The drought will give a very strong blow to the collection of export duties and other means. What paths are left for Massa
By Lorenzo Sigaut Gravina
15/03/2023 – 20,30hs
The intense drought with extreme temperatures -we went from a heat wave to frost and a new heat wave in a few weeks- deepens the productive losses of the agricultural sector, which are now aggravated by a bird flu that has already caused cases of infection in farms producing chicken and eggs.
As I mentioned at the beginning of the year, The negative impact of the agricultural sector jeopardizes the official economic strategy by impacting on various fronts. Among the main ones, the following stand out:
- Lower activity level. The impact on the agricultural sector and related activities has a floor of 1.5 percentage points of GDP.
- Bankruptcies and lower demand by the producers.
- Upward pressures on food prices fresh, a key variable when it comes to coordinating wage and price increases downwards
- large agro-currency losses.
- Strong drop in withholdings.
Fiscal impact of the drought
In these paragraphs I will focus the analysis on the impact on the fiscal front and the financing strategy in pesos of the non-financial national public sector (SPNF). The blow of the drought on export rights -which are not co-participated- is very significant.
Generally, you can calculate the withholdings in dollars projecting agribusiness exports by complex (soybean-corn, wheat, etc.), applying the corresponding rates. However, the “soybean dollar 2” at the end of last year brought forward liquidations of said complex that were to be carried out at the beginning of 2023 for close to US$1.7 billion, increasing/reducing the taxable base of withholdings for 2022/2023.
In figures, last year exports from the soybean complex were around US$22.200 million and foreign exchange settlement climbed to US$23.900 million, while for 2023 we forecast US$16.700 million in exports from the soybean complex (-25 % per year) and that the foreign exchange settlement is less than or equal to exports. If export advances are not obtained by the end of this year, they would drop to US$15,000 million (-37% per year), but if the early settlement in December 2022 is compensated at the end of the year, the drop would be 30%. annual.
The drought has a multiple impact and puts the Government in trouble.
Assuming that the authorities reissue -on one or more occasions- the soybean dollar exchange incentive paying an exchange rate almost 40% higher than the official one and the same proportion is settled through this incentive as in 2022 (almost half), the income from export rights of the soybean complex would fall between US$2.700 and US$3.300 million compared to last year. Likewise, since the drought also contracted the rest of the agribusiness exports, it is expected that another US$800 million in withholdings will be lost (-29% annually). Therefore, withholdings from agribusiness would fall between US$3,500 and US$4,100 million (between 0.5% and 0.6% of GDP).
The multiple impact of the drought on the Argentine economy
The drought also has an impact -although to a lesser extent- on the rest of the collection in various ways. Among them are:
- Production drop in the sector and impact on related activities.
- Tax exemptions to relieve producers; adjustment of external sales to compensate for the strong loss of agro-currency income.
- Recession due to shortage of imported inputs.
- In addition, this year it will not be possible to count property income (for 0.3% of GDP in 2022).
A priori, in terms of public spending, the drought -due to problems in the supply of fresh food and a shortage of foreign currency for imports- accelerates inflationwhich could give the national government the opportunity to liquefy expenditures if it does not adjust them to the rate of rising prices. However, liquefying spending in an electoral year in a context of deteriorating activity and higher inflation does not look like the best strategy for the presidential elections.
It is true that the Executive is going to reduce energy subsidies due to segmentation and the lower cost of supplying gas in winter (almost US$2,000 million in savings due to the operation of the Néstor Kirchner gas pipeline and lower international prices), but it will be very difficult for him to reduce the primary red in 2023.
Despite the IMF conditions, there could be a greater issue of pesos.
The Government and the need for more pesos: how you can face it
If the deficit is not effectively reduced, the financing needs on the local market will be high -similar to those of 2022- in a context in which the appetite of the private sector for debt in pesos beyond the presidential elections is limited .
The recent swap of more than $4 trillion of debt maturing between March and June for inflation-adjusted and dual bonds due in 2024 and 2025 was a step forward. But there is still a long way to go, In the months of greatest uncertainty -prior to the elections- the Ministry of Finance will not only have to renew the maturities of the debt in pesos, but also obtain fresh funds to cover the fiscal red.
The alternative of that the BCRA finance the Treasury will always be available, since the IMF put a cap on assistance via transitory advances to the Central, but not on the purchase of bonds in the secondary market. With a bank or public entity buying Treasury bonds and then selling them to the BCRA, the latter will finally be issuing to finance the treasury. The problem is that many pesos in a context of increasing foreign currency scarcity -due to the loss of more than US$15,000 million of agro-currencies and a meager stock of net reserves- implies growing exchange pressures in a year marked by greater uncertainty due to the presidential elections.
In short, the extreme drought not only considerably reduced the inflow of agro-currency, but also suffers the income of the NFPS, making it impossible to reduce the primary deficit (Unless spending is adjusted in a presidential election year, when the exact opposite is often the case.
Without a reduction in the fiscal gap, the pressure on financing in the local market is likely to grow. The BCRA could issue to sustain the deficit and/or the debt in pesos, but at the cost of a greater imbalance: more and more pesos and fewer dollars in the economy. Stopping the vicious circle that triggered this weather shock in pursuit of preserving stability looks like a major challenge.
