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October 31, 2014
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Provincial revenues shrink as spending jumps

Governors Daniel Scioli of Buenos Aires (far left) and Sergio Urribarri (second from left) of Entre Ríos had provincial debts with the national government re-financed at the beginning of this month.

Widening gaps seen as harder to refinance amid ongoing holdout dispute

Revenues this year in the provinces are shrinking proportionate to increasing expenditure within an economic context that is making obtaining financial relief more difficult, a report by economists from Córdoba’s Fundación Mediterránea has suggested.

In a best-case scenario, provinces would need 45.7 billion pesos to finance their expenditures this year, a gap that would extend to 53.4 billion pesos in the event spending isn’t roped in and revenues continue their downward spiral in real terms, economists Marcelo Capello, Gustavo Diarte and Néstor Grión from the Córdoba-based economic think-tank’s IERAL institute claimed.

“Expentitude on personnel in the provinces will increase 36.2 percent year-on-year compared to 31.5 percent in 2013,” they added.

According to the economists, “total transfers from the national government should increase by 35.2 percent year-on-year while the tax burden in the provinces has reached record levels, in excess of six points of Gross Domestic Product (GDP) with a two-point growth compared to the average during the decade 2000.”

The study also indicated that the gap in expenditure and revenue variance is much more limited in the provinces than on a national level.

“Analyzing provincial financing since the start of 2014 is important for various motives,” it read, noting one of those motives was “the mix of high inflation with recession” that “has started to slow state revenue (growth), at a national and provincial level, and that shows negative variations in real terms.”

What’s more, “in late 2013, conflicts with police forces took place in many provinces, resulting in elevated salary increases for that group of provincial employees which in some cases translated into greater pressure from, and significant (salary) increases for, other public agents in the provinces.”

The economists’ report referenced the country’s ongoing debt dispute with holdout hedge funds in US courts as “putting doubts on the access to voluntary funding for the public sector in the remainder of the year.”

Further increases in the exchange rate, they warned, would make repayment of foreign-currency denominated debts more costly, thus increasing the impact on financing in the provinces.

They added that despite inflation tending to act in its favour, nominal revenue is negatively affected by the fall in economic activity that often prompts reduced compliance with tax systems.

Province by province

Across the board, provincial revenue had decreased, the report claimed.

However, the five most populated jurisdictions (Buenos Aires City, BA province, Córdoba, Santa Fe and Mendoza) had shown the greatest drop in revenues, in other words above five percent.

In the first seven months of the year, the province with the highest growth in revenue was Neuquén, where the nominal variation was 60.2 percent annually, followed by Entre Ríos (57 percent) and Catamarca (48.4 percent). On the other side of the equation was San Juan with nominal revenue growth of 21.9 percent.

The majority of the most populated jurisdiction showed moderate performances in terms of revenue: in Mendoza it grew 41.6 percent, in BA City 36.2 percent, in Córdoba 34.6 percent, in BA province 33.1 percent and in Santa Fe 31.7 percent.

Seven provinces saw losses in the first months of this year: San Juan (-10.7 percent), Santa Fe (-3.8 percent), Buenos Aires (-2.6 percent), Córdoba (-1.6 percent), Salta (-0.5 percent), Tucumán (-0.2 percent) and BA City (-0.1 percent).

Herald staff

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