gas pipeline; reduce energy imports by roughly US$3 billion in H2:2023; potential energy import reduction over US$8 billion and energy export gains conditional on project completion and Vaca Muerta development.
  - Mining and exports: potential five-fold increase in mining exports over next decade conditional on investment (lithium, copper).
  - Social safety nets: improve targeting and governance (Potenciar Trabajo reforms; audits identified close to 100,000 ineligible claimants).
- BCRA and governance reforms:
  - Strengthen BCRA financial position and governance; strategy to improve BCRA’s financial position reset to October 2023 (structural benchmark).
  - Consider reforming central bank charter over time to bolster independence and governance.

### Data, TMU definitions, and monitoring requirements (selected)
- Program exchange rates (as of March 2, 2022): ARS/USD 107.93; ARS/SDR 150.08; ARS/EUR 119.83; ARS/CAD 85.21; ARS/GBP 144.22; ARS/CNY 17.07; Gold price US$/ounce 1,928.72.
- Inflation point estimates for setting PCs and ITs: 120 percent in 2023 (range 115–125 percent); 60 percent in 2024 (range 50–70 percent).
- Reporting frequencies and data requirements: daily, weekly, fortnightly, monthly (lag no more than 25 calendar days), and semi-annual reporting obligations specified for reserves, BCRA operations, fiscal accounts, debt service, arrears, and other metrics.
- Key program measurement definitions: NIR, BCRA financing of Treasury, federal government primary balance (cash basis), domestic arrears (difference between accrual and cash primary spending), and stock/flow adjustors for grant/loan disbursements.

*IMF staff report content from the chapter "4.      Beyond this year, a more ambitious approach will be required to address" and related excerpts (data as of August 16; report dated August 17, 2023).*

### EXECUTIVE SUMMARY

### EXECUTIVE SUMMARY

### Context and recent developments
- Since completion of the fourth review, Argentina’s economic situation "has become increasingly fragile" with episodes of heightened market volatility and intensified inflation and external pressures driven by the historic drought and insufficient policy adjustment.
- The historic drought caused larger-than-expected losses to agricultural production, exports, and fiscal revenues, while non-agricultural activity remained resilient on the back of robust domestic demand in part due to policy slippages.
- Electoral dynamics increased policymaking uncertainty:
  - August 13 (PASO) results: Libertad Avanza received 30.0 percent, Juntos por el Cambio 28.3 percent, Unidos por la Patria 27.3 percent.
  - Individual PASO candidate shares: Javier Milei 30.0 percent, Sergio Massa 21.4 percent, Patricia Bullrich 17.0 percent.
  - General elections scheduled for October 22, with a run-off on November 19 if needed; a new administration will assume office on December 10.
- Most end-June performance criteria (PCs) were missed by large margins, reflecting the combined impact of the drought and policy slippages; reserves fell to "dangerously low levels."
- Due to delays in the fifth review, the authorities mobilized bridge financing to remain current on obligations with the Fund.

### Program performance and implementation issues
- The program has "gone off track" with missed end-June PCs for net international reserves (NIR) accumulation, the primary fiscal balance, and monetary financing of the fiscal deficit.
- New administrative FX measures led to additional exchange restrictions and multiple currency practices (MCPs), resulting in nonobservance of continuous PCs related to such measures.
- Progress on the structural agenda has been limited as near-term stability became the heightened focus.
- Key program objectives—reducing inflation and rebuilding reserves—remain elusive as imbalances grew amid external shocks and weak policy implementation.

### New policy package and revised baseline
- Authorities implemented a new policy package to rapidly rebuild reserves and strengthen fiscal order, recognizing the need for a significant course correction.
- Baseline projections and near-term outlook:
  - Real GDP is projected to contract by 2½ percent in 2023 due to the drought and tighter macroeconomic policies in the remainder of the year.
  - Inflation is expected to reach 120 percent y/y by end-2023, conditional on exchange rate passthrough and policy implementation.
  - The trade balance is expected to gradually improve during the remainder of 2023, supported by improvements in the energy balance after completion of the first phase of the gas pipeline.
  - The new policy package is forecast to boost net international reserves by about US$8 billion between August and December, still falling short of the fourth review end-2023 target by around US$7 billion.
  - Recovery to trend beyond 2023 is expected to be gradual even as drought conditions ease, given headwinds from policies needed to address macroeconomic imbalances.

- FX and monetary policy measures:
  - A nominal step devaluation of 27 percent relative to end-July levels was adopted in mid-August.
  - Monetary policy rates were raised by 2100 bps to limit exchange rate passthrough to inflation.
  - Temporary FX taxes were placed on selected goods and services and a temporary preferential exchange rate was implemented for agricultural products.
  - Going forward: the rate of crawl will be calibrated to support reserve accumulation; policy rates will be kept positive in real terms; monetary interventions in parallel and futures FX markets will focus on addressing disorderly conditions and guiding expectations while ensuring consistency with reserve accumulation goals.

- Fiscal policy stance:
  - The 2023 primary fiscal deficit target remains unchanged at 1.9 percent of GDP, implying a tightening of the fiscal stance for the remainder of the year.
  - The FX realignment and temporary FX taxes should help offset drought-related export receipt losses, but "increased expenditure control" is required during the elections period to protect priority social and infrastructure spending.
  - Authorities committed to further efforts to update energy tariffs in line with production costs and to contain public sector wages and pensions given past slippages.

- Financing strategy:
  - Recent actions to substantially reduce rollover risks are welcomed and a proactive approach will continue to mobilize net financing consistent with debt sustainability and avoiding vulnerability buildup.
  - Central bank purchases in the secondary bond market will be limited to maintaining normal market functioning.
  - Tight fiscal policy, together with mobilization of domestic and external financing, should help avoid monetary financing of the deficit and support strengthening the central bank balance sheet.

- Medium-term policies and structural priorities:
  - Tackling high inflation and enhancing external and fiscal sustainability will require an acceleration of fiscal consolidation via high-quality and durable structural revenue and spending measures.
  - Further harmonization of the FX regime is needed, including prompt unwinding of distortive MCPs and exchange restrictions as conditions permit.
  - Once reserves are rebuilt and imbalances addressed, a gradual conditions-based easing of capital flow management measures should be considered.
  - Supply-side reforms: more efficient and predictable regulatory frameworks to boost export potential—especially in energy and mining—and improvements to targeting and efficiency of social safety nets.

### Program risks and contingency needs
- Risks remain elevated due to fragile economic and social conditions, program implementation difficulties, and election-related uncertainties.
- Risks could intensify if projected improvements in climate conditions do not materialize or external conditions worsen.
- Even with steadfast implementation, elements of the new package may need recalibration; agile policymaking and contingency planning are critical.
- The Fund faces significant enterprise risks as program risks cannot be fully mitigated; deep structural imbalances are expected to take many years for resolution and will require substantial attention of the future administration.

### Program issues, modalities, and financing
- Staff proposes combining the fifth and sixth review (with an end-June test date) with access of SDR 5.5 billion to support Argentina’s policy efforts and balance of payments needs.
- The seventh review is expected in November based on end-September targets, with access to SDR 2.5 billion.
- Modifications to program targets are proposed:
  - NIR accumulation targets have been lowered reflecting the drought’s greater-than-expected impact, net of agreed policy adjustments.
  - More minor modifications to targets for the fiscal primary balance and domestic arrears are proposed on account of higher-than-programmed inflation (unchanged as a share of GDP).
  - The central bank financing of the deficit target has been revised to reflect recent developments.
  - New and modified structural benchmarks are proposed.
- Waivers requested:
  - Waivers for non-observance of end-June NIR, monetary financing, and primary fiscal balance PCs.
  - Waivers for non-observance of continuous PCs related to imposition/intensification of exchange restrictions and introduction/modification of MCPs.
  - Corrective macroeconomic measures are being implemented to bring the program back on track and allow prompt unwinding of exchange restrictions and MCPs.
- Board approval requested for:
  - Temporary retention of the measures giving rise to exchange restrictions and MCPs under Article VIII, Sections 2(a) and 3.
  - Completion of the financing assurances review.
  - Exchange restrictions and MCPs will be maintained temporarily until the impact of tighter macroeconomic policies takes hold, while good faith efforts continue to resolve pending external arrears.

*Report based on data available as of August 16; dated August 17, 2023.*

### 4.      Beyond this year, a more ambitious approach will be required to address

### 4.      Beyond this year, a more ambitious approach will be required to address

### Recent developments
- Argentina’s deep-seated macroeconomic challenges will likely take many years to resolve and require strong policy actions by future administrations.
- Key near-term priorities identified:
  - Accelerate fiscal consolidation while protecting priority social and infrastructure spending.
  - Further corrections in relative prices.
  - Gradual conditions-based easing of capital flow management measures as imbalances are addressed and reserve coverage improves.
  - Supply-side reforms to boost export potential and external viability.

### Economic activity and labor market (Q1–H1:2023)
- Economy expanded by 1.3 percent y/y through Q1:2023, driven by manufacturing, mining, and retail services.
- Demand and investment details:
  - Private consumption: 6.0 percent y/y.
  - Investment: -0.6 percent y/y.
- Q2:2023 indicators point to a mild contraction, mainly due to the historic drought’s impact on agriculture amid continued strong performance in other sectors.
- Labor and social indicators:
  - Unemployment: 6.9 percent.
  - Poverty: 39 percent in S2:2022 (from 36.5 percent in S1:2022).
  - Real wages: down 3.2 percent so far this year through June.
  - Informal workers’ real wages: -15.4 percent y/y.

### Inflation and price dynamics
- Monthly headline inflation:
  - Around 5 percent at end-2022.
  - Peaked at 8.4 percent in April 2023.
  - Hovered around 6 percent during June/July 2023.
- Underlying price pressures:
  - Monthly core inflation, excluding food, averaged 7 percent in recent months.
  - Contributing factors: increased central bank financing, a high FX gap, and administrative FX measures affecting price formation and profit margins.
  - 12-month ahead inflation expectations rose from 147 percent y/y to 155 percent y/y between April and July (as reported).
- Monetary conditions:
  - The role of the official exchange rate in anchoring inflation has weakened significantly.
  - Base money reported at 4 percent of GDP in May.

### External sector, trade, and balance of payments
- Goods trade:
  - Goods trade balance: deficit of US$4.4 billion through June 2023 versus a US$3.9 billion surplus in S2:2022.
  - Goods export volumes: down 18 percent y/y through June 2023 relative to S2:2022.
  - Agricultural export volumes: down 37 percent y/y.
  - Goods imports volumes: up 5 percent y/y.
- Services:
  - Services deficit: US$2.5 billion during S1:2023.
- Aggregate balance of payments pressures:
  - Gross international reserves fell by over US$16 billion during S1:2023 to multi-year lows, equivalent to around 3 months of imports.
  - Financial account turned negative, reflecting net amortization payments to the Fund and other private outflows, including debt buybacks and central bank interventions in the FX parallel markets (US$1.7 billion).
  - Import financing rose rapidly since mid-2022 through increased import payment deferral.
- Reserve and related statistics (Text Table 2, 2022–2023, in US$ billions):
  - Gross International Reserves: end-2022 = 44.6; end-Jun (2023) = 27.9; Latest (2023) = 23.8.
  - a. Gross liabilities: end-2022 = 35.8; end-Jun (2023) = 33.1; Latest (2023) = 34.1.
  - 1. Net International Reserves (=1-a): end-2022 = 8.8; end-Jun (2023) = -5.2; Latest (2023) = -10.3.
  - b. Gold: 3.6; 3.8; 3.8.
  - c. SDR: 7.7; 0.0; 0.0.
  - d. Liquid reserves: -2.5; -9.0; -14.1.
  - Memorandum: NIR (program definition): 7.7; -2.4; -6.3.
  - BCRA NDF position: 0.6; 0.8; 3.1.
- Additional balance of payments table (Text Table 1, US$ billions):
  - CA balance: 2022 Jul-Dec = -1.8; 2023 Jan-Jun = -12.4.
  - Trade balance: 3.4; -6.9.
  - Goods trade balance: 6.7; -4.4.
  - Goods exports: 44.1; 33.5.
  - Goods imports: 37.4; 37.9.
  - Imports trade financing: 6.8; 4.4.
  - Reserves change (+, increase): 2.4; -14.0.
  - Memo: Importers' debt stock (in percent of annual imports): 31.4 (2022); 37.0 (2023); 41.2; 58.7.

### Monetary policy and central bank developments
- BCRA policy rate actions:
  - Raised policy rates by 1900 bps during April–June 2023.
  - Raised policy rates by an additional 2100 bps in August 2023 as part of a new policy package.
- Effective policy rate remained above the inflation reference rate and the 12-month inflation expectation rate through most of this period.
- Central bank balance sheet and vulnerabilities:
  - Stock of BCRA securities rose to around 10 percent of GDP at end-June 2023, close to historic highs observed in 2017.
  - Low and declining peso demand; liquidity mop-up due to increased central bank financing of the fiscal deficit (2 percent of GDP), losses from preferential exchange rate scheme for exporters (0.2 percent of GDP), and rising interest payments on BCRA securities (2.9 percent of GDP).
  - Recent rise in central bank interventions in the non-deliverable forward (NDF) markets added to vulnerabilities.
  - Stock of NDFs: US$0.8 billion at end-June (below program indicative target of US$9 billion) but has risen to about US$3.1 billion more recently.

### Fiscal performance and public finances (S1:2023)
- Primary cash deficit through end-June 2023: 1.1 percent of GDP (rose sharply).
- Revenue and spending dynamics:
  - Overall revenues: down over 9 percent year to date through June 2023, driven by a drought-related collapse in real export duties (over 67 percent).
  - Public spending contracted by 6 percent in real terms in the first half of the year.
  - Sectoral spending changes:
    - Energy subsidies: -15 percent.
    - Current transfers to state-owned enterprises and provinces: -25 percent.
    - Pensions: -9 percent.
    - Capital spending: +24 percent (to secure timely completion of the gas pipeline).
    - Public wage bill: +7 percent in real terms.
  - New tax and spending initiatives worth around 0.4 percent of GDP are expected to add fiscal pressures going forward.
- Domestic financing and market operations:
  - Direct monetary financing of the fiscal deficit: 0.8 percent of GDP through end-June 2023.
  - Central bank intervention in the secondary bond market: about 1.2 percent of GDP over the same period.
  - Net domestic bond market placements: 1.2 percent of GDP; rollover rate: about 135 percent.
  - A voluntary bond exchange extended maturities into 2024 and 2025, reducing amortization from around 6.5 percent of GDP to 2.5 percent of GDP for the remainder of the year.
- Official financing and support:
  - Total official budget support and project disbursements during S1:2023: around US$2 billion, exceeding program projections by US$172 million.
  - The authorities mobilized US$3.4 billion of bridge financing from bilateral creditors and the Andean Development Fund (CAF) to cover June and July repurchases and August interest payments and charges.

### Administrative FX measures, interventions, and market effects
- Delays in macroeconomic policy adjustments led to increased reliance on interventions and administrative FX controls.
- Central bank interventions in parallel FX markets and regulations to limit trading activity contributed to reserve losses (~US$1.7 billion).
- Temporary administrative measures introduced to encourage liquidation of agricultural exports and discourage imports and FX purchases, including intensified import and financial payment postponement requirements.
- Some measures gave rise to new exchange restrictions and multiple currency practices (MCPs) and intensification/modification of an existing MCP.

