IMF Executive Board Concludes 2017 Article IV Consultation with Argentina
IMF News, December 29, 2017
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- Published: December 29, 2017
Overview and recent developments
- On December 18, 2017, the Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation with Argentina.
- Argentina has unwound multiple distortions and made important progress in restoring integrity and transparency in public sector operations.
- The economy is experiencing a solid recovery from the 2016 recession; private consumption strengthened in 2017 supported by greater real wages and buoyant credit growth, and private investment is also picking up.
- The trade surplus turned into a deficit in 2017 and the current account deficit increased.
- Annual inflation declined from its peak in 2016 but remained relatively resilient; inflation expectations moved up, prompting the central bank to raise interest rates.
- The general government fiscal deficit is expected to increase in 2017 despite a fall in the primary deficit, with financing leading to a rapid rise in foreign currency borrowing.
- Real exchange rate appreciation: the exchange rate in real terms appreciated by about 3 percent so far in 2017.
Outlook and projections
- Growth and inflation:
- GDP growth is expected to consolidate; growth is projected to be around 2½ percent in the next two years.
- Inflation inertia will slowly subside; inflation is expected to decline towards single-digit levels over time as wage negotiations become more forward-looking and inflation expectations move lower.
- Fiscal outlook:
- The federal primary fiscal deficit is expected to fall by 2 percent of GDP by 2019.
- Provinces are projected to lower their primary deficit in line with authorities' targets.
- Fiscal consolidation is likely to weigh against economic growth in the next two years.
- External sector:
- Continued sizable foreign borrowing and real appreciation pressures are expected to cause the current account deficit to increase further.
- Monetary policy:
- High real interest rates will act as a headwind to growth but should facilitate a decline in inflation and create space for an eventual reduction in policy rates.
Executive Board assessment and recommendations
- Directors welcomed the continuing recovery from the recession that began in 2015 and commended measures facilitating the rebound, systemic transformation, and efforts to rebuild institutions and restore integrity, transparency, and efficiency in government.
- Fiscal policy:
- A lower fiscal deficit would reduce external vulnerabilities, build credibility, and help anchor inflation expectations.
- Many Directors supported a more frontloaded fiscal rebalancing to allow for lower interest rates, reduce upward pressures on the peso, and limit vulnerabilities to sudden tightening of external financing.
- Some Directors cautioned about the potential economic growth and social impact of faster consolidation and welcomed authorities’ openness to accelerate adjustment if upside risks materialize.
- Directors noted lowering government spending is essential, especially where expenditure increased rapidly: wages, pensions, and social transfers.
- Emphasized the importance of mitigating the impact of fiscal rebalancing on the most vulnerable.
- Encouraged strengthening the institutional framework for fiscal policy, welcomed the federal–provincial agreement, and recommended considering adoption of a medium‑term fiscal anchor and a stronger enforcement mechanism.
- Tax and structural reform:
- Welcomed the proposed tax reform as a step to overhaul an inefficient tax system: supports investment, increases progressivity, and reduces disincentives to formal employment.
- Noted more could be done to eliminate distortionary taxes and cautioned against relying on uncertain growth effects to offset revenue losses from tax reform.
- Emphasized the need for an ambitious supply‑side reform agenda: accelerate reduction in import tariffs, eliminate most import licenses, remove barriers to investment and firm entry, boost domestic competition, and maintain efforts to fight corruption.
- Monetary policy and central bank:
- Welcomed the authorities’ commitment to a tight monetary policy stance to achieve inflation targets.
- Stressed that reducing monetary financing of the deficit would help strengthen central bank independence and enhance credibility of the inflation‑targeting regime.
- Financial sector and inclusion:
- Emphasized continued development of the financial system, increased financial inclusion, strengthened oversight, and protection of financial stability.
- Called for measures to reduce informality, address gender discrimination, and ensure benefits from higher growth are shared more equally.
- Noted the proposed tax reform should increase opportunities for formal employment for the less‑educated and young people.
