IMF Executive Board Completes the Combined Fifth and Sixth Reviews of the Extended Arrangement Under the Extended Fund Facility for Argentina

IMF News, August 23, 2023

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Canonical URL: IMF Executive Board Completes the Combined Fifth and Sixth Reviews of the Extended Arrangement Under the Extended Fund Facility for Argentina

The Executive Board completed the fifth and sixth reviews of Argentina’s 30-month Extended Fund Facility (EFF).
The Board’s decision enables an immediate disbursement of around US$7.5 billion (SDR 5.5 billion).
Total disbursements under the arrangement now amount to about US$36 billion.
The next review is scheduled for November 2023.

Key program targets were missed through end-June 2023 due to the historic drought along with policy slippages.
The Board approved waivers of non-observance for missed targets through end-June 2023.
The Board also approved waivers of non-observance associated with the introduction of temporary measures that gave rise to introduction or intensification of exchange restrictions and multiple currency practices.
Modifications were approved to the reserve accumulation target, the primary fiscal balance target, and the monetary financing of the deficit targets.

Agreement was reached on a new policy package centered on rebuilding reserves and enhancing fiscal order.
The package aims to correct policy setbacks, safeguard stability, and secure program objectives.
Continued strong policy implementation is emphasized as critical to safeguard stability and strengthen medium-term sustainability.

The agreed primary fiscal deficit target for this year is 1.9 percent of GDP.
Fiscal consolidation is to accelerate beyond this year through high quality revenue and expenditure measures.
Measures highlighted to achieve fiscal targets:
- Strengthening expenditure controls through upfront measures to update energy tariffs.
- Containing public wages and pensions while protecting priority social and infrastructure spending.
- Temporary increases in FX taxes on selected goods and services to help offset the loss of drought-related export receipts.
Objective: eliminate monetary financing of the deficit, support disinflation, and strengthen the central bank’s balance sheet.

Recent realignment of the exchange rate, coupled with tightening of monetary policy, is intended to support reserve accumulation while limiting exchange rate passthrough to inflation.
Going forward:
- The rate of crawl will be carefully calibrated to help achieve reserve accumulation and disinflation goals.
- Real interest rates will remain sufficiently positive to continue to support demand for peso assets.
- Interventions in the securities and futures FX market will be limited and temporary, focused on addressing disorderly conditions.
Multiple currency practices, exchange restrictions, and capital flow management measures will be unwound gradually as soon as conditions permit.

There was recognition of the importance to boost Argentina’s export potential and reserves.
Completion of the first phase of the gas pipeline was noted as a welcome development.
Attention will continue to be given to protecting the poor and supporting inclusive growth as imbalances are addressed.

Decisive program implementation, agile policymaking, and contingency planning remain imperative; further measures may be needed to achieve program objectives and safeguard stability.
Broad political support and program ownership are critical in the near and medium term; resolving the country’s deep challenges will require continued efforts by future administrations.
Argentina’s continued commitment to remain current on its financial obligations to the Fund is welcomed.

Press Release No. 23/290, August 23, 2023.