### Banking sector and financial stability
- Banking system metrics (latest data as of May 2023):
  - Regulatory capital: 30 percent of risk-weighted assets.
  - Liquid assets: 55 percent of total assets.
  - Non-performing loans: 3 percent (stable).
- Bank exposures and deposits:
  - Bank exposure to the consolidated public sector: close to half of banking system domestic currency assets.
  - Real private sector peso credit: down 13 percent y/y as of June 2023.
  - Private sector peso deposits: up 0.8 percent y/y as of June 2023.
  - Banking sector FX deposits: about US$15 billion as of early-August 2023.
  - Banks’ FX deposits held at the BCRA have fallen by US$1.9 billion since end-March 2023.
  - Banks’ net long foreign currency positions rose by 5 percent to 32 percent of regulatory capital between end-September 2022 and end-March 2023.
  - Over 60 percent of private FX deposits are backed by banks’ FX deposits at the BCRA; private sector FX loans remained under a quarter of overall FX deposits.

### Asset markets and external risk perception
- Sovereign spreads:
  - Fell by about 480 bps since earlier peaks and stood around 2100 bps.
- The gap between parallel rates and the official exchange rate has remained high and volatile, reflecting external fragilities and election-related uncertainties.
- Emerging market trends partly mirrored in Argentine asset prices, with increased volatility more recently.

### Program performance (progress and slippages)
- The program went off track due to the historic drought and policy slippages/delays.
- Fiscal:
  - Primary fiscal deficit through end-June missed by 0.3 percent of GDP.
  - Average daily stock of domestic arrears (ARS 1,052 billion) remained below the end-June target.
- External and monetary:
  - Net international reserve accumulation about US$11 billion below program target at end-June 2023, reflecting lower-than-anticipated exports (US$7.2 billion) and insufficient import compression and parallel FX interventions.
  - Central bank financing of the fiscal deficit rose to 0.8 percent of GDP through end-June, exceeding the program ceiling.
  - Stock of NDFs: US$0.8 billion at end-June, below program indicative target of US$9 billion (but since risen).
- Structural benchmarks (selected):
  - Delivered:
    - Improvements in databases to strengthen personal property taxation (end-March 2023, SB).
    - Resolution to increase electricity prices in May 2023, exceeding program commitments (end-April 2023, SB).
    - Comprehensive evaluation of tax expenditures (end-June 2023, SB).
  - Not met or partially met:
    - Enhanced quarterly reports for public corporations and trust funds published but without breakdown of assets and liabilities (end-March 2023, SB; not met).
    - Comprehensive evaluation of the workfare (Potenciar Trabajo) program completed but not published (end-March 2023, SB; not met).
    - External 2020 ex-post audit on COVID spending completed but not published due to confidentiality (end-June 2023, SB; not met).
    - BCRA strategy to improve financial position (end-December 2022, SB; not met).
    - Roadmap to ease capital controls (end-June 2023, SB; not met) delayed to prioritize balance of payments stress.
  - BCRA published financial statements with enhanced disclosures (end-May 2023, SB).
  - Work on legislation modifying the Foreign Exchange Criminal Law advanced but not submitted to congress by end-May 2023 (end-May 2023, SB; not met).

### Key fiscal and program numbers (Text Table 3: Jan–Jun, in percent of GDP)
- 4th Review (target) versus Actual (Jan–Jun):
  - Revenues: 7.0 (target) ; 6.9 (actual) ; Diff. -0.1.
  - Export Duties: 0.6 ; 0.4 ; Diff. -0.2.
  - Other revenues: 6.4 ; 6.5 ; Diff. 0.1.
  - Primary Expenditures: 7.8 ; 8.0 ; Diff. 0.2.
    - Current: 7.0 ; 7.3 ; Diff. 0.3.
    - Capital: 0.8 ; 0.7 ; Diff. -0.1.
  - Primary Balance: -0.8 ; -1.1 ; Diff. -0.3.

### Policy implications and outlook
- Immediate and medium-term policy actions recommended:
  - Accelerate fiscal consolidation while protecting priority social and infrastructure spending.
  - Continue corrections in relative prices to improve fiscal and external sustainability.
  - Gradual, conditions-based easing of capital flow management measures as reserves improve and imbalances are reduced.
  - Implement supply-side reforms to boost export potential and external viability.
  - Strengthen central bank financial position and reduce reliance on direct monetary financing.
  - Improve transparency and complete delayed structural benchmarks to restore policy credibility and support financing.

*Source: IMF staff analysis as presented in the chapter "4.      Beyond this year, a more ambitious approach will be required to address" (1argea2023002).*

### 18.      Since late-July, the authorities have been implementing a new policy package,

### 1argea2023002 - 18.      Since late-July, the authorities have been implementing a new policy package,

### Policy package and objectives
- The package aims to rebuild reserves through upfront efforts to realign the exchange rate (a nominal step devaluation of 27 percent relative to end-July) and tighten macroeconomic policies to limit the exchange rate passthrough to prices and potential disorderly market pressures.
- The fiscal anchor is being bolstered by upfront measures to contain energy subsidies and correct excessive real wage growth, while protecting critical social and infrastructure spending.
- Given acute balance of payments stress, authorities announced a temporary expansion of the preferential exchange rate scheme on selected agricultural products at more favorable rate (now superseded by the devaluation), and a temporary extension of the FX access tax for selected imports.
- These taxes are expected to be eliminated starting next year as the impact of the drought eases, the net energy external balance improves, and as tighter macroeconomic policies begin to take hold, particularly through the acceleration of fiscal consolidation next year and beyond.

### Market developments and early gains
- Between July 24 and August 16, the central bank purchased about US$1.5 billion in foreign exchange from the official market, reversing earlier trends.
- In response to volatile market conditions, the central bank also sold over US$0.6 billion in reserves to intervene in the securities FX markets, partially offsetting gains from increased export liquidation and import containment.
- Securing a sustained improvement will require a strong commitment to addressing underlying imbalances, recalibrating policies as needed to achieve program goals, and limiting interventions in the securities FX markets.
- Figure and data notes: Vertical lines represent start of implementation of policy package. Data as of August 16, 2023.

### Revised macroeconomic baseline and risks
- Growth
  - Output is now expected to contract by 2½ percent this year, given agricultural sector losses and the impact of necessary tighter policies during the remainder of this year.
  - Growth is projected to recover to around 2¾ percent next year as the impact of the drought unwinds.
  - The recovery of the nonagricultural sector is expected to be gradual given headwinds from projected fiscal consolidation and the need to rebuild external buffers.
  - Output is only expected to return to trend levels by 2030.
- Inflation
  - Following the nominal step devaluation, inflation is projected to initially jump from around 6 percent in July to around 10 percent m/m in August and decline to under 5 percent m/m by end-2023.
  - These dynamics assume strict implementation of tight monetary (¶22) and fiscal (¶25) policies, effective wage-price coordination, and rationalization of the FX regime and easing of administrative FX controls.
  - Beyond this year, inflation is projected to decline gradually as imbalances are addressed in the context of persistent weakness in money demand and existing indexation mechanisms.
- External
  - The current account balance is expected to narrow from a deficit of US$6.5 billion in S1:2023 to reach a deficit of about US$1.5 billion for 2023 as a whole, underpinned by increased export liquidations, reduced goods imports, and a stronger services balance.
  - Improvements in the financial account, in part reflecting IFI financing, would support NIR accumulation of about US$6 billion during S2:2023.
  - Projections assume the nominal step devaluation, tight policies to limit exchange rate passthrough, and a rate of crawl that adjusts to ensure the real exchange rate remains 5-10 percent weaker (relative to end-July level) by the end of the year.
  - Headwinds and risks include a large overhang related to required short-term import financing, estimated to be above US$10 billion.
- Fiscal and financing
  - The primary fiscal deficit is projected to narrow to 1.9 percent of GDP in 2023.
  - This reflects efforts to temporarily mobilize FX revenues from imports and contain public spending, with real spending projected to contract by 8 percent during S2:2023.
  - These measures would avoid direct monetary financing of the budget while limiting reliance on domestic sources, consistent with disinflation goals.
  - Over the medium term, fiscal consolidation is assumed to accelerate to strengthen debt sustainability and secure gradual re-accessing of international markets starting in 2025.

### Exchange rate and monetary policies
- Exchange rate realignment
  - The nominal step devaluation on August 14 (prior action) initially reduced the gap between the official and parallel FX rates, though conditions remain very volatile.
  - The devaluation is expected to facilitate liquidation of grain stocks and timely sale of the harvest, and help contain imports.
  - Temporary extension of the FX access tax (impuesto pais) applies to imports of goods (7.5 percent), services (25 percent), and transport (7.5 percent), except for fuels, medicines, basic food items, education services, and temporary imports for automobile exports.
  - Securing competitiveness gains requires tight macroeconomic policies and careful calibration of the rate of crawl to inflation and reserve accumulation developments.
  - Close monitoring of the projected unwinding of the unusually large stock of import financing is necessary to mitigate refinancing risks and secure reserve accumulation goals.
- Monetary policy and interventions
  - Immediately following the devaluation, the BCRA raised interest rates by 2100 bps to contain inflation and support demand for pesos (prior action).
  - Policy rates are expected to remain sufficiently positive in real terms and be adjusted as needed in line with inflation developments and market pressures.
  - Very limited interventions in the parallel FX market could be considered to contain disorderly movements, but such interventions must be consistent with reserve accumulation goals.
  - Central bank interventions in NDF markets will be contained and not exceed revised program indicative targets to protect the central bank balance sheet.
  - The exchange rate realignment and reduced reliance on administrative FX measures should support a reduction in high corporate margins over time.
  - Wage-price coordination is expected to play a complementary role in the near-term, though enforcement will be challenging.
- FX regime harmonization and BCRA balance sheet
  - Number of effective exchange rates remains large; MCPs and other CFMs help contain capital outflows but are not substitutes for sound macroeconomic policies and introduce distortions that discourage trade and foreign investment.
  - Temporary measures leading to new or intensified MCPs and exchange restrictions will be eliminated during the program as conditions permit.
  - Strategy to unwind FX controls has been reset to end-March 2024 as a new structural benchmark (end June 2023, SB; not met); implementation expected to begin in 2024 conditional on strengthening external buffers and reducing macroeconomic imbalances.
  - Since end-2019, the BCRA balance sheet has expanded significantly due to large central bank financing of the fiscal deficit and quasi-fiscal activity, including preferential exchange rate schemes.
  - Stock of central bank debt is projected to exceed a historic high of 15 percent of GDP by end-2023.
  - Authorities agreed to limit BCRA sterilization needs by abstaining from further temporary advances, profit distributions, and quasi-fiscal activities not directly related to BCRA’s core mandate.
  - Staff recommended gradually swapping non-interest-bearing assets for marketable securities, charging interest on existing temporary advances, and limiting other forms of monetary financing.
  - Consideration over time of reforming the central bank’s charter to strengthen BCRA’s legal and operational independence and governance arrangements was discussed; a more detailed strategy for improving the BCRA’s financial position was agreed (SB, reset to October 2023).

### Fiscal policies and measures
- Overall stance
  - A tighter fiscal stance during S2:2023 is critical to underpin the success of the policy package.
  - Adhering to the agreed 1.9 percent of GDP primary target will require maintaining broad primary balance through November, achieved through a combination of revenue (some temporary) and expenditure measures to effect an 11 percent contraction in spending from August to December this year, while protecting priority infrastructure (pipeline) and social programs.
- Revenues
  - Temporary extension of the tax on FX access (impuesto pais) is projected to raise revenues by 0.8 percent of GDP during the remainder of the year, net of offsetting losses from the temporary reduction in export customs duties for soy products.
  - Revenue gains from initiatives to bring forward corporate taxes of large firms are projected to be offset by other initiatives aimed at raising personal income tax thresholds.
  - Authorities committed to avoid bringing forward tax receipts, postponing VAT refunds, or implementing other measures that merely shift primary balances over time.
  - Further in-depth work to evaluate tax expenditures will inform future streamlining initiatives (proposed end-October 2023, SB).
- Wage bill
  - Rapid real federal government wage bill growth in the first half was 7 percent y/y.
  - Wage increases in the coming months must be limited and consistent with an overall yearly real increase of at most 3 percent (in line with fourth review projections).
  - Given slippages in S1:2023, achieving this annual goal will entail a real decline in the wage bill of around 5 percent y/y during August-December.
  - An Administrative Order was issued (prior action) to centralize and coordinate decision-making related to federal government wages and bind the responsible commission to adhere to this envelope.
- Energy subsidies and tariffs
  - A resolution was issued in July raising electricity tariffs, effective August.
  - Further efforts remain required to align tariffs with higher production costs following the exchange rate devaluation to achieve cost recovery targets established at the fourth review and meet energy subsidy reduction goals (0.5 percent of GDP in 2023).
  - Authorities will announce their decision (prior action) to adjust electricity prices through issuance of a resolution (proposed end-August 2023, SB) effective September 1 for low-and other middle-income residential users and smaller commercial users.
  - Electricity prices for high-income residential users will continue to evolve with production costs; larger commercial users will reach full cost recovery by end-2023.
  - Staff and authorities discussed better aligning natural gas prices to changes in production costs during the remainder of the year and agreed to revisit the issue in the next review.
- Pensions and social assistance
  - Pension spending will evolve in line with the indexation formula, with additional outlays to protect low-income pensioners from higher inflation and to cover new entrants into the new pension moratorium scheme.
  - Roughly 130,000 of the estimated 800,000 eligible people have applied for the scheme; around 60,000 began receiving payments starting in June/July, with over three-fourths of beneficiaries being women aged between 60-65 collecting the minimum pension.
  - Social spending may increase within the agreed deficit target to protect the most vulnerable from the exchange rate realignment, focusing on well-targeted flagship programs like the Family Allowance program (AUH) and Food support program (Tarjeta Alimentaria).
  - Ongoing audits are intended to improve quality and targeting of social assistance, and strengthen targeting, efficiency, and governance of the workfare program (Potenciar Trabajo).

*Source: IMF staff report excerpts (data as of August 16, 2023).*

### 26.      Beyond 2023, fiscal consolidation is programmed to accelerate to safeguard debt

### 26.      Beyond 2023, fiscal consolidation is programmed to accelerate to safeguard debt

### Fiscal consolidation objectives and measures
- Argentina’s post-COVID consolidation has been more gradual than in regional peers, leaving a sizable adjustment required to reach the medium-term steady-state surplus of 1.3 percent of GDP.
- Authorities are committed to reach the program target of a primary deficit of 0.9 percent of GDP in 2024 and are expected to present their consolidation plans to congress in the Draft 2024 Budget (proposed mid-September 2023, SB).
- Authorities will seek congressional support to reduce tax expenditures to achieve a more ambitious consolidation in 2024.
- Revenue-side priorities:
  - Simplifying the tax system.
  - Reducing costly incentives (and carve outs).
  - Improving property taxation.
  - Restoring the real value of excises.
  - Strengthening revenue administration (especially large VAT compliance gaps).
- Expenditure-side priorities:
  - Further streamline costly energy subsidies.
  - Strengthen sustainability of the pension system (including reforming the indexation mechanism).
  - Rationalize transfers to provinces and state-owned enterprises.
- Public financial management enhancements:
  - Strengthen budget controls, including enhancements in the Treasury Single account, oversight of extra-budgetary public entities, and procurement practices for investment projects.
- Avoidance of ad-hoc measures: reliance on various ad-hoc measures (e.g., expansion or extension of impuesto pais beyond its legislative expiration at end-2024) should be avoided.

