The national government will face a difficult situation in meeting its dollar commitments

“This situation occurred in parallel with the debt restructuring with private creditors in foreign currency, which was only achieved in the third quarter of the year. At the same time, the situation with multilateral organizations was not simple either: par with the Fund was suspended and payments to the Paris Club were delayed. For this reason, and despite the fact that the peso securities were fully refinanced (the roll-over of these Bonds and Bonds was 119%), a large part of the budget deficit was covered by monetary issues. Thus, the assistance of the Central Bank to the Treasury (profits and advances) reached 7.3 points of GDP ”, explained the consultant.

In this sense, with the accelerated vaccination campaign and some sectors of the economy that have started to recover, the ministry commanded by Martin guzman started to make some modifications to reduce the primary imbalance and achieve a certain balance to avoid the emission. The objective was to aim for a primary deficit of 4.5% of the Product, with a financing composition of 60% coming from the assistance of the Central Bank and 40% “demanded from the market”.

However, the achievements of the first half have not been repeated in recent days. “The second semesters are characterized by a higher seasonal deficit (in the colder months this is due to a greater distribution of energy subsidies, more bonuses for public employees and retirements). In addition, there are a few measures linked to the proximity of the elections. , which would have deepened this process (for example, the retirement bonus in August). In this context, in July-August the primary imbalance would have been identical to that of the previous six months, generating an acceleration in financial needs, ”Ecolatine assured.

In addition, this two-month period was the heaviest in terms of local debt maturities. Thus, the percentage of to roll it was reduced to just over 100%, which made it possible to fully cover the primary deficit through emissions, which did not occur between January and June. For this reason, the Central Bank’s assistance to the Treasury amounted to 380,000 million dollars, or 46% more than in the same period last year. As a result, the composition of the financing has been reversed, the proportion being today one third in market debt and two thirds in issuance. Worse, August did not reach 100% refinancing, despite the fact that the Treasury has deployed strategies to increase the amounts received. Shorter instruments, higher rates, forward swaps, the possibility of using Bills as bank reserve requirements and the launch of the Aspirants to Market Makers program (although its main objective is not to provide more funding). , but rather liquidity and price stability) were the main tools used by Economía to achieve its objectives, but they were not enough to attract investors.

A disturbing diagnosis

The concern that the government will have to face for the rest of the year and 2022, will be related to its dollar debt and its commitments to meet. “End of 2021 and beginning of 2022 the biggest concerns will be in the dollar debt segment. In July, the first interest coupon on the restructured debt and the first tranche of the Paris Club agreement were paid. In contrast, commitments to the IMF amount to $ 4.5 billion. Although these can be paid with the Special Drawing Rights (SDRs) transferred by the same organization, this credit would be exhausted before the January 2022 payment. Over the next year the installments with the IMF amount to 19,000 million dollars, to which is added to 1,700 million dollars with the Paris Club and 1,400 million dollars with private creditors, a volume of dollars that our country does not have the capacity to generate (neither fiscally nor externally) ) “, said the consultant.

“While we expect the primary deficit budget model to be reached in 2021, the composition of the funding looks more complicated,” he added.

Expectations for 2022 are that the national government will continue to reduce its primary budget deficit but will require extended deadlines for its foreign exchange commitments.