Midterm polls will knock Argentine budget off course

Significance

The debate has been delayed by November 14 midterm elections. However, the budget has already been criticised both by the opposition, which considers the forecasts excessively optimistic, and by Vice-President Cristina Fernandez de Kirchner (CFK) and her supporters, who believe fiscal tightening in the first half was responsible for the government’s poor performance in the August open primaries.

Impacts

• The 2021 budget deficit will be narrower than initial expectations thanks to the sharp fiscal adjustment in the first half.
• Next year’s fiscal adjustment will involve cutting energy subsidies, prompting higher tariffs and inflation.
• Absent new foreign credit, increased Central Bank transfers to the Treasury could fuel an inflationary spiral.