### Financing strategy and debt market implications
- Refinancing risks have been significantly reduced by pushing the bulk of pending rollovers beyond the elections, facilitating net domestic placements and avoiding direct monetary financing during the remainder of the year, conditional on steadfast implementation of the fiscal program.
- Private domestic financing target: generate the needed private domestic financing equivalent to 1.8 percent of GDP.
- Staff view: avoid excessive reliance on FX-linked instruments and other FX protections/guarantees; no scope to sell long-term USD-denominated securities to the private sector.
- Over time, exchange rate realignment should support private sector demand for government paper, reducing the need for central bank purchases from secondary bond markets.
- Expected market developments:
  - A well-articulated and credible fiscal consolidation plan should support a deepening of the domestic debt market.
  - Increased private demand for peso assets would support reduction in domestic borrowing costs and extension of domestic maturities, permitting gradual conditions-based easing of CFMs.
  - Projected improvements in reserve coverage would allow a gradual return to international capital markets starting in 2025.

### Supply-side policies
- Sustained reform efforts are needed to boost external resilience and encourage investment and exports in strategic sectors: energy, mining, agroindustry, knowledge economy.
- Energy infrastructure priorities:
  - With the first phase operational in the greater Buenos Aires area, construction of the second phase to connect shale and oil fields (Vaca Muerta) with other large urban areas is a priority.
  - Investments plus efforts to boost crude oil production and transportation could help turn Argentina from a net energy importer to a large energy exporter.
- Mining and other sectors:
  - Foreign and domestic investment in lithium and copper sectors could potentially permit a five-fold increase in mining exports over the next decade.

### Program risks and contingencies
- Program remains subject to high uncertainties and risks requiring agile policymaking and contingency planning.
- Risks from political and social pressures ahead of elections could derail the program, leading to continued exchange restrictions and MCPs.
- External shock risks (e.g., tightening global financial conditions) could lead to: lower growth, higher inflation, and disappointing reserve accumulation.
- Policymaking adjustments if conditions worsen:
  - Further tightening of macroeconomic policies, potentially higher real interest rates and sharper spending cuts (including accelerated energy subsidy reductions), and additional measures to support reserve accumulation.
- Enterprise and reputational risks:
  - Completion of the review helps avoid emergence of arrears to the Fund, but reputational risks remain high given lingering imbalances and reliance on temporary FX restrictions.
  - Success hinges on building broad political and social support for policy reforms to restore medium-term external viability and manage Fund exposure.

### Program issues, targets, and recent actions
- Documentation:
  - Attached Letter of Intent (LOI) and Memorandum of Economic and Financial Policies (MEFP) describe progress and future commitments; the Technical Memorandum of Understanding (TMU) clarifies program definitions and quarterly targets.
  - Revised targets will be set to strengthen policy anchors, including consideration of drought severity and corrective actions.
- Rephasing and SDR operations:
  - Fifth and sixth reviews are being combined.
  - Authorities intend to use the purchase of SDR 5.5 billion to reimburse creditors who provided bridge financing (up to SDR 3.4 billion) and to support meeting obligations to the Fund.
  - Authorities committed to repay early a portion of their repurchases (SDR 0.7 billion) and keep remaining disbursements in the SDR account to repay the Fund.
  - The seventh review is expected in November, with an end-September test date and an early-November availability date.
- Quantitative target adjustments and waivers requested:
  - Waivers requested for nonobservance of PCs on NIR accumulation, central bank financing of the government, and the primary deficit for end-June, based on corrective actions including exchange rate realignment, securing the 2023 fiscal target, and tightening monetary policy.
  - Waivers requested for continuous PCs related to imposition/intensification of exchange restrictions and introduction/modification of MCPs; staff recommends approval of exchange restrictions and MCPs under Article VIII given tight macroeconomic policies and a roadmap for conditions-based easing of FX controls.
  - Modifications of targets (2023-24) include:
    - NIR accumulation targets lowered but imply ambitious accumulation during second half of the year (around US$2 billion through end-September, and US$8 billion through end-December).
    - End-2023 primary fiscal balance unchanged as a share of GDP, with nominal figures adjusted for higher inflation.
    - Ceiling for monetary financing of the Treasury for 2023 increased to the equivalent of 0.8 percent of GDP, reflecting central bank advances and profit transfers through end-July (excluding those related to payments to the IMF).
  - Indicative targets updated: augmentation of the social spending floor reflecting inflation and need for additional social support; somewhat stricter limits on central bank intervention in the NDF market.
- Prior actions completed:
  - Extended large peso debt maturities held by private and public sector coming due in June-December.
  - Implemented a step devaluation, equivalent to around 30 percent relative to the end-July exchange rate level.
  - Raised policy interest rates by 2100 bps following the FX realignment to ensure sufficiently positive real interest rates and limit exchange rate passthrough.
  - Issued administrative order ensuring future public wage increases are consistent with an average annual real wage growth of at most 3 percent.
  - Announced new electricity tariff updates effective September 1 consistent with legal requirements and cost recovery objectives.
- Structural Benchmarks (SBs) and timing:
  - New SBs proposed for issuance of resolutions updating electricity prices for September–October (end-August 2023, SB) and November–January (end-October 2023, SB).
  - Submission to Congress of a draft 2024 budget consistent with a primary fiscal deficit of 0.9 percent of GDP proposed as a mid-September 2023, SB.
  - Completion of an in-depth evaluation of tax expenditures proposed end-October 2023, SB.
  - Resets to allow more time for implementation:
    - Publication of quarterly reports for public corporations and trust funds (end-March, 2023 SB; reset to end-October, 2023).
    - Development of a strategy to improve the BCRA’s financial position (end-December 2022, SB; proposed reset to end-October, 2023).
    - Development and publication of a roadmap for gradual easing of FX controls (end-June, 2023 SB; proposed reset to end-March, 2024).

### Financing assurances, baseline projections, and repayment capacity
- Official creditor commitments and prospects:
  - Multilateral development banks (World Bank, IADB, CAF) committed to provide net financing of around US$1 billion during S2:2023 and an additional US$1 billion during 2024, including budget support and project loans.
  - Other bilateral creditors committed to disburse US$0.2 billion during S2:2023 and an additional US$1.4 billion during 2024.
  - Paris Club creditors agreed to restructure legacy debt with repayment by September 2028.
- Revised baseline assumptions:
  - NIR accumulation of about US$15 billion during S2:2023 and 2024.
  - Projected cumulative trade (goods and services) surpluses of around US$22 billion.
  - Net FDI flows of around US$11 billion.
  - These are projected to more than offset net external debt obligations, with CFMs continuing to play a supportive role in limiting capital outflows.
- Capacity to repay Fund obligations:
  - Capacity to repay remains subject to exceptional risks and hinges on strong policy implementation to improve reserve coverage and eventual resumption of market access.
  - Full implementation of the EFF arrangement would help address the balance of payments need arising from large obligations due to the Fund related to the 2018 SBA during the remainder of 2023 and 2024, and obligations of the current EFF arrangement which start to come due in 2026.
  - Fund debt service obligations would remain very large over the medium term, around 7.5 percent of exports, or 15 percent of gross reserves, with Fund credit outstanding declining only gradually below 6 percent of GDP by 2027.

### Jurisdictional issues and exchange restrictions / MCPs
- Since the fourth review, Argentina introduced additional measures that give rise to new MCPs and exchange restrictions and intensify/modify existing ones; these measures are maintained for balance of payments reasons, are temporary, and expected to be gradually eliminated over the arrangement period.
- Specific measures:
  - April 10: new export enhancement program (through end-May for soy products and through end-August for regional economy products) allowing exporters to fulfill surrender requirement by exchanging dollar receipts at a preferential exchange rate of 300 pesos per dollar. Given large spread (> two percent) versus official rate and expiration timing, this constituted a new MCP. On July 24 the preferential rate was raised to 340 pesos per dollar through end-August and eligibility expanded; with the devaluation to 350 ARS/USD this exchange rate is no longer preferential and no longer used.
  - July 24: new taxes on FX purchases implemented on import of most goods (7.5 percent), certain professional services (25 percent) and transport (7.5 percent). These taxes amount to both a new exchange restriction and a new MCP.
  - May 4: prohibition on making payments for imports of soybeans until export proceeds had been received; August 1, 2023: prohibition against access to the FX market by exporters that do not fulfill FX surrender requirement. These measures give rise to a new exchange restriction.
  - Additional intensifications of exchange restrictions:
    - BCRA authorization requirements for FX market access for specific professional services and payments of interest to non-resident related counterparties.
    - Extended the non-CCL transaction affidavit period and affidavit requirement for non-CCL transactions to the whole company group.
    - Required Argentine provinces to refinance 60 percent of the principal amount of their external loans before accessing the FX market.
    - Required beneficiaries of credits from the National Security Administration (ANSES) to settle their debt to ANSES prior to accessing the FX market.

*Source: IMF staff report extract (content unit: 1argea2023002 - 26).*

### 40.      Safeguards. The BCRA is making further progress in implementing some of the 2022

### Safeguards. The BCRA is making further progress in implementing some of the 2022 safeguards assessment recommendations.

### Safeguards and governance
- The transparency of financial statements was enhanced with the additional IFRS-7 disclosures.
- The BCRA’s IT security policy is being finalized for Board approval.
- Periodic reporting on risk management to the Board will be introduced in the coming months.
- Reform to the BCRA legal framework remains necessary to strengthen the central bank’s financial and institutional autonomy and remains a priority outstanding item.

### Arrears policy and status
- Staff assesses that the authorities are continuing to make good faith efforts to resolve their arrears consistent with the Fund’s Lending into Arrears policy.
- External private creditor arrears (total): US$2.3 billion (creditors that did not participate in the 2005/10 debt exchange or did not settle under 2016 terms, and those with debt outstanding from the 2001 default).
- Mobil Exploration: negotiations remain underway on a repayment plan on principal claims of US$196 million.
- Binational Paraguayan and Argentine entity (Yacyreta): stock of debt from 2022 stands at around US$88 million; expected to be reduced to around US$8 million before end-2023.
- Two external arrears claims remain under litigation:
  - Bpifrance Assurance Export: firm filed an appeal with the Supreme Court of Justice on December 2, 2022, after the Court of Appeal had rejected the extraordinary appeal on grounds of statute of limitations.
  - Titan Consortium I, LLC: legacy claim currently under litigation on grounds of statute of limitations.
- Authorities affirmed no other external arrears were incurred since the fourth review.

### Exceptional Access (EA) assessment — summary and criteria
- Staff assesses that Argentina continues to satisfy the four criteria for exceptional access, premised on steadfast implementation of the new policy package. The assessment is subject to finely balanced judgements given exceptionally high risks and uncertainty.

- Criterion 1 (exceptional balance of payments pressures):
  - Staff assesses this criterion as met.
  - Argentina is experiencing exceptional balance of payments pressures on the financial account, aggravated by the recent historic drought and limited external financing options.
  - Meeting very large external debt service obligations during 2023–24 will require Fund financing beyond normal limits and broader international support.

- Criterion 2 (debt sustainability analysis):
  - Staff assesses this criterion continues to be met.
  - Under the current baseline and policy framework, Argentina’s public debt is sustainable but not with high probability (see Annex II).
  - Adequate safeguards are in place to meet EA2: staff assesses that in the event of adverse shocks, there would be sufficient restructurable FX debt to the private sector potentially available after the program to improve debt sustainability and enhance safeguards for Fund resources.
  - 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 for maneuver remain extremely limited; domestic financing strategies should avoid overreliance on FX instruments that add vulnerabilities.

- Criterion 3 (prospects for regaining private market access):
  - Staff assesses this criterion continues to be met.
  - External bond prices have risen but remain volatile and at distressed levels, indicating lingering difficulties accessing external market financing.
  - Realigning and harmonizing the FX regime and tightening macroeconomic policies are critical to boost reserve coverage and allow Argentina to gradually regain access to international private capital markets on a scale enabling repayment to the Fund by the time obligations to the Fund fall due (beginning in late 2026).
  - Steadfast implementation of macroeconomic and structural policies is expected to strengthen prospects of gradually regaining market access starting in 2025 and provide for gradually easing CFMs.
  - Policies should discourage public and private FX indebtedness which risk complicating future market access.

- Criterion 4 (prospect of program success and implementation capacity):
  - Staff assesses this criterion is met.
  - Program ownership has faced significant challenges; in the first half of 2023, insufficient policy adjustment to the drought undermined stability and program objectives.
  - Authorities adopted a new policy package including realigning the exchange rate, substantially raising monetary policy rates, and committing to contain the fiscal deficit through upfront actions in energy subsidies and public wages.
  - The new policy package has general support of the ruling coalition and is being implemented in the run up to national and presidential elections; key opposition candidates support continued engagement with the Fund based on published policy platforms and staff discussions.
  - Based on authorities’ commitments and corrective actions taken ahead of the review, staff views EA4 as met.

### Staff appraisal — findings and policy recommendations
- Recent developments and vulnerabilities:
  - After the fourth review, Argentina’s situation became increasingly fragile and program performance faltered.
  - Historic drought caused significant losses to agricultural production, fiscal revenues, and export receipts, stressing public finances and the balance of payments.
  - Policy implementation slippages, political constraints, and the electoral cycle contributed to strong domestic demand, higher inflation, and external pressures.
  - Net international reserves declined to dangerously low levels; market volatility increased amid political uncertainties.

- New policy package and near-term priorities:
  - Authorities adopted a new policy package aimed at safeguarding macroeconomic stability and bringing the program back on track.
  - The package seeks to rapidly rebuild reserves and reestablish fiscal order through upfront realignment of the exchange rate and tighter macroeconomic policies.
  - Since adoption, international reserves have recovered slightly; conditions remain volatile and require steadfast implementation.

- Exchange rate and FX regime:
  - Realignment of the exchange rate and harmonization of the FX framework are critical to rebuild reserves and correct relative price misalignments.
  - The recently adopted step devaluation needs to be accompanied by tight monetary and fiscal policies and a carefully calibrated rate of crawl.
  - Interventions in parallel FX and futures markets should be strictly limited to addressing disorderly market conditions and consistent with reserve accumulation goals.
  - Over time, rationalize the complex FX regime and eliminate distortive MCPs and exchange restrictions as conditions permit.

- Fiscal policy:
  - Stronger fiscal policies are essential to moderate demand and secure stability.
  - Adhere to the primary fiscal deficit target of 1.9 percent of GDP in 2023 as an important anchor.
  - Revenue mobilization efforts needed to offset losses in export duties from the drought.
  - Stronger expenditure controls required; energy tariffs need updating to better reflect production costs.
  - Earlier slippages in public wages and pensions (from the moratorium and bonuses) need offsetting measures.
  - Protect priority social and infrastructure spending, including the gas pipeline, by rationalizing transfers to provinces and public entities and improving targeting of social assistance.

- Monetary policy and central bank balance sheet:
  - Tighter monetary policy required to support peso demand and contain inflation.
  - Maintain a tight monetary stance until inflation and inflation expectations are on a clear downward path.
  - Monetary policy should be the key tool to address potential FX pressures.
  - Well-designed and voluntary wage-price coordination arrangements could help disinflation, though enforcement will be challenging.
  - Mobilize non-inflationary financing and protect the central bank’s balance sheet.
  - Limit direct monetary financing of the fiscal deficit and central bank interventions in the secondary bond market to addressing financial stability risks.
  - Finalization of agreements with Paris Club creditors, consistent with the 2022 joint declaration, is a welcome achievement.

- Medium-term and structural reforms:
  - Greater commitment to address deep-seated macroeconomic and structural challenges is essential.
  - A more decisive and ambitious fiscal consolidation should be the main macroeconomic focus.
  - High-quality structural revenue and spending measures needed to: reduce tax expenditures, improve the structure of the complex tax system, address large energy subsidies, enhance pension system sustainability, and streamline discretionary transfers to provinces and state-owned enterprises.
  - Actions to gradually strengthen the BCRA’s balance sheet and harmonize the monetary and FX regime to support peso demand and reserve accumulation.
  - Gradual and properly sequenced easing of CFMs as imbalances are addressed.
  - Supply-side policies and improved regulatory frameworks needed to support external competitiveness and export potential in energy, mining (copper, lithium), and the knowledge economy.
  - Improve targeting and efficiency of social safety nets to support inclusive growth.