Key economic and financial indicators (selected figures from table)
- GDP at constant prices:
- 2009–14 average: 1.5
- 2015: 2.6
- 2016: -2.2
- 2017: 2.8
- 2018 (Proj.): 2.5
- 2019 (Proj.): 3.1
- Domestic demand:
- 2009–14 average: 4.0
- 2015: -1.5
- 2016: 5.4
- 2017: 3.7
- Private consumption (annual percentage changes):
- 2016: 5.1
- 2017: 3.6
- Investment (annual percentage changes):
- 2016: -5.1
- 2017: 13.1
- 2018 (Proj.): 9.3
- Exports (annual percentage changes):
- 2016: 1.7
- 2017: 8.0
- 2018 (Proj.): 6.2
- Imports (annual percentage changes):
- 2016: 6.4
- 2017: 5.9
- 2018 (Proj.): 4.8
- Nominal GDP (billions of Argentine pesos):
- 2009–14 average: 2,609
- 2015: 5,854
- 2016: 8,050
- 2017: 10,326
- 2018 (Proj.): 12,735
- 2019 (Proj.): 14,877
- Output gap (percent):
- 2016: 1.2
- 2017: -2.1
- 2018: -1.6
- CPI inflation (eop, y/y percent change):
- 2015: 23.6
- 2016: 16.3
- 2017: 11.8
- 2018 (Proj.): 10.0
- 2019 (Proj.): 8.6
- Unemployment rate (percent):
- 2016: 7.5
- 2017: 8.5
- 2018 (Proj.): 8.1
- 2019 (Proj.): 7.7
- External sector (goods, billions of U.S. dollars):
- Exports f.o.b.:
- 2015: 71.9
- 2016: 56.8
- 2017: 57.8
- 2018 (Proj.): 58.5
- 2019 (Proj.): 63.5
- Imports f.o.b.:
- 2015: 60.1
- 2016: 57.2
- 2017: 53.2
- 2018 (Proj.): 63.3
- 2019 (Proj.): 68.8
- Trade balance (goods, billions of U.S. dollars):
- 2015: -0.4
- 2016: -4.8
- 2017: -5.3
- 2018 (Proj.): -6.4
- 2019 (Proj.): -7.6
- Total external debt (percent of GDP):
- 2015: 34.7
- 2016: 28.3
- 2017: 36.1
- 2018 (Proj.): 36.2
- 2019 (Proj.): 38.8
- Gross domestic investment (percent of GDP):
- 2015: 15.8
- 2016: 14.8
- 2017: 17.3
- 2018 (Proj.): 17.5
- 2019 (Proj.): 17.8
- Gross national savings (percent of GDP):
- 2015: 15.7
- 2016: 12.2
- 2017: 12.0
- 2018 (Proj.): 12.9
- 2019 (Proj.): 13.3
- Current account balance (percent of GDP):
- 2015: -0.5
- 2016: -2.7
- 2017: -4.3
- 2018 (Proj.): -4.4
- 2019 (Proj.): -4.5
- 2020 (Proj.): -4.6
- Public sector primary balance (percent of GDP):
- 2015: -1.9
- 2016: -3.7
- 2017: -2.5
- 2018 (Proj.): -1.7
- Federal government primary balance (percent of GDP):
- 2015: -3.4
- 2016: -4.1
- 2017: -4.2
- 2018 (Proj.): -3.2
- 2019 (Proj.): -2.0
- 2020 (Proj.): -1.8
- Overall balance (percent of GDP):
- 2015: -2.9
- 2016: -5.9
- 2017: -6.5
- 2018 (Proj.): -6.9
- 2019 (Proj.): -6.0
- 2020 (Proj.): -5.0
- Revenues (percent of GDP):
- 2015: 31.6
- 2016: 35.7
- 2017: 34.8
- 2018 (Proj.): 34.0
- 2019 (Proj.): 33.7
- Primary expenditure (percent of GDP):
- 2015: 34.9
- 2016: 40.5
- 2017: 40.4
- 2018 (Proj.): 39.5
- 2019 (Proj.): 37.7
- Total public debt (federal, percent of GDP):
- 2015: 42.9
- 2016: 56.0
- 2017: 54.2
- 2018 (Proj.): 52.8
- 2019 (Proj.): 51.7
- 2020 (Proj.): 50.6
- Monetary indicators:
- Monetary base (eop, y/y percent change): 27.5 (2009–14 average), 31.7 (2015), 21.2 (2016), 17.4 (2017), 14.6 (2018 proj.), 13.4 (2019 proj.), 12.6 (2020 proj.)
- M2 (percent change): 28.7 (2009–14 average), 28.2 (2015), 30.4 (2016), 22.6 (2017), 19.0 (2018 proj.), 15.3 (2019 proj.), 14.1 (2020 proj.)
- Credit to the private sector (eop, y/y percent change): 28.9 (2009–14 average), 31.2 (2015), 39.4 (2016), 22.8 (2017), 15.4 (2018 proj.), 14.4 (2019 proj.), 13.2 (2020 proj.)
- Credit to the private sector real (eop, y/y percent change): 12.8 (2009–14 average), 5.6 (2015), 4.7 (2016)
- Interest rate (eop) 4/: 32.2 (2009–14 average), 23.9 (2015), 27.8 (2016), 20.3 (2017), 16.2 (2018 proj.), 14.7 (2019 proj.), 14.2 (2020 proj.)
- Real interest rate (eop) 4/: 9.9 (2009–14 average), 7.6 (2015)
- Memorandum items:
- Gross international reserves (billions of U.S. dollars): 42.0 (2009–14 average), 25.6 (2015), 39.3 (2016), 50.7 (2017), 56.2 (2018 proj.), 57.5 (2019 proj.), 60.9 (2020 proj.), 65.2 (2021 proj.), 69.3 (2022 proj.)
- Exchange rate (eop, Arg$/US$): 13.0 (2009–14 average), 15.9 (2015)
- Change in REER (eop, y/y percent change): 8.4 (2009–14 average)
Institutional note
- It is expected that the next Article IV consultation with Argentina will be held on the standard 12‑month cycle.
International Monetary Fund. Press Release No. 17/524. December 29, 2017.
