IMF and Argentina reach funding agreement that could unlock $6b