- Policy agility and contingency planning:
  - Risks remain elevated: fragile economic and social situation, program implementation challenges, election-related uncertainties, and external shocks.
  - Further policy recalibration may be needed; weak reserve buffers and financing options mean further tightening could be required.
  - Maintaining broad political and social support for the program is critical.

- Multiparty controls and waivers:
  - Staff supports the authorities’ request for a 12-month extension to previously approved MCPs and exchange measures, and Board approval to maintain new exchange restrictions and MCPs.
  - Authorities committed to gradually eliminate these measures over the program period as conditions allow.
  - Staff supports waivers of nonobservance of the PC on non-imposition/intensification of restrictions on current international transactions and on non-introduction/modification of MCPs.
  - Staff supports completion of the Fifth and Sixth Reviews under the Extended Arrangement, modification of performance criteria, waivers based on corrective actions and commitments, and recommends completion of the financing assurances review.

### Box 1 — Impact of the drought on the Balance of Payments
- Harvest and export impacts:
  - Estimates of the 2022/2023 harvest revised down significantly; damage to core crops estimated to be the worst in six decades.
  - Latest harvest estimates suggest export losses of about US$20 billion relative to the 2022 harvest (compared to US$6 billion at the time of the fourth review).
  - Reduced agricultural production generated additional BOP pressures, including increased imports of the agriculture-based manufacturing sector to compensate for lower domestic production (about US$2.5 billion).

- Outlook and program assumptions:
  - The impact of the drought is expected to be temporary; agricultural production projected to revert to potential in 2024.
  - Program projections assume a return of agricultural production volumes to 2022 levels: 48 million tons of soy, 58 million tons of corn and 19 million tons of wheat amid still relatively high international prices.
  - With growing climate risks, improving resilience requires building external and fiscal buffers and creating conditions and fiscal space for public and private investments to improve sector resilience.
  - Gradually reducing the tax burden on the agricultural sector (consistent with fiscal consolidation objectives) could help incentivize investment in climate-smart techniques, irrigation systems, and crop diversification.

- Historical and contribution data (as presented):
  - In 2009, the decline in exports volume by 11 percent was associated with 24 percent decline in imports volume and the ratio of imports to exports volumes reached 86 percent; over 2017-19, this ratio grew to 130 percent but was still much lower than the 160 percent observed in 2023 so far.
  - Analysts note the impact of El Niño depends on timing and intensity: a regular-to-moderate El Niño during spring to summer could raise yields for the next harvest, while a moderate-to-strong El Niño that falls later could lead to flooding and imply another bad year.
  - Contribution table excerpt (contributions to the change in billion USD):  
    - Wheat 22.1 12.4 0.3 0.3 -3.1 -3.0 -0.2 0.1  
    - Corn 59.0 36.0 0.3 0.3 -6.4 -6.2 -0.4 0.1  
    - Soy 44.0 25.0 0.6 0.5 -10.8 -10.5 -0.7 0.3  
    - Total -20.4 -19.7 -1.2 0.5

*Source: IMF staff report content provided.*

### Box 2. Understanding the Importers’ Debt Overhang

### Box 2. Understanding the Importers’ Debt Overhang

### Context and drivers
- Delays in macroeconomic policy adjustments in the face of balance of payments pressures led to tightening of administrative FX measures, widening the gap between accrued and cash imports payments.
- Tightening focused on delaying importers’ access to the official FX market, requiring reliance on short-term private trade financing and increasing the backlog of imports payments coming due.
- In the context of a large FX gap, strong import demand partly reflects stock-taking behavior and over-invoicing incentives.

### Recent dynamics and key statistics
- Since June 2022:
  - Monthly accrued imports have averaged US$6.6 billion.
  - Monthly FX payments have averaged US$5.4 billion.
  - Average required financing period has risen to 90 days.
- Importers’ short-term debt grew by about US$16 billion between end-2021 to July 2023.
- The stock of import financing reached US$38 billion (about 60 percent of total imports, compared a historical average of 39 percent).
- 60 percent of the increase in imports financing has been financed through intra-company flows (FDI, especially in manufacturing sector); the remainder came through inter-company trade credit.
- The domestic financial system has not played a significant role in financing trade credit.

### Implications and risks
- Given the large import debt overhang and precarious reserve levels, strong efforts will be required to rationalize imports and ensure a gradual/orderly unwinding of import financing to normal levels.
- Repayment of the import debt will represent a drag to reserve accumulation over the near term, and a risk if not properly managed.
- While much financing comes from inter-company loans (supporting a gradual unwinding), risks to the gradual unwinding baseline could still materialize.
- Exports are expected to rebound in 2024 as the impact of the drought eases, but this will not fully offset near-term reserve pressures from import debt repayment.

### Baseline projection and policy assumptions
- Baseline projections assume:
  - A 30 percent reduction in the volume of accrued imports during the remainder of 2023 (relative to July).
  - Slow growth in accrued imports thereafter.
  - Import payments exceeding imports accruals by US$0.5 billion per month.
  - A 50 percent reduction in the import debt overhang by end-2024.
  - Import financing would return to historic levels by 2025.
- Policy measures expected to support import compression and gradual unwinding include:
  - FX realignment.
  - Other temporary tax measures.
  - Tightening of administrative measures.

*Source: Box 2. Understanding the Importers’ Debt Overhang (IMF content provided).*

### Box 7. BCRA Intervention in the Secondary Market for Government Securities

### Box 7. BCRA Intervention in the Secondary Market for Government Securities

### Intervention mechanisms and operational features
- Mechanisms used by the BCRA:
  - Automatic repurchase of government securities (communication A7291): allows banks to sell government securities purchased in primary tenders at prices of the previous day with a penal rate of 2 percent.
  - BCRA’s permanent presence in secondary markets (A7546): aims to maintain purchase rates similar to those awarded in the previous auction plus a maximum spread of 2 percent.
  - Put options (A7555 and A7716): sold after auctions or exchanges and give the holder the right to sell the bond at a further date.
- Most interventions have taken place through the “permanent presence” mechanism and performed in open platforms at market prevailing prices.
- Authorities’ stated objectives: address excessive bond market volatility, provide sufficient depth to ensure the primary market can provide treasury financing, and preserve market functioning and financial stability in line with BCRA’s mandates.

### Recent intervention episodes and volumes
- June–July 2022:
  - Context: selloff in bonds after large redemptions by mutual funds and the resignation of Minister Guzman.
  - Actions: heavy intervention to address disorderly market conditions.
  - Outcome by August: market pressures waned following a more proactive debt management strategy (shortening maturity of new issuances and ensuring a more consistent alignment of cut-off rates with BCRA’s policy rate) and reduced policy uncertainties.
  - Volume: BCRA purchased ARS1.3 trillion (1.6 percent of GDP), concentrated especially in inflation-linked instruments maturing in 2022–23.
- November–December 2022:
  - Context: resumed interventions in response to persistent speculation of domestic debt reprofiling and concerns over increased liquidity injections during end–2022.
  - Volume: BCRA purchased ARS600 billion (0.8 percent of GDP) in securities, concentrated in inflation-linked instruments.
- April–August 2023:
  - Purpose: to secure debt exchanges and net financing from auctions, including purchases from public sector entities ahead of auctions to create space for their subsequent participation in the primary auctions.
  - Volume: BCRA purchased ARS3.2 trillion (1.9 percent of GDP) in securities.
- Most of the securities purchased have been converted into inflation-linked bonds maturing at end-2024.

### Balance sheet and financial effects
- Secondary market purchases have contributed to BCRA’s balance sheet expansion.
- Sterilization and liabilities:
  - The bond purchases led to an increase in remunerated BCRA liabilities used to sterilize the liquidity injection stemming from interventions.
- Net income implications:
  - Impact on BCRA’s net income position is mitigated by the fact that government paper is also interest bearing.
- Conversion and maturity profile:
  - Majority of purchases converted into inflation-linked paper maturing end-2024, affecting the BCRA’s asset maturity profile.

### Assessment and required policy actions
- Underlying market weaknesses:
  - Continued BCRA presence reflects weaknesses in market development, concerns over the government’s creditworthiness, and uncertainties over the pace of capital account easing.
- Measures taken by authorities (welcome but insufficient):
  - Efforts to increase predictability of issuance, streamline government securities, publish a medium-term debt strategy, and enhance relations with markets.
- Further actions recommended to restore normal functioning of the peso debt market:
  - More decisive and credible efforts to reduce the fiscal deficit.
  - Strengthen the debt management framework.
  - Expand the investor pool.
  - Create positive incentives to hold government securities by:
    - Allowing securities to be used for liquidity management.
    - Levelling the playing field between banks and fund managers.
    - Eliminating differential supervisory and regulatory treatments of various liquidity providers.
    - Connecting the various liquidity pools to form a deep, integrated money market that allows constant and seamless arbitrage between investment vehicles with similar features.

*Source: Box 7. BCRA Intervention in the Secondary Market for Government Securities (extracted from the provided IMF content).*

### Annex I. External Sector Assessment, 2022 (as of end-June 2023)

### Annex I. External Sector Assessment, 2022 (as of end-June 2023)

### Overall Assessment and Potential Policy Responses
- Overall assessment: The external position in 2022 was weaker than the level implied by medium-term fundamentals and desirable policies, based holistically on elevated external debt vulnerabilities, precariously low international reserves, and lack of access to international capital markets.
- Critical policy direction: Continue to implement prudent macroeconomic policies that strengthen the external CA and reserve coverage to secure external sustainability.
- Potential policy responses:
  - Growth-friendly fiscal consolidation.
  - Tight monetary policy.
  - Streamlined FX regime to moderate domestic demand growth, strengthen the trade balance, rebuild international reserves, regain market access, and ensure fiscal and external debt sustainability.
  - Structural reforms to boost Argentina’s export capacity and encourage FDI.
  - As stability and confidence are reestablished, consider a gradual conditions-based easing of CFM measures and elimination of multiple currencies practices (MCP) and exchange restrictions.

### Foreign Asset and Liability Position and Trajectory
- Background: External gross liabilities stood at 49.0 percent of GDP at end-2022, below 50 percent of GDP at end-2017. The NIIP reached 18.4 percent of GDP at end-2022 (up 16 percentage points since end-2017), driven by continued private capital outflows and deleveraging by firms.
- Assessment:
  - 2020 sovereign FX debt restructuring: $82 billion (21.4 percent of GDP) restructured with cash flow relief of $34 billion during 2020–30.
  - 2021 provincial restructurings: Provinces restructured $13 billion of foreign-law FX debt obligations, with total cash flow savings estimated at about $6.5 billion for 2021–27.
  - Gross debt and debt-service obligations remain substantial; meeting obligations depends on implementation of a strong economic reform plan that restores market access.
- Key 2022 figures (% GDP):
  - NIIP: 18.4
  - Gross Assets: 67.5
  - Res. Assets: 7.1
  - Gross Liab.: 49.0
  - Debt Liab.: 31.8

### Current Account (CA)
- Background:
  - CA reached a deficit of 0.6 percent of GDP in 2022, down from a surplus of 1.4 percent in 2021, driven by a strong expansion of goods import volumes and a widening services deficit.
  - Terms of trade: Higher grain export prices largely offset higher import prices on energy and intermediate goods.
  - Projection: CA projected to reach a small deficit in 2023, conditional on moderation of domestic demand and imports and liquidation of grain stocks in the second half of the year. Medium-term CA expected to reach 1 percent of GDP, supported by structural changes in the energy and mining sectors.
- Assessment:
  - Cyclically adjusted CA estimated deficit: 0.6 percent of GDP in 2022, compared with an EBA CA norm surplus of 0.3 percent of GDP.
  - Estimated transitory COVID-19 impacts: –0.2 percent of GDP for travel services (including tourism) and 0.2 percent of GDP for the transport sector; net COVID-19 impact: 0.1 percent of GDP on the cyclically adjusted CA.
  - IMF staff near- to medium-term CA norm judged closer to 1 percent of GDP, implying an adjustment to the norm of 0.7 percent of GDP.
  - IMF staff assesses the CA gap to be –1.8 ± 1 percent of GDP.
- Key 2022 (% GDP) figures:
  - CA: –0.6
  - Cycl. Adj. CA: –0.8
  - EBA Norm: 0.3
  - EBA Gap: –1.2
  - COVID-19 Adj.: 0.1
  - Other Adj.: –0.7
  - Staff Gap: –1.8

### Real Exchange Rate (REER)
- Background:
  - Average REER: depreciated by more than 35 percent between 2017 and 2019; appreciated by about 6 percent during 2020–21; estimated to have appreciated by an additional 20 percent during 2022.
  - Appreciation largely reflects the rate of crawl lagging headline inflation.
  - As of end-June 2023, the REER was around 1.5 percent above the 2022 average.
- Assessment:
  - IMF staff CA gap implies a REER gap of about 15 percent in 2022 (with an estimated elasticity of 0.12 applied).
  - EBA REER index model suggests a REER gap of 25 percent.
  - EBA REER level model estimates a gap of 10.8 percent.
  - IMF staff assesses the 2022 REER gap to be in the range of 15 to 20 percent.

### Capital and Financial Accounts: Flows and Policy Measures
- Background:
  - Strict CFM and MCP measures introduced in late 2019 to contain capital outflows.
  - During 2022–23, ad-hoc administrative measures intensified, including temporary:
    - incentives to encourage liquidation of soy exports,
    - tax measures on goods and services imports,
    - financing requirements for imports to limit near-term import payments.
- Assessment:
  - CFMs and MCP measures have generally helped to contain capital outflows but introduced distortions that discourage trade and foreign investment.
  - CFMs are not a substitute for sound macroeconomic policies.
  - Recommendation: CFMs are needed in the near term as imbalances are addressed, but MCPs and exchange restriction measures should be eliminated as imbalances are addressed; a conditions-based easing of CFMs remains necessary, especially to encourage FDI.

### FX Intervention and Reserves Level
- Background:
  - Gross international reserves: reached US$44.6 billion in 2022, fallen to around US$30 billion through end-June 2023 due to drought and insufficient policy adjustment.
  - Net international reserves: fell from US$8.8 billion at end-2022 to negative US$9.8 billion by end-June 2023 (after excluding swap lines with other central banks, reserve requirements on domestic dollar deposits, and deposit insurance).
  - Reserve accumulation challenged by strong domestic demand, continued capital flight, and drought.
- Assessment and guidance:
  - Gross international reserves at end-2022 represented about 69 percent of the IMF’s composite metric; coverage has fallen further in 2023.
  - Tighter fiscal and monetary policies are necessary to secure projected trade surpluses and improve reserve coverage to pave the way for market access and easing of CFMs and elimination of MCP measures.
  - Given reserve scarcity, FX sales (in the official or parallel market) should be consistent with reserve accumulation goals while accounting for seasonal variability and temporary excessive volatility.

