If we had to select one sentence from our report, it would definitely be the following: “The primary deficit of the first trimester shows an increase of 2441% year-on-year.” Obviously, by the time this publication was published, this observation was already old news.
Agents have discounted this data and the accumulated primary deficit in April exceeds that recorded for the whole of 2014. This being so, the contribution of our report is to provide an analysis of the consolidated information of the national budget; which, although it is based on current information, allows us to have a global view of how this result is reached, observing the inflow and outflow of resources in the first three months of the year.
Let's start with the evolution of the Primary OutcomeThe concept reflects a basic accounting issue, the difference between income and expenses of the non-financial public sector without taking into account the payment of interest on the debt (this last point is precisely what returns to the primary concept).
With a few exceptions such as those recorded in December 2013 - which showed a deficit of $19.897,7M - throughout 2013 and much of 2014, the graph shows an effort by the SPNF to maintain a balanced budget, which began to become unsustainable in August of last year.
However, that is not what happens when you look at the Genuine Primary Result, which arises from deducting from the previous formula those extraordinary incomes, among which the following stand out: BCRA transfers and the Sustainability Guarantee Fund (FGS) administered by ANSES. As with everything in economics, the use of these mechanisms has its drawbacks.
Brianda transfers of profits made by the monetary authority, the problem is that it generates –by definition- greater monetary emission. Understand, it is not being stated that monetary emission is bad per seIf this were the case, there would be no possibility of exercising an active monetary policy.
Nor is it being claimed that higher levels of issuance necessarily impact higher levels of inflation (also per se). The minimum point to start a discussion is the following: there is sufficient empirical evidence to affirm that there is a high correlation between issuance and inflation.
If we add to the above that the growth projections for our economy show a null result, there is room to conjecture that this correlation partially becomes causality.
Moreover, the use of FGS profits This carries the risk of underfunding the social security system (SSS). To establish a point: between the accumulated period of February 2014 and 2015, the value of the portfolio in the hands of the FGS has increased by 36.77% year-on-year.
However, taking the same comparison for accumulated transfers, these grew by 52.73%; approximately 16pp above the growth in the value of the portfolio. Likewise, the SSS balance in the first quarter of 2015 shows a negative amount of $10.356M, which represents an increase of 119.52% with respect to the same quarter of last year.
In short, whether by monetizing debts, or bringing money from the future to pay current bills, the truth is that it is the current situation and these mechanisms are what sustain the primary deficit. Precisely, one of the novelties of this first trimester is that the BCRA's profit transfer mechanism has practically not been used, which explains a large part of the gap that appears throughout the year between the two lines of the previous graph.
However, the use of extraordinary mechanisms It makes more sense when you look at the evolution of Financial results and the Genuine Financial (including payment of interest on the debt).
The correlation between Total Extraordinary Income and the Genuine Financial Result is much higher than that established between the latter and the Genuine Primary Result.
Thus, everything seems to indicate that there is a greater willingness to use resources from the BCRA and the FGS in months where interest payments or debt capital repayments must be made.
As usual, we invite you to further analyze the report by downloading it below.