IMF Staff and the Argentine Authorities Reach Staff-Level Agreement on the Fourth Review Under the Extended Fund Facility Arrangement

March 13, 2023

  • The Argentine authorities and IMF staff have reached staff-level agreement on the fourth review under Argentina’s 30-month EFF arrangement. The agreement is subject to approval by the IMF Executive Board, which is expected to meet in the coming weeks. Upon completion of the review, Argentina will have access to about US$5.3 billion (SDR 4.0 billion).
  • Prudent macroeconomic management in the second half of 2022 supported stability and helped secure program targets through end-2022 with some margin.
  • Against a more challenging economic backdrop, particularly the increasingly severe drought, stronger policy actions are necessary to safeguard stability, address rising inflation and policy setbacks, and maintain the anchoring role of the program. In this context, revisions to the reserve targets for 2023 are being requested.

Washington, DC: An International Monetary Fund (IMF) team, led by Luis Cubeddu, Deputy Director of the Western Hemisphere Department and Ashvin Ahuja, Mission Chief for Argentina, conducted in-person and virtual meetings with the Argentine authorities to discuss policies on the fourth review of the extended arrangement under the Extended Fund Facility (EFF). [1] Mr. Cubeddu and Mr. Ahuja issued the following statement in Washington, D.C. today at the conclusion of these meetings:

“The Argentine authorities and IMF staff reached staff-level agreement on an updated macroeconomic framework and associated policies necessary to complete the fourth review under Argentina’s arrangement. This agreement is subject to approval by the IMF Executive Board, which is expected to meet in the coming weeks. Completion of the review will give Argentina access to about US$ 5.3 billion (SDR 4.0 billion).

“In the context a more complex economic environment, the review focused on assessing progress in program implementation, updating the macroeconomic framework, and reaching understandings on a strong policy package to durably address macroeconomic imbalances while limiting future vulnerabilities.

“All quantitative performance criteria through end-December 2022 were met with some margin. The 2022 primary fiscal deficit reached 2.3 percent of GDP (compared to a target of 2.5 percent), notably because of continued strong expenditure control, and actions to improve the targeting of subsidies and social assistance. At the same time, net international reserves (NIR) rose by US$5.4 billion (above the target of US$5.0 billion), on account of improvements in the trade balance and sizeable official support. Real GDP expanded by 5.4 percent in 2022 and end-period annual inflation reached 94.8 percent.

“Against the challenges of an increasingly severe drought, a stronger policy package is necessary to safeguard macroeconomic stability, address rising inflation and recent policy setbacks, as well as ensure achievement of underlying program objectives. Such policies should be firmly and consistently implemented. Understandings were reached in the following key areas:

  • Fiscal policy . The authorities are committed to achieving the primary fiscal deficit of 1.9 percent of GDP in 2023 through continued expenditure controls, improved targeting of energy subsidies and social assistance, and better prioritization of capital spending, while protecting priority social and infrastructure spending. To meet deficit reduction goals and strengthen the progressivity of energy subsidies, the authorities plan to continue implementing the agreed segmentation scheme, by eliminating subsidies for higher income residential users starting in May and commercial users by end-2023. Early and resolute actions will be taken to sustainably address the fiscal costs of the unforeseen approval of the pension moratorium to secure fiscal targets for this year and beyond.
  • Monetary and FX policy . To address continued inflation pressures, which have picked up in recent months, the authorities intend to keep policy interest rates positive in real terms. Meanwhile, efforts will continue to secure external competitiveness and strengthen reserve coverage, which the authorities plan to complement through the timely rationalization of FX policy. They are also committed not to use international reserves or issue short-term external debt instruments to intervene in the parallel FX markets.
  • Financing strategy . A proactive market-based domestic debt management strategy is being cautiously implemented and well communicated. This is helping to manage forthcoming domestic maturities, especially in the second and third quarters, mobilize domestic financing, and improve bond and FX market functioning, without adding to vulnerabilities down the road. The authorities continue mobilizing official financing from multilateral and bilateral sources, including by finalizing bilateral understandings with the few remaining Paris Club creditors. These efforts will help keep direct monetary financing of the fiscal deficit to at most 0.6 percent of GDP in 2023, in line with program targets.

“While stronger macroeconomic policies and efforts to mobilize financing are expected to enhance reserve coverage and reverse recent reserve losses, a modification of the 2023 net international reserve accumulation target is being requested. This will partially accommodate the impact of the increasingly severe drought, while also taking into account the offsetting effects from lower energy import prices and the agreed policy measures. The bulk of the accommodation is requested to take place in early 2023, consistent with the frontloaded impact of the drought.

“Going forward, it will be essential to maintain strong policies and adapt them as necessary to evolving external and domestic conditions. Temporary administrative FX measures should not be a substitute for sound macroeconomic policy.

“We thank the Argentinean authorities for their ongoing open and constructive discussions and welcome their continued commitment to tackle macroeconomic imbalances, and safeguard stability.”

[1] Argentina’s EFF arrangement, with access of SDR 31.914 billion (equivalent to US$44 billion, or about 1000 percent of quota), was approved on March 25, 2022.

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