### Sovereign Risk and Debt Sustainability Framework — Key Assessments
- Overall staff assessment: Argentina’s debt remains “sustainable, but not with high probability.”
  - Judgment based on four tools: Debt Fanchart analysis, GFN Financeability module, crisis prediction model, and contingent liability analysis.
  - Assessment predicated on successful implementation of the new policy package: realign and harmonize FX regime, tight fiscal and monetary policies, and actions to improve domestic debt market conditions.
  - Medium-term sustainability hinges on gradual resumption of international market access starting in 2025 and conditions-based unwinding of capital flow measures.
- Recent debt dynamics:
  - Primary deficits increased public debt by roughly US$36 billion between end-2021 and June 2023, with much absorbed by other public sector entities, including the BCRA.
  - Valuation effects expected to reduce peso-denominated debt in USD terms, but declines in nominal USD GDP will temporarily raise public debt-to-GDP ratios.
  - Net peso financing from the private sector is expected to pick up in 2024 as political and policy uncertainty dissipate and fiscal consolidation accelerates.
- Federal government debt (in Billions of U.S. dollars) — reported values:
  - 2021 Jan-Dec Gross Federal Debt: 365
  - 2022 Jan-Jun Gross Federal Debt: 394; Jan-Dec: 401
  - 2023 Jan-Jun Gross Federal Debt: 386; Jan-Dec: 402
  - By debtor (selected): Official Sector 73 (2021), 78 (2022 Jan-Jun), 76 (2022 Jan-Dec), 81 (2023 Jan-Jun), 81 (2023 Jan-Dec).
  - Private Sector: 151 (2021), 157 (2022 Jan-Jun), 159 (2022 Jan-Dec), 147 (2023 Jan-Jun), 160 (2023 Jan-Dec).
  - Public Sector: 140 (2021), 158 (2022 Jan-Jun), 166 (2022 Jan-Dec), 159 (2023 Jan-Jun), 161 (2023 Jan-Dec).
  - Of which: BCRA: 97 (2021), 109 (2022 Jan-Jun), 117 (2022 Jan-Dec), 112 (2023 Jan-Jun), 113 (2023 Jan-Dec).
  - By currency: Local currency 109 (2021), 131 (2022 Jan-Jun), 138 (2022 Jan-Dec), 123 (2023 Jan-Jun), 138 (2023 Jan-Dec). Foreign currency 255 (2021), 263 (2022 Jan-Jun), 263 (2022 Jan-Dec), 263 (2023 Jan-Jun), 265 (2023 Jan-Dec).
  - Memorandum items: BCRA secondary market purchases 0 (2021), 11 (2022 Jan-Jun), 9 (2022 Jan-Dec), 6 (2023 Jan-Jun), 0 (2023 Jan-Dec). Debt buybacks 0 across reported periods except 1 in 2022 Jan-Dec.
- Medium-Term Risk Analysis:
  - GFN Financeability Module: moderate risk. Baseline GFNs average around 12 percent of GDP over 2023–28.
  - Domestic peso market financing has become increasingly challenging; reliance on inflation-linked (CER-linked) debt instruments assumed to persist.
  - Banks’ exposure to government debt: around 15 percent of banking system assets at end-June 2023; banking system assets around 40 percent of GDP; broader public sector exposure including central bank securities around 40 percent of total assets.
  - Risks: political uncertainties ahead of the 2023 Presidential elections, potential policy package failure to reduce inflation and strengthen reserves, unfavorable global financial conditions.
  - Debt fanchart: gross public debt projected to reach 89.5 percent of GDP at end-2023; projected to decline to around 69 percent of GDP by end–2028. Probability of debt stabilization under the baseline above 99 percent.
  - Fanchart uncertainty (width) reduced: 58 vs. 73 percent at the fourth review; fanchart index 1.87 (moderate level).
  - Overall medium-term index (MTI): 0.38, consistent with the fourth review; mechanical signal of moderate sovereign stress risk. At this level:
    - Predictions of stress events will result in false alarms with a 16 percent probability.
    - Predictions of no stress will result in missed crises with a 27 percent probability.
- Contingent Liability Analysis:
  - Tailored shock scenario: one-off debt materialization of 6 percent of GDP (equivalent to total stock of provincial debt or combined potential compensation payments from ongoing litigation).
  - Under this shock: public debt would hover around 88 percent of GDP by end-2025 and fall to around 77 percent of GDP by 2028; GFNs would remain around 17 percent of GDP by 2028.
  - Team does not assess provincial debt to have a high risk of becoming a contingent liability to the central government, noting the non-bailout approach during the 2020 provincial debt restructuring.
  - Depending on final judgments in international litigation cases, investor confidence could be dampened, affecting re-access to markets.
- Longer-Term Risk Analysis:
  - 10-year fan chart: probability of debt stabilization by 2032 close to 83 percent; lower than at the 5-year horizon but consistent with debt sustainability albeit with substantial risks.
  - Long-term capacity to repay depends on successful IMF program implementation, improvement in domestic debt market conditions, adequate reserve levels, and re-access to international private credit markets.
  - Buffers remain very limited: GFNs between 2025–2032 projected to be well above the 5 percent of GDP March Technical Note target.
  - Recommendation: Strengthen domestic debt management; avoid debt buybacks as they can undermine reserve coverage and near-term debt service capacity.

### Box 1. SRDSF Key Macroeconomic and Financing Assumptions
- Macroeconomic assumptions:
  - Real GDP projected to contract this year by 2.5 percent (reflecting the effects of the drought and demand compression in S2:2023).
  - Output projected to rebound in 2024 to 2.75 percent on account of the recovery in agricultural exports, with gradual recovery to trend levels by 2030.
  - Nominal FX realignment in mid-August expected to begin unwinding current REER misalignments, with smooth depreciation continuing through 2026.
  - Inflation (eop) projected to increase from 94.8 percent in 2022 to around 120 percent in 2023 due to drought and the devaluation and fall to 60 percent in 2024.
  - Average inflation expected to hover around 115 percent in 2023 and decline to around 80 percent in 2024.
  - Fiscal consolidation projected to accelerate: primary fiscal deficit falling from 1.9 percent of GDP in 2023 to 0.9 percent of GDP in 2024, with further consolidation required to reach a 1.3 percent of GDP surplus by 2027.
  - CFMs assumed to remain in place over the near-to medium term (albeit with targeted easing in key sectors); CFMs and exchange restrictions will need to be eased during 2024 as conditions allow. Gradual return to international markets expected to start in 2025 as imbalances are addressed and reserve coverage improves.
- Financing assumptions:
  - External official financing: average annual contributions of 0.3 percent of GDP from MDBs through 2024 and beyond; projected Paris Club repayments stretched out to 2028 consistent with program reserve accumulation and debt sustainability goals.
  - Central bank bilateral FX swaps drawn in June and July of 2023 were not included in public debt as the BCRA is expected to extinguish the swap position at least in part following the IMF August disbursement, bringing value of activated swaps below the risk-based de-minimis threshold of 1 percent of GDP.
  - External private sector financing: debt service on FX-denominated debt to foreign private creditors assumed to follow the 2020 restructuring schedule, with modest new issuance in international markets from 2025 onwards. No foreign-financed debt buybacks or repo operations assumed.
  - Monetary financing of the fiscal deficit: BCRA transfers projected to remain at 0.8 percent of GDP in 2023 and to zero from 2024 onwards.
  - Domestic market financing: program baseline assumes mobilization of 0.6 percent of GDP in net peso financing during remainder of 2023 and roughly 2.9 percent of GDP in 2024–25.
    - Given gradual disinflation process, continued reliance on inflation (CER)-linkers in the near term, with issuance of longer term-CER linkers from 2025 onwards and gradual shift to fixed rate issuances over medium to long-term.
    - Real rates expected to rise gradually to 4½ percent by 2028.
  - Risks to the financing strategy: especially large given political uncertainties and contingent liabilities stemming from international litigation cases.

*International Monetary Fund — Annex I. External Sector Assessment, 2022 (as of end-June 2023).*

### 1. Debt coverage in the DSA: 1/

### 1. Debt coverage in the DSA: 1/

### Coverage and accounting
- Chosen coverage: Gross federal (central government) debt (CG).
- If central government, are non-central government entities insignificant? No
- Subsectors captured in the baseline:
  - 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
- Basis of recording / valuation notes:
  - Excludes FGS/ANSES liabilities
  - Excludes state govt liabilities
  - Excludes local govt liabilities
  - Valuation of debt stock: Not applicable (see source table)
  - Non-consolidated / CPS / NFPS / GG: expected (as indicated in table)
  - Reporting on intra-government debt holdings: not captured for listed subsectors (all shown as 0)

### Staff commentary on exclusions and contingent liabilities
- The DSA does not include GDP warrants, debt of the provinces or municipalities, or debt of the central bank.
- 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.
- Central bank bilateral FX swaps drawn in June and July of 2023 were not included in public debt because the BCRA is expected to partly extinguish the swap position following the IMF August disbursement, bringing the value of the activated swaps below the de-minimis threshold of 1 percent of GDP.
- Nevertheless, the central bank’s weak balance sheet is identified as a key contingent liability, necessitating a strategy to strengthen both its finances and governance.

### Public debt structure and medium-term outlook (commentary)
- Foreign-currency denominated debt will continue to dominate over the long term, but its share is expected to fall as ambitious domestic peso market development facilitates repayment of official creditors, including the IMF, and private external creditors (notwithstanding resumption of modest access to international capital markets from 2025 onwards).
- Near-term financing strategy assumes reliance on inflation (CER)-linkers while inflation is high and unanchored, with an increase in maturity and shift towards fixed rate instruments envisaged over the medium term.
- Large share of FX debt is held by IFIs; large share of overall debt held by intra-public sectors (including non-marketable instruments) mitigates rollover risks.
- Staff commentary: Public debt is projected to decline gradually over the long term, reflecting the baseline assumptions of steadfast program implementation of the Fund-supported EFF. Sustained fiscal consolidation, efforts to deepen domestic capital markets and boost exports and productivity, and mobilizing domestic saving and strengthening reserves are essential to improve debt-servicing capacity and prospects of international market access.

### Baseline scenario — key figures (Table 5: Percent of GDP, Unless Indicated Otherwise)
- Public debt:
  - Actual 2022: 84.7
  - 2023: 89.5
  - 2024: 79.9
  - 2025: 76.9
  - 2026: 75.9
  - 2027: 73.2
  - 2028: 69.4
  - 2029: 65.8
  - 2030: 62.3
  - 2031: 61.1
  - 2032: 60.1
- Change in public debt:
  - 2022: 3.9
  - 2023: 4.8
  - 2024: -9.6
  - 2025: -3.0
  - 2026: -1.1
  - 2027: -2.7
  - 2028: -3.8
  - 2029: -3.6
  - 2030: -3.5
  - 2031: -1.2
  - 2032: -1.0
- Contribution of identified flows:
  - 2022: -16.2
  - 2023: -12.2
  - 2024: -13.6
  - 2025: -10.4
  - 2026: -9.7
  - 2027: -9.4
  - 2028: -8.5
  - 2029: -6.6
  - 2030: -4.5
  - 2031: -1.6
  - 2032: -1.0
- Primary deficit:
  - 2022: 2.4
  - 2023: 1.9
  - 2024: 0.9
  - 2025: 0.0
  - 2026 onward (2026–2032): -0.8; -1.3; -1.3; -1.3; -1.3; -1.3; -1.3 (repeated)
- Noninterest revenues:
  - 2022: 25.9
  - 2023: 26.1
  - 2024: 26.7
  - 2025: 26.8
  - 2026: 27.3
  - 2027–2031: 27.5 (repeated)
- Noninterest expenditures:
  - 2022: 28.3
  - 2023: 28.1
  - 2024: 27.6
  - 2025: 26.8
  - 2026: 26.5
  - 2027–2031: 26.1 (repeated)
- Automatic debt dynamics:
  - 2022: -20.4
  - 2023: -13.1
  - 2024: -14.0
  - 2025: -10.1
  - 2026: -8.9
  - 2027: -8.1
  - 2028: -7.1
  - 2029: -5.3
  - 2030: -3.1
  - 2031: -0.3
  - 2032: 0.4
- Int. rate-growth differential:
  - 2022: -33.8
  - 2023: -42.4
  - 2024: -39.1
  - 2025: -26.0
  - 2026: -22.3
  - 2027: -19.7
  - 2028: -17.0
  - 2029: -13.4
  - 2030: -9.6
  - 2031: -5.1
  - 2032: -3.6
- Real interest rate:
  - 2022: -30.0
  - 2023: -44.6
  - 2024: -36.7
  - 2025: -23.5
  - 2026: -20.1
  - 2027: -17.7
  - 2028: -15.3
  - 2029: -11.9
  - 2030: -8.2
  - 2031: -3.9
  - 2032: -2.5
- Real growth rate:
  - 2022: -3.8
  - 2023: 2.2
  - 2024: -2.4
  - 2025: -2.5
  - 2026: -2.2
  - 2027: -2.0
  - 2028: -1.8
  - 2029: -1.5
  - 2030: -1.4
  - 2031: -1.2
  - 2032: -1.2
- Relative inflation:
  - 2022: 20.7
  - 2023: 29.3
  - 2024: 25.1
  - 2025: 16.0
  - 2026: 13.4
  - 2027: 11.6
  - 2028: 9.9
  - 2029: 8.2
  - 2030: 6.5
  - 2031: 4.8
  - 2032: 4.0
- Other identified flows:
  - 2022: 1.9
  - 2023: -1.1
  - 2024: -0.5
  - 2025: -0.3
  - 2026–2031: 0.0 (repeated)
- Contribution of residual:
  - 2022: 20.0
  - 2023: 17.1
  - 2024: 4.0
  - 2025: 7.4
  - 2026: 8.7
  - 2027: 6.8
  - 2028: 4.6
  - 2029: 3.1
  - 2030: 0.9
  - 2031: 0.4
  - 2032: 0.0
- Gross financing needs (GFN):
  - 2022: 16.7
  - 2023: 8.9
  - 2024: 16.6
  - 2025: 10.3
  - 2026: 12.5
  - 2027: 8.6
  - 2028: 14.5
  - 2029: 9.7
  - 2030: 13.3
  - 2031: 12.2
  - 2032: 13.9
- Of which: debt service:
  - 2022: 14.4
  - 2023: 7.0
  - 2024: 15.7
  - 2025: 10.3
  - 2026: 13.3
  - 2027: 9.9
  - 2028: 15.8
  - 2029: 11.0
  - 2030: 14.6
  - 2031: 13.5
  - 2032: 15.2
- Local currency vs Foreign currency GFN (selected):
  - Local currency debt service (2022): 9.2
  - Foreign currency debt service (2022): 5.2
- Memo items:
  - Real GDP growth (percent): 2022: 5.0; 2023: -2.5; 2024: 2.8; 2025: 3.3; 2026: 3.0; 2027: 2.8; 2028: 2.5; 2029: 2.3; 2030: 2.2; 2031: 2.0; 2032: 2.0
  - Inflation (GDP deflator; percent): 2022: 69.7; 2023: 112.4; 2024: 80.3; 2025: 50.3; 2026: 42.1; 2027: 37.2; 2028: 32.5; 2029: 27.5; 2030: 22.5; 2031: 17.5; 2032: 15.5
  - Nominal GDP growth (percent): 2022: 77.9; 2023: 106.2; 2024: 86.6; 2025: 54.7; 2026: 46.6; 2027: 40.8; 2028: 35.8; 2029: 30.3; 2030: 25.2; 2031: 19.8; 2032: 17.8
  - Effective interest rate (percent): 2022: 3.6; 2023: 3.4; 2024: 4.4; 2025: 4.6; 2026: 3.9; 2027: 4.3; 2028: 4.2; 2029: 5.1; 2030: 7.0; 2031: 9.9; 2032: 10.7

### Medium-term risk analysis (Table 6 — key indicators and commentary)
- Fanchart width: 58.5
- Probability of debt not stabilizing (pct): 0.00
- Terminal debt level x institutions index: 46.8
- Debt fanchart index: 1.87
- Average GFN in baseline: 11.9
- Bank claims on government (pct bank assets): 15.0
- Chg. in claims on govt. in stress (pct bank assets): 25.5
- GFN financeability index: 17.5
- Prob. of missed crisis, 2023-2028 (if stress not predicted): 27.3 pct.
- Prob. of false alarm, 2023-2028 (if stress predicted): 15.9 pct.
- Staff commentary: Both medium-term tools point to a moderate level of risk, consistent with the fourth review, driven by elevated uncertainty and Argentina's history of high volatility. The probability of debt stabilization remains around 99 percent. The GFN module shows moderate risk; contingent liabilities stemming from international litigation cases are key vulnerabilities in the medium term.

