How Milei’s spending cuts are footing the bill for Argentina’s fiscal surplus

Argentina closed the first half of 2024 with a fiscal surplus of 238 billion pesos (US$258 million) compared to a 709bn-peso deficit a year ago. 

However, a local think tank says the figure is a result of deep cuts in public spending, especially on pensions and infrastructure, leaving doubts as to whether a surplus is sustainable in the long term.

The economy ministry report states that income grew 217% on a year-on-year basis from 2.58bn pesos to 8.18bn but the increase “is only nominal,” the head of Argentine economic policy center CEPA, Hernán Letcher, told BNamericas.

CEPA’s latest monthly report states that in real terms, income for May only rose 5.8%, far from the 962% touted by the economy ministry for the same month.

Based on data from the national budget office and statistics office Indec, CEPA estimates that 28.9% of the first half surplus came from cuts to pensions, followed by cuts to public works.

The rest of the surplus was estimated to come from cuts to subsidies (16.2%), salaries (10.6%), social benefits (9.7%), transfers to provinces (6.5%) and universities (3.6%), and other expenditures (3.6%).

CEPA estimates that, in real terms, energy subsidies plummeted 81.2% during the first half, while public works expenditures saw a 74.4% cut. 

Letcher said beyond the sustainability of these spending cuts, the surplus faces an uncertain scenario due to three factors.

The first is the government’s intention to slash the PAIS tax, a levy that affects foreign trade transactions, from 17.5% to 7.5%, which he estimates would entail a loss in income equivalent to close to 1% of GDP.

“If this is implemented, it would be difficult for me to imagine them maintaining the surplus,” he said. 

The second is the decision to transfer debt from the central bank to the treasury, which would leave the latter paying the interest.

Lastly, Letcher says that Milei had pledged to pay the debts owed by wholesale power market administrator Cammesa with generators by June, but “there’s a part of that debt that was swept under the carpet” as some generators are accusing the federal administration of not following through.

As of May it was estimated that unpaid invoices from Cammesa surpassed US$2bn.