### Decomposition of public debt and debt service by creditor (Table 7 — selected figures)
- Total debt stock (In US$ bn):
  - Total (end-2022): 394.00
- Total (Percent total debt / Percent GDP — presented in columns in source; selected entries):
  - External (2022): 144.34 (36.63 percent total debt) (22.83 percent of GDP)
  - Domestic (2022): 249.66 (63.37 percent total debt) (39.49 percent of GDP)
- Multilateral creditors (total, US$ bn): 75.44 (19.15 percent total debt) (11.93 percent of GDP)
  - IMF: 45.71 (11.60 percent total debt) (7.23 percent of GDP)
  - World Bank: 9.20 (2.33 percent total debt) (1.45 percent of GDP)
  - ADB/AfDB/IADB: 20.35 (5.17 percent total debt) (3.22 percent of GDP)
- Bilateral creditors (total listed): 5.04 (1.28 percent total debt) (0.80 percent of GDP)
  - Paris Club: 1.93 (0.49 percent total debt) (0.30 percent of GDP)
  - Non-Paris Club: 3.11 (0.79 percent total debt) (0.49 percent of GDP)
    - o/w: China: 2.54 (0.65 percent total debt) (0.40 percent of GDP)
- Domestic instruments (2022, US$ bn and percent of total debt / percent GDP):
  - T-Bills: 98.40 (24.97 percent total debt) (15.56 percent of GDP)
  - Bonds: 129.11 (32.77 percent total debt) (20.42 percent of GDP)
  - Loans: 19.86 (5.04 percent total debt)
- Memo items:
  - Collateralized debt: 0.83 (0.21 percent total debt) (0.13 percent of GDP)
  - Contingent liabilities: 1.46 (0.37 percent total debt) (0.23 percent of GDP)
  - Guaranteed debt included under contingent liabilities (as noted)

*Source: IMF Staff (Argentina: DSA content as provided).*

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

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

### Overview
- Since end-March 2023, Argentina has taken measures that (i) give rise to new or modify existing multiple currency practices (MCPs) and (ii) give rise to new or intensify existing exchange restrictions.
- One MCP has been newly identified that predates the extended arrangement.
- One measure identified but not fully documented at the time of the fourth review is now described.

### Measures identified and recent changes to the FX regime
- At the fourth review, an intensification of an exchange restriction was identified: restriction on individuals who participate in a pension buyback scheme (Plan de Pago de Deuda Previsional) to access the FX market for a period of twelve months from the date of application.
- A newly identified MCP predating the extended arrangement: 8 percent tax on foreign exchange purchased for the import of digital services.
- Since the fourth review, Argentina introduced or modified the following MCPs and exchange restrictions:
  - New MCP: preferential exchange rate of 1 USD/300 pesos for exporters of soy and agricultural products to surrender their proceeds under the Export Enhancement Program for Regional Economies until August 31, 2023.
  - Modified MCP: preferential exchange rate under the Export Enhancement Program for Regional Economies changed to 1 USD/340 peso (through end-August) from 1 USD/300 peso and adjustment of the list of eligible products; with the devaluation to 350 ARS/USD this exchange rate is no longer preferential and thus no longer used.
  - Intensifications of existing exchange restrictions:
    - BCRA authorization requirement for FX market access for payments of imports for specific professional services (resource and development, legal and accounting, advertising and marketing, architecture and other business services) if payment is made before 60 calendar days after the service was provided.
    - BCRA authorization requirement until December 31, 2023 for FX market access for payments of interest to non-resident related counterparties.
    - Extension of the non-CCL transaction affidavit period, to fulfill the condition for access, to 180 days from 90 days when related to CCL transactions with securities under foreign law; and extension to the whole company group of the affidavit requirement for non-CCL transactions before access to the FX market.
    - Requirement that Argentinian provinces refinance 60 percent of the principal amount of their external and FX loans before accessing the FX market for repayments of the remaining 40 percent.
    - Requirement that beneficiaries of credits from the National Security Administration (ANSES) settle the debt to ANSES prior to accessing the FX market.
  - New exchange restrictions:
    - Prohibition on making payments for imports of soybeans until the export proceeds for the soybean product have been received.
    - Prohibition on exporters who do not comply with the FX surrender requirement from accessing the FX market.
  - New exchange restriction and MCP arising from taxes on the purchase of FX (impuesto pais):
    - 25 percent on certain professional services.
    - 7.5 percent tax on freight and other transportation services for importation and exportation of goods.
    - 7.5 percent on all imported goods with certain exemption for essential goods.

### Policy response in the Letter of Intent (August 17, 2023) — FX, monetary, fiscal, and financing measures
- FX policy and reserves:
  - Official exchange rate realigned to 350 ARS/USD.
  - Temporary increase of taxes on access to FX for goods and services imports; superseded a temporary preferential exchange rate on select agricultural products.
  - impuesto pais tax extended to include most services (25 percent), as well as most other imported goods and transport (7.5 percent).
  - These actions are expected to increase net international reserves by around US$8.9 billion between August and December 2023.
  - Commitment to harmonize the FX regime and phase out multiple currency practices and exchange restrictions, as conditions permit during 2024.
- Monetary policy and inflation:
  - Policy interest rates raised by an additional 2100 basis points to bring the effective annual rate to 209 percent.
  - Commitment to ensure policy interest rates remain positive in real terms.
  - Work to extend voluntary price agreements (precios justos) consistent with prudent wage agreements.
  - Limited and temporary interventions in the financial FX markets may be necessary to address disorderly market conditions.
- Fiscal policy:
  - Commitment to maintain fiscal order and achieve the 2023 primary deficit target of 1.9 percent of GDP.
  - Measures to offset lower export taxes from the drought include stronger revenues from the newly extended tax on access to FX for imports and measures to strengthen expenditure controls while protecting priority social and infrastructure spending.
  - Specific fiscal measures: (i) updating energy tariffs in line with rising production costs while improving progressivity of subsidies; (ii) containing public sector wage growth; and (iii) better targeting transfers to provinces and state-owned enterprises.
  - Commitment for 2024: achieve a primary fiscal deficit of 0.9 percent of GDP and propose that Congress consider a reduction of tax expenditures to secure a more ambitious consolidation.
- Financing:
  - Actions to substantially reduce rollover risks and mobilize net domestic financing consistent with debt sustainability and avoid additional direct monetary financing of the budget during the remainder of the year.
  - Central bank interventions in secondary government securities market limited to securing normal market functioning.
  - Official budget support and project financing from multilateral development banks and other bilateral creditors secured in line with program objectives.
  - Facilities secured with the Andean Development Fund (CAF), the People’s Bank of China, and Qatar.
  - Request for completion of the fifth and sixth reviews under the arrangement allowing a disbursement in the amount of SDR 5.5 billion on completion of these reviews.
  - Immediate undertaking, following completion of the combined review, of an early repurchase worth SDR 0.7 billion of amounts coming due in September and October, and keep the remaining amounts (net of reimbursements and other payments to the Fund not made in SDRs) in the SDR account.
- Requests to the Fund:
  - Waivers of nonobservance for: (i) the PCs on reserve accumulation, central bank financing of the government, and the primary balance for end-June; (ii) the continuous PC against the introduction or modification of multiple currency practices; and (iii) the continuous PC against the imposition or intensification of exchange restrictions.
  - Rephasing of access and modification of 2023 and 2024 targets for NIR, the fiscal primary deficit, monetary financing, and domestic arrears.
  - Approval of exchange restrictions and multiple currency practices, under Article VIII, Sections 2(a) and 3, and an extension of exchange restrictions and multiple currency practices previously approved by the Executive Board on grounds that these measures have been imposed for balance of payments reasons and are temporary and non-discriminatory in nature.
  - Request completion of the financing assurances review.

### Recent economic context and program performance (selected findings and figures)
- Historic drought impact:
  - Projected reduction in grain exports by over US$20 billion this year (3.2 percent of GDP; around 25 percent of goods exports).
- Activity and labor market (Q1:2023 and recent):
  - Economy expanded in Q1:2023 by 1.3 percent y/y.
  - Unemployment rate: 6.9 percent.
  - Labor force participation: 48.3 percent.
- External and reserve developments:
  - External current account estimated deficit of US$6.5 billion on a cash basis through June, compared to a surplus of US$0.8 billion during the same period last year.
  - Contraction in export volumes about 18 percent y/y; goods imports volume down about 5 percent y/y.
  - Liquidation of about US$6.6 billion in grains and other regional and agricultural products via export promotion schemes.
  - Net international reserves fell by US$13.6 billion through end-July (at program rates).
  - NIR accumulation through end-June reached negative US$4.7 billion (compared to the adjusted target of US$6.5 billion).
  - Central bank interventions in the financial FX markets of US$1.1 billion between end-March and end-June.
- Inflation:
  - Headline inflation peaked at 8.4 percent m/m in April, fell to 6 m/m in June, and rose to 6.3 m/m in July, partly reflecting effects of higher FX taxes.
- Fiscal and monetary performance through end-June:
  - Cumulative primary fiscal deficit through end-June reached 1.1 percent of GDP (0.3 percent of GDP above the program target).
  - Declines in real revenues of 9 percent y/y; broad-based contraction in real spending of 6 percent y/y.
  - Energy subsidies fell by 15 percent in real terms; wages rose by 6 percent.
  - Domestic expenditure arrears remained below the end-June target despite higher fiscal deficit.
  - Central bank financing of the fiscal deficit reached ARS 1358 billion through end-June (target ARS 373 billion), reflecting also operations (ARS 688 billion) to finance external debt service obligations to the Fund.
  - Central bank purchases of government bonds from the secondary market reached 1.2 percent of GDP through end-June.

*Source: Annex III. Update of Foreign Exchange Regime as it Applies to Exchange Restrictions and Multiple Currency Practices (1argea2023002).*

### 7.      Meanwhile, efforts continue on the structural front, with particular priority given to

### 1argea2023002 - 7.      Meanwhile, efforts continue on the structural front, with particular priority given to

### Energy subsidies and prices
- Electricity: effective May 1 (Resolution 323/23), high-income residential users (representing 15 percent of total consumption) saw electricity prices (PEST) rise to full cost recovery; commercial users with consumption above 800kwh and public streetlighting also saw increases.
- Further tariff updates: new resolutions issued in July (effective August) to update tariffs to reflect higher production costs and improve the progressivity of the subsidy system.
- Natural gas: adjustments effective May (Resolution 6/23) for large commercial users to achieve 73 percent of cost recovery.
- Cost recovery ratios:
  - Electricity: 53 percent as of August (compared to 28 percent during 2022H1).
  - Natural gas: around 42 percent (up from 38 percent in 2022H1).
- Policy intent: additional resolution to be issued by end-August implementing further adjustments to electricity prices effective September (proposed structural benchmark); objective to limit energy subsidies to around 1.5 percent of GDP this year.
- Expected effects: completion of the gas pipeline expected to reduce reliance on imported natural gas and contribute to reduction in energy subsidies.

### Energy transport and production
- Nestor Kirchner gas pipeline:
  - First phase completed on June 20, increasing daily transportation capacity of domestic gas to 11 million cubic meters.
  - Further increase to 20 million cubic meters expected by November following installation of compressors.
- Imports reduction: during the second half of this year, expected reduction in energy imports of roughly US$3 billion, relative to 2022H2.
- Medium-term potential:
  - Second stage financing sought; expected completion in the second half of 2024.
  - Reversal of North pipeline flow underway to reduce costly energy imports and increase export potential.
  - Plan Gas (launched November 2022) extends producer price agreements to 2028 to support increased domestic production.
  - If Vaca Muerta shale oil and gas fields reach full production capacity in 2025:
    - Energy imports could fall by over US$8 billion.
    - Energy exports, including crude oil, could increase by about US$2.5 billion (conditional on completion of projects for crude transportation and field development).
  - Lithium and copper exports could also increase substantially over the next decade if announced investments materialize.

### Fiscal management, transparency, and revenue measures
- Public financial management:
  - Published enhanced quarterly reports for public corporations and trust funds; detailed breakdown of assets and liabilities to be provided once data limitations are overcome (end-March, 2023 SB; proposed reset to end-October, 2023 SB).
- Revenue administration:
  - Finalized improvements in property tax databases (end-March, 2023 SB).
  - Completed comprehensive evaluation of tax expenditures based on enhanced technical criteria (end-June 2023, SB); will serve as blueprint for in-depth study (proposed end-November, 2023 SB).
- Social assistance:
  - Comprehensive internal evaluation of the workfare scheme (Potenciar Trabajo) completed (end-March, 2023 SB); audits identified close to 100,000 ineligible claimants.
  - Strategy underway to improve targeting and governance of the system.
  - External audits of COVID spending completed (end-June 2023, SB).
- Temporary taxes and FX access measures (from late July; see ¶8 and ¶12):
  - Extension of FX access tax (impuesto pais) to imports of most services at 25 percent, and to transport and goods at 7.5 percent (exceptions: fuels, medicines, basic food items, education, temporary imports for automobile exports).
  - Withholding tax of 10 ppts on FX purchases (dolar ahorro/solidario) to align with rate on foreign currency credit card purchases (dolar tarjeta).
  - Upgraded preferential exchange rate scheme for regional products (includes corn and other cereals).
  - Fiscal impact: extension of impuesto pais and FX realignment expected to boost fiscal revenues by around 1 percent of GDP this year; impuesto pais set to expire by end-2024.

### Monetary and FX management
- BCRA actions:
  - Publication of financial statements with enhanced financial disclosures (end-May 2023, SB).
  - Continued development of a strategy for strengthening its balance sheet (end-December 2022, SB; proposed reset to end-October, 2023).
- Legal/administrative reforms:
  - Efforts to amend the Foreign Exchange Criminal Law advancing with delays; submission to congress now expected by October (end-May 2023, SB).
- FX policy and controls:
  - Roadmap for conditions-based easing of FX controls requires additional time (end-June 2023 SB; proposed reset to end-March 2024, SB).
  - Temporary reliance on FX taxes and administrative measures has supported reserves; BCRA FX purchases from the official market reached US$1.4 billion since late July measures.
  - Goal to eliminate multiple currency practices and exchange restrictions gradually during 2024 as conditions permit.

### Policy framework, economic program, and near-term outlook
- Recent measures (starting late July and effective August 14):
  - Extended impuesto pais and other FX-related taxes (see above).
  - Introduced a withholding tax of 10 ppts on FX purchases.
  - Upgraded preferential exchange rate scheme; subsequent realignment of the nominal exchange rate to 350 ARS/USD and elimination of the preferential exchange rate.
  - Tightened monetary and fiscal policies to limit inflation passthrough.
- Near-term macro projections and expectations:
  - Real GDP growth: expected to contract by 2.5 percent in 2023 due to drought and weaker demand from tighter policies.
  - Inflation: expected to reach 115-125 percent y/y by end-2023, rising initially before falling below 5 percent m/m before the end of the year.
  - Trade balance: expected to gradually improve during the remainder of 2023 from mobilizing exports, containing imports (cash and accruals), and improvement in the energy balance.
  - Net international reserves: expected to increase by about US$8.9 billion between end-July and end-December, consistent with gross reserves reaching around US$39 billion (at program rates).
  - Beyond 2023: external position projected to gradually improve as drought conditions unwind; phasing out of multiple currency practices and exchange restrictions expected gradually during 2024 as conditions permit.
- Downside risks: evolution of climate shocks, global financial conditions, and market dynamics related to the political cycle; readiness to adapt fiscal, monetary, and external/macroeconomic policies and consider recalibrating the program.

### Fiscal policy stance and targets
- 2023 fiscal objective:
  - Achieve primary fiscal deficit target of 1.9 percent of GDP for 2023; drought-related decline in export taxes projected at about 1 percent GDP requires tighter expenditure controls and additional revenue mobilization.
  - Strive for near fiscal balance during August-November and minimize need for further central bank financing.
- 2024 fiscal objective:
  - Committed to achieving a primary deficit target of 0.9 percent of GDP for 2024; main features to be outlined in draft 2024 budget to be submitted to Congress by mid-September (structural benchmark).
  - Will propose Congress consider a reduction of tax expenditures to secure more ambitious consolidation.
- Expenditure controls (August–December):
  - Expenditures expected to contract by roughly 11 percent in real terms.
  - Measures include limiting energy subsidies to around 1.5 percent of GDP, containing water and public transport subsidies at 0.5 percent of GDP, and ensuring public sector nominal wage increases September–December are consistent with program fiscal and wage policy goals (prior action).
- Social assistance and pensions:
  - Potenciar Trabajo reforms to reduce benefit overlaps (cap total social assistance benefits at or below the minimum wage), encourage Return to Study (Volvé a Estudiar) program, and offer on-the-job training.
  - Targeted bonuses through programs (e.g., asignacion universal por hijos) may be considered to protect the poor, consistent with fiscal and monetary financing targets.
  - Pension spending to follow mobility formula with additional outlays for one-off bonuses for low-income pensioners and prudent implementation of pension moratorium regulations; around 60,000 retirees have entered the new scheme, a large share women between 60-64.

### Financing policy and external support
- Peso debt rollover and market operations:
  - Early June voluntary debt exchange extended maturities of peso debt falling due through end-September into 2024 and 2025 (prior action); reduced maturities to 2.5 percent of GDP for the remainder of the year.
  - Net financing so far this year: 1.2 percent of GDP (rollover rate of around 135 percent).
  - Central bank purchases of government securities in the secondary market continued (conducted at market prices and sterilized) to support disinflation and financial stability.
- Official sector support:
  - Additional budget support of US$690 million secured from CAF and CABEI for this year.
  - Programmed budget support and project financing secured from other multilateral institutions, including the World Bank and IADB.
  - Facilities of roughly US$3.5 billion secured with CAF, the People’s Bank of China (PBOC), and Qatar, to be repaid following completion of the combined reviews.

### Monetary and exchange rate policies implemented
- FX realignment and monetary tightening:
  - Effective August 14 the nominal exchange rate reset to 350 ARS/USD.
  - Monetary policy rates raised by an additional 2100 basis points to limit inflation passthrough (prior action).
  - All regulated interest rates on term deposits and credit lines raised by the same amount to support monetary transmission.
  - Future rate of crawl to be guided by disinflation and reserve accumulation goals; monetary policy to adjust to secure positive real policy rates over time.
- Market interventions:
  - Limited and temporary interventions in financial FX markets may be used to address disorderly movements and guide expectations.
  - BCRA interventions in the non-deliverable futures market limited to addressing disorderly FX market conditions.
  - PBOC-BCRA swap line extended for an additional three years to June 2026 to help address near-term balance of payments and financial stability needs.

### Incomes policy and wage-price coordination
- Voluntary price agreements (Precios Justos):
  - Targeting around 600 firms covering 50,000 product categories (food, beverage, cleaning staples, apparel, medicines, education, construction materials).
  - Aims to limit monthly price increases; steps to improve compliance and include wholesale agents serving smaller neighborhood shops.
- Wages:
  - Commitment to reach agreements with key public labor unions to ensure wages remain contained in real terms for the remainder of the year.
  - Public sector wage spending envisaged at around 3 percent of GDP in 2023, equivalent to average annual real growth of 3 percent.

*Source: IMF staff report excerpts (1argea2023002).*

### 21.      Our recently finalized National Sustainable Finance Strategy will contribute to the

### 1argea2023002 - 21.      Our recently finalized National Sustainable Finance Strategy will contribute to the

### National Sustainable Finance Strategy: scope and objectives
- The strategy will contribute to the strengthening, development and stability of the Argentinean financial system.
- Key areas covered:
  - the regulatory framework
  - common language and taxonomy
  - information generation
  - transparency
  - reporting
  - indicators and data analysis
  - incentives and sustainable financial instruments
- The strategy identifies and addresses risks and opportunities related to climate change.
- The strategy draws on analysis and lessons learned from other countries’ initiatives and adapts these experiences to the national productive system and the economic and social context.

### Financial integrity, transparency, and AML/CFT reforms
- Amendments to the law on anti-money laundering were presented to congress (end-May 2022, SB) and subsequently approved by the lower house; pending Senate approval.
- Reforms approved relate to:
  - financing of terrorism
  - the role and responsibility of the financial intelligence unit (FIU)
  - the sanctioning regime
  - non-government organizations
  - virtual assets service providers (VASPs)
- The FIU has advanced preparation of necessary regulations and resolutions to facilitate prompt and full implementation once the amended legislation is approved.
- This regulatory work is necessary ahead of the FATF and GAFILAT assessment; the on-site visit is expected to take place in March 2024.

### Selected quantitative program outcomes and statuses (as reported)
- Fiscal targets — Performance Criteria (cumulative floors on the federal government primary balance; all flows from January 1 through December 31):
  - end-Dec 2022: Target -222.3; Adjusted -210.9; Actual -192.7; Status Met
  - end-Sept 2023: Target -874.4; Adjusted -848.6; Actual -800.7; Status Met
  - end-Mar 2024: Target -1156.8; Adjusted -1136.0; Actual -1096.1; Status Met
  - end-June 2024: Target -2015.7; Adjusted -2017.2; Actual -1955.1; Status Met
- Ceiling on the federal government stock of domestic arrears (includes intra-public sector transfers (transferencias figurativas)):
  - end-Dec 2022: Target 535.9; Actual 336.2; Status Met
  - end-Sept 2023: Target 612.2; Actual 489.4; Status Met
  - end-Mar 2024: Target 654.0; Actual 589.7; Status Met
  - end-June 2024: Target 654.0; Actual 615.5; Status Met
- Continuous Performance Criterion: Non-accumulation of external debt payments arrears by the federal government:
  - end-Dec 2022, end-Sept 2023, end-Mar 2024, end-June 2024: Target 0.0; Actual 0.0; Status Met
- Indicative targets — social assistance spending (Asignación Universal para Protección Social, Tarjeta, Progresar):
  - end-Dec 2022: Target 151.9; Actual 164.2; Status Met
  - end-Sept 2023: Target 332.2; Actual 343.4; Status Met
  - end-Mar 2024: Target 565.3; Actual 562.4; Status Not Met
  - end-June 2024: Target 810.8; Actual 817.6; Status Met
- Monetary targets — change in net international reserves (NIR) of BCRA (in billions of U.S. dollars; change measured against value of NIR on December 31, 2021 of US2.277 billion; excludes payments to Paris Club from September 2022 onwards):
  - end-Dec 2022: Target 1.200; Adjusted 1.245; Actual 1.568; Status Met
  - end-Sept 2023: Target 3.450; Adjusted 2.950; Actual 2.703; Status Not met
  - end-Mar 2024: Target 4.100; Adjusted 3.600; Actual 4.591; Status Met
  - end-June 2024: Target 5.00; Adjusted 5.04; Actual 5.43; Status Met
- Cumulative ceiling on central bank financing of the federal government:
  - end-Dec 2022: Target 236.8; Actual 122.0; Status Met
  - end-Sept 2023: Target 475.8; Actual 435.1; Status Met
  - end-Mar 2024: Target 665.4; Actual 620.1; Status Met
  - end-June 2024: Target 654.0; Actual 620.1; Status Met
- Ceiling on the central bank stock of non-deliverable futures (in billions of U.S. dollars; stock on December 31, 2021 stood at US$ 4.185 billion):
  - end-Dec 2022: Target 6.000; Actual 1.249; Status Met
  - end-Sept 2023: Target 7.000; Actual 4.358; Status Met
  - end-Mar 2024: Target 9.000; Actual 3.131; Status Met
  - end-June 2024: Target 9.000; Actual 0.587; Status Met

### Structural benchmarks — highlights, statuses, and completion dates
- Met prior actions and benchmarks:
  - Raise the effective annual policy rate by 2100 bps to support disinflation and boost credibility: Met August 14
  - Implement a step devaluation, consistent with moving the nominal exchange rate to ARS/USD 350 (around 30 percent relative to end-July levels): Met August 14
  - Issue administrative decision to ensure nominal wage increases during September-December are consistent with program goals: Met August 16
  - Conduct exchanges to extend large peso debt maturities coming due in June-December: Met June 8
  - Publish 2022 financial statements of the BCRA that enhance financial disclosures towards compliance with IFRS-7: Met end-May, 2023
  - Complete a comprehensive evaluation of tax expenditures on the basis of enhanced technical criteria: Met end-June, 2023
  - Enhance the AFIP database by connecting with provincial cadasters and provincial property registers, assigning a federal taxpayer identification number (CUIT/CUIL) to each property (first stage covering the AMBA region): Met end-March, 2023
  - Issue a new resolution to update electricity prices (PEST) in May 2023 equivalent to specified increases: Met end-Apr. 2023
- Not met / delayed / ongoing items:
  - Develop in consultation with Fund staff, a strategy to durably improve the BCRA financial position, drawing on recommendations from the Fund’s Safeguard Assessment: Not Met (Progress is Ongoing); end-Dec., 2022; Reset to end-October, 2023
  - Modify and submit to congress legislation—Foreign Exchange Criminal Law—to improve the penalty framework: Not Met; Draft legislation finalized, submission to congress expected by end-October; end-March, 2023; Reset to end-May 2023
  - Conduct and publish, working with development partners, a comprehensive evaluation of social support programs and strategy: Not Met; Completed but not published due to confidentiality; end-March, 2023
  - Publish first enhanced quarterly report for public corporations and trust funds including a breakdown of assets and liabilities: Not Met; Published report did not include breakdown of assets and liabilities data due to lack of availability; end-March, 2023; Reset to end-October, 2023
  - Develop and publish a roadmap, in consultation with Fund staff, for the gradual easing of FX controls: Not Met; Delayed given implementation of stabilization package; end-June, 2023; Reset to end-March, 2024
  - Publication of an external ex-post audit on COVID spending that took place of at least during 2020: Not Met; Clearance resolutions were issued in late 2022, but the audit reports remain unpublished due to confidentiality; end-June, 2023
- Proposed new/modified structural benchmarks with completion dates:
  - Issue resolution updating electricity prices for September–October 2023 with specified percent increases by consumer level: Fiscal Structural; end-August, 2023
  - Issue resolution updating electricity prices for November–January to maintain overall cost recovery objective: Fiscal Structural; end-October, 2023
  - Submit to Congress the Draft 2024 Budget consistent with the agreed primary deficit of 0.9 percent of GDP and include elaboration of key macroeconomic assumptions: Fiscal Structural; September 15, 2023
  - Complete an in-depth study of tax expenditures and their fiscal impact, including (i) description of main policy objective; (ii) assessment of main beneficiaries; (iii) evaluation of net benefits and compliance: Fiscal Structural; end-November, 2023
  - Develop compliance improvement plans for key individual taxes (VAT, CIT, PIT) and for customs, in consultation with Fund staff: Fiscal Structural; December 15, 2023 (taxes) and End-June, 2024 (customs)

*Source: Argentina — Technical Memorandum of Understanding Update (excerpt).*

### 1.      This Technical Memorandum of Understanding (TMU) sets out the understandings regarding

### 1argea2023002 - 1.      This Technical Memorandum of Understanding (TMU) sets out the understandings regarding

### Scope and general definitions
- The TMU sets out understandings regarding definitions of the performance criteria (PCs) and indicative targets (ITs) to be applied under the Extended Arrangement under the Extended Fund Facility as specified in the MEFP and attached tables.
- All foreign currency-related assets, liabilities, and flows will be evaluated at “program exchange rates” except items affecting government fiscal balances, which are measured at current exchange rates.
- Program exchange rates are those that prevailed on March 2, 2022. Text Table 1 lists the program exchange rates and gold price:
  - 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
- For setting program PCs and ITs, inflation is based on a point estimate of 120 percent in 2023 (within revised range of 115-125 percent), and 60 percent in 2024 (end of period) within the range of 50-70 percent.
- Any variable mentioned for monitoring a PC or IT not explicitly defined is defined in accordance with the Fund's standard statistical methodology (e.g., Government Finance Statistics Manual 2014, Public Sector Debt Statistics Guide). Authorities shall consult staff where definitions are omitted.

*Footnotes in source: 1/ Rate published by the BCRA as of March 2, 2022. 2/ Spot price published by Bloomberg as of March 2, 2022.*

### Cumulative floor on the Federal Government primary balance — definitions
- Federal government (Sector Público Nacional No Financiero) includes: central administration, social security institutions, decentralized institutions (Administración Nacional), PAMI, fiduciary funds, and other federal entities and enterprises.
- Primary balance measured above-the-line and defined in accordance with monthly and annual reporting of the “Esquema IMIG”: total revenues (ingresos totales) minus primary spending (gastos primarios).
- Revenues recorded on a cash basis and include: tax revenues (ingresos tributarios), revenue income (rentas de la propiedad), other current revenues (otros ingresos corrientes), and capital revenues (ingresos de capital).
- Revenues exclude:
  - Any type of financial transfers from the Central Bank (including Utilidades and Adelantos Transitorios),
  - Interest income from intra-public sector holdings of securities and debt obligations,
  - Proceeds from sale of financial assets,
  - Special drawing rights (SDRs) allocated by the Fund or received bilaterally from other IMF members.
- Revenue income from issuance of government debt that is part of non-tax revenues (resto rentas de la propiedad) was capped at 0.28 percent of GDP in 2022 and will be excluded from revenues in 2023 and 2024 for calculation of the primary fiscal deficit.
- Federal government primary expenditure recorded on a cash basis includes: prestaciones sociales, subsidios económicos, gastos de funcionamiento, transferencias corrientes a provincias, otros gastos corrientes, and gastos de capital (including capital transfers to provinces).
- Government-funded public-private partnerships treated as traditional public procurements; obligations recorded in budget data and measured as part of the Federal government deficit on a cash basis.
- Costs associated with divestment or liquidation (e.g., cancellation of contracts, severance payments) allocated to current and capital expenditures accordingly.
- Primary expenditures (including fines) directly settled with bonds or other non-cash liabilities recorded above-the-line and contribute to a decrease in the primary balance, except exclusions listed below:
  - Settlement of liabilities related to pensions, revenue sharing and expenditure allocation with provinces and the Autonomous City of Buenos Aires associated with court proceedings finalized or pending as of March 3, 2022;
  - Payments of arrears as per ICSID or similar arbitration rulings;
  - Payments to the BCRA for losses from export incentive schemes in September and December 2022, and April to August 2023.

### Cumulative floor on the Federal Government primary balance — measurement and monitoring
- Measurement: primary balance measured at each test date as cumulative value starting from beginning of each calendar year.
- Monitoring: All fiscal data needed for program monitoring provided to the Fund with a lag of no more than 25 calendar days after the end of each month.

### Adjustor for external project financing disbursements (primary balance)
- Primary balance target adjusted up (down) by shortfall (excess) in disbursements of project loans from multilateral and bilateral partners relative to project loans in the program baseline (Text Table 2).
- Adjustor capped at cumulative 0.2 percent of GDP in 2023 and 2024:
  - 339,943 million pesos (2023 cap)
  - 634,171 million pesos (2024 cap)
- Adjustor excludes bridge financing provided by multilateral and bilateral creditors to meet Fund obligations.
- Source note: Upward adjustment excludes already executed expenditures linked to projects with temporary delays on associated external disbursements up to a maximum of ARS61,855 million in 2023 and ARS115,393 million in 2024.
- Text Table 2: Multilateral and Bilateral Project Financing (Baseline Projections) — 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: 232,354
  - end-March 2023: 44,293
  - end-June 2023: 102,430
  - end-September 2023: 168,699
  - end-December 2023: 228,492
  - end-March 2024: 16,190
  - end-June 2024: 134,481

### Ceiling on Federal Government accumulation of domestic arrears — definition and measurement
- Definition: Domestic arrears are floating debt = difference between primary spending recorded on an accrual basis (gasto devengado, SIDIF) and primary spending recorded on a cash basis (base caja, Treasury). Includes transferencias figurativas and primary spending on personnel, bienes y servicios, servicios no profesionales, bienes de uso, and transferencias.
- Measurement: Arrears measured on a daily basis.
- Caps and targets:
  - Program reduced stock from 1.2 percent of GDP at end-2021 to 0.8 percent of GDP (654,045 million pesos) in Q4 2022.
  - Quarterly average of the daily stock of arrears capped at 0.8 percent of GDP during 2023 (1,359,770 million pesos) and 2024 (2,536,685 million pesos).
  - Cap on daily stock of arrears at the end of each quarter: 1.1 percent of GDP
    - 1,869,684 million pesos in 2023
    - 3,487,942 million pesos in 2024
- Monitoring: Daily data on stock of arrears and underlying spending on accrual and cash basis provided to the Fund with a lag of no more than 25 calendar days after the end of each month.
- Note: Transferencias figurativas were excluded from definition of domestic arrears for end-March 2022 performance criterion; starting end-June 2022, transferencias figurativas included.

### Federal Government non-accumulation of external debt payments arrears — definitions and coverage
- Debt definition: current (not contingent) liability under contractual arrangement requiring future payments in assets or services to discharge principal and/or interest. Primary forms:
  - i. loans (including deposits, bonds, debentures, commercial loans, buyers’ credits, repurchase agreements, official swap arrangements),
  - ii. suppliers’ credits (deferred payments for delivered goods/services),
  - iii. leases (present value at inception of all lease payments expected during agreement, excluding operation/repair/maintenance payments).
- Under this definition, arrears, penalties, and judicially awarded damages from failure to make payment under contract that constitutes debt are debt.
- External debt: for program purposes, determined by residency criterion (includes nonresident holdings of Argentine law peso and foreign currency debt).
- External arrears: defined as external debt obligations (principal and interest) falling due after March 3, 2022, that have not been paid, considering contractual grace periods.
- Coverage: PC covers federal government. Excludes:
  - (i) arrears on trade credits,
  - (ii) arrears on debt subject to renegotiation or restructuring,
  - (iii) arrears from nonpayment of commercial claims that are subject to litigation initiated prior to March 3, 2022.
- Monitoring: Performance criterion monitored on a continuous basis.

*Related definitions reference: paragraph 8(a) of the Guidelines on Public Debt Conditionality in Fund Arrangements (Executive Board Decision No. 16919-(20/103), adopted October 28, 2020).*

### Cumulative floor on the change in Net International Reserves (NIR) of BCRA — definitions
- NIR of the BCRA = BPM concept: 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 and IIP manual as readily available claims on nonresidents in convertible currencies and include:
  - (i) monetary claims,
  - (ii) free gold,
  - (iii) holdings of SDRs, including all Fund disbursements since March 25, 2022,
  - (iv) reserve position in the IMF,
  - (v) holdings of fixed income instruments,
  - (vi) net cash balances within ALADI.
- Exclusions from reserve assets: assets pledged/collateralized/encumbered, claims on residents, claims in foreign exchange arising from derivatives 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 net financing component of the program (SDR 3.166 billion), net of cumulative Fund payments from March 25, 2022 onwards,
  - (iii) any deliverable forward FX liabilities on a net basis (long minus short) payable in foreign currencies undertaken by the BCRA or by financial institutions on behalf of the BCRA.
- Not considered gross foreign liabilities of BCRA: Federal government foreign liabilities and its FX deposits at the BCRA.
- Considered foreign exchange liabilities of the BCRA with maturity of one year or less: 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.

### Cumulative floor on the change in NIR — measurement, monitoring, and adjustors
- Measurement: Change in NIR measured as cumulative change in stock of NIR at each test date relative to stock on December 31, 2021.
- Monitoring: Foreign exchange asset and liability data at the BCRA provided to the Fund at daily frequency within two days.
- Adjustors:
  - Official non-project loans and grants: NIR targets adjusted upward (downward) by surplus (shortfall) in program loan disbursements and grants from multilateral institutions (BCIE, EIB, IBRD, IDB, CAF) and bilateral partners relative to baseline in Text Table 3.
  - Value of downward adjustor capped at cumulative US$750 million in each calendar year.
  - Program loan disbursements defined as external loan disbursements (excluding project financing disbursements and IMF budget support) from official creditors for financing of the general government.
  - Paris Club payments: Starting with end-December 2022 PC, NIR accumulation targets adjusted downward by amount of any payments to Paris Club creditors relating to outstanding debt reprofiled in 2014.
  - Accumulation overperformance: Quarterly NIR targets in 2023 constitute a lower bound. For end-June, end-September and end-December 2023 PCs, cumulative NIR accumulation target adjusted upwards by full amount of any overperformance at prior 2023 test dates. Adjusted quarterly targets capped by cumulative NIR targets set in the third review (IMF Country Report No. 22/388).
- Text Table 3: Program Loan Disbursements from Multilateral and Bilateral Sources (Baseline Projection), cumulative from January 1 of each year, in millions of US$:
  - end-March 2022: 55
  - end-June 2022: 62
  - end-September 2022: 543
  - end-December 2022: 2,181
  - end-March 2023: 20
  - end-June 2023: 861
  - end-September 2023: 1,273
  - end-December 2023: 1,346
  - end-March 2024: 66
  - end-June 2024: 199

### Cumulative ceiling on the BCRA’s financing of the Federal Government — definitions, measurement, and monitoring
- Definitions: BCRA financing to the government includes:
  - (i) overdraft transfers from the BCRA to the Federal Government (line Adelantos Transitorios in BCRA summary account),
  - (ii) distribution of profits (Utilidades),
  - (iii) acquisition of government debt in the primary market or by direct purchases from public institutions.
- Measurement:
  - Cap for cumulative financing set at 654,045 million pesos (0.8 percent of GDP in 2022) by end-December 2022 (cumulative flows from end-December 2021 in millions of pesos).
  - Cap of cumulative flows by end-December 2023: 0.8 percent of GDP (1,291,200 million pesos).
  - Zero net financing in 2024.
- Clarification: Any decrease in stock of Adelantos reflects cash payments in pesos by the Treasury to the BCRA. Transfer of Letras Intransferibles to the BCRA will not reduce the stock of Adelantos.
- Monitoring: Daily data provided to the Fund within two days. Flow of BCRA financing measured at each test date as cumulative value starting from beginning of the calendar year.

*Source: IMF Technical Memorandum of Understanding (TMU) as provided in the supplied content unit.*

### 23.      Consistent with commitments in IMF arrangements, we will seek not to: (i) impose or

### 23.      Consistent with commitments in IMF arrangements, we will seek not to: (i) impose or

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

### 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 will be provided to the Fund with a lag of no more than 25 calendar days after the end of each month.

### Cumulative Floor on Federal Government Spending on Social Assistance Programs
- Definition:
  - Social spending for program purposes is the cumulative sum of all federal government spending (both current and capital) on the following social assistance programs:
    - Asignación Universal para Protección Social, which includes the following sub-programs: Asignación Universal por Hijo, Asignación por Embarazo, and Ayuda Escolar Anual
    - Tarjeta Alimentar
    - Progresar
- Monitoring:
  - Data will be provided to the Fund with a lag of no more than 25 calendar days after the end of each month.

### Ceiling on the BCRA’s Stock of Non-Deliverable Futures
- Definitions:
  - The stock of net non-deliverable futures defined as the net of the U.S. dollar notional value of all long and short position contracts entered by the BCRA involving the Argentinian peso, either directly or through any institution they use as their financial agent.
- Measurement:
  - Net stock measured at each test date as the value of all short position contracts minus the value of all long position contracts.
  - Capped at US$8 billion by end-2023 and US$6 billion by end-June 2024.
- Monitoring:
  - Indicative target monitored on a quarterly basis.
  - Daily data will be provided to the Fund within two working days.

### Other definitions relevant for program conditionality
- Wage Growth:
  - Average wage growth for energy-bill adjustments (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. Published by INDEC; covers registered private sector, unregistered private sector and public sector.
- Energy Prices and User Categories:
  - Energy prices defined as regulated pass-through prices paid by distributors for electricity and gas: precio estacional (PEST) and precio del gas natural en punto de ingreso al sistema de transporte (PIST).
  - User categories for electricity and natural gas under regulated prices (PEST and PIST) separated into:
    - (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) small commercial users (with power of less than 10 kW,);
    - (v) ‘other’ commercial users defined as having power contracts above 10 kW and below 300 kW;
    - (vi) large non-residential users with a power demand above 300 Kw (GUDIs) (differentiation for non-residential users applies in the case of electricity only).
  - Further differentiation by consumption levels:
    - (i) for middle income residential users (Nivel 3) electricity consumed above/below 400 kWh;
    - (ii) for small commercial electricity users electricity consumed above/below 800 kWh;
    - (iii) for middle income residential users (Nivel 3) natural gas consumed above/below a cap set at 70 percent of average consumption over the past 5 years.
  - For program purposes, energy price 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 category and consumption threshold, 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: data provision and reporting frequencies
- Daily (provided with specified short lags):
  - Nominal exchange rates; total currency issued by the BCRA; deposits held by financial institutions at the BCRA; total liquidity assistance to banks through normal BCRA operations, including overdrafts; and interest rates on overnight deposits.
  - Disaggregated data of BCRA’s international reserve assets by source with a lag of three days.
  - Aggregated data on banks’ foreign exchange positions by categories: public national; public provincial; private domestic; private foreign; and small banks.
  - Data on gross BCRA sales and purchases of securities settled in different currencies, for each market segment and at transaction price in the applicable currency, provided with a daily frequency and a lag of three days.
  - Data on BCRA position of non-deliverable futures by maturity, to be provided within two working days.
  - Data on BCRA government securities purchased and sold in the secondary market by maturity and instrument, and corresponding price and quantities, with a lag of three days.
- Weekly:
  - BCRA balance sheet.
  - 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; includes 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 (lag no more than 25 days after month close unless otherwise specified):
  - Federal government operations including monthly cash flow from the beginning to the end of the current fiscal year (and backward revisions as necessary), per Informe Mensual de Ingresos y Gastos (IMIG) and Cuenta Ahorro Inversion Financiamiento (AIF).
    - Specific reporting to include:
      - 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; data with lag no more than 25 days after month end.
  - Detailed quarterly financing plan for the coming twelve months, to be provided one month in advance.
  - External financing received and projections for the coming four quarters, with loans and grants categorized by program and project; data with lag no more than 25 days after month end.
  - 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 month end; 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 case of government guaranteed debt, name of the guaranteed individual/institution shall be included.
    - ii. Information on the stock of external arrears 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. 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.
  - Monthly data on number of entrants into the new pension moratorium scheme, broken down into those at retirement age and those within ten years of retirement.
- 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 (i.e., end-June and end-December), including by (i) creditor (official, commercial domestic, commercial external); (ii) instrument (local currency and FX denominated bonds, treasury bills, Eurobonds, domestic loans, external commercial and external official loans); and (iii) direct and guaranteed.
    - ii. Quarterly domestic and external debt service (amortization and interest payments) of the provincial governments, provided within six months of the closing of the previous semester (i.e., end-June and end-December).
    - iii. Quarterly projections for the following semester for provincial government debt amortization/repayments and interest payments, at least 30 days before the end of each semester (i.e., end-June and end-December), covering local currency and FX bonds, treasury bills, Eurobonds, domestic loans, external commercial and external official loans, and both direct and guaranteed debt. In case of issuance of government guaranteed debt, the name of the guaranteed individual/institution shall be included.

### Supplementary information: assessments, policy actions, and priorities (statements)
- Staff assessment:
  - Prior action related to the update to electricity prices has been met. On August 18, authorities announced that a new resolution will be issued by end-August (proposed structural benchmark) implementing further adjustments to electricity prices (PEST), effective September 1, to reflect updated production cost estimates and strengthen progressivity.
  - Specifically:
    - (i) electricity prices will continue to be adjusted for large industrial users and high-income residential users, in line with full cost recovery;
    - (ii) subsidized low-and other middle-income residential consumers as well as commercial users will see prices adjust in line with established legislation and overall agreed cost recovery objectives.
- Authorities’ statement highlights and policy measures:
  - The one in a century historic drought is expected to cut agriculture exports by nearly US$20 billion (3.2 percent of GDP; about 25 percent of goods exports) relative to last year.
  - Official exchange rate was moved to 350 ARS/USD.
  - Impuesto pais tax extended to include most services (25 percent), and most imported goods and transport (7.5 percent).
  - Intent to increase net international reserves by around US$8.9 billion between August and December 2023.
  - Authorities intend to phase out temporary multiple currency practices and exchange restrictions, as conditions permit during 2024, once balance of payments improves with next year’s agricultural cycle and implemented policies take hold.
  - Policy interest rates raised an additional 2100 basis points, bringing the effective annual rate to 209 percent. Policy interest rates will continue to remain in positive terrain.
  - Voluntary price agreements (precios justos) will be continued, as well as prudent wage agreements to preserve purchasing power and contain inflationary pressures.
  - Fiscal targets and performance:
    - Authorities committed to achieving the 2023 primary deficit target of1.9 percent of GDP.
    - Objective of achieving a primary fiscal deficit of 0.9 percent of GDP for 2024.
    - Proposal to Congress to consider a reduction of tax expenditures.
  - Financing and market actions:
    - Reduced rollover risks via domestic financial market transactions; mobilized net domestic financing in a manner consistent with debt sustainability to avoid additional direct monetary financing of the budget during the remainder of the year.
    - Central Bank interventions in the secondary government securities market limited to securing normal market functioning.
  - Governance and financial integrity:
    - Amendments to the law on anti-money laundering presented to Congress and approved by the lower house, pending Senate approval; other reforms approved relate to financing of terrorism; role/responsibility of the FIU; sanctioning regime; non-government organizations; and virtual assets service providers (VASPs).
    - FIU advanced in preparing regulations and resolutions to facilitate prompt and full implementation of amended legislation once approved.
  - External support and repayments:
    - Authorities secured facilities with the Andean Development Fund (CAF), the People’s Bank of China, and Qatar.
    - The combined fifth and sixth reviews completion, waivers, rephasing of access, modifications of 2023 and 2024 targets, and approval of temporary exchange restrictions and MCPs are requested to permit relevant disbursement and reimbursements to creditors.
    - Authorities intend to make an early repurchase worth SDR 0.7 billion of the amounts due in September and October and keep the remaining amounts (net of reimbursements and other payments to the Fund not made in SDRs) in the relevant SDR account.

*Prepared by Western Hemisphere Department; Supplementary information and authorities’ statements included in the combined Fifth and Sixth Review documentation.*

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_Source: https://www.imf.org/-/media/files/publications/cr/2023/english/1argea2023002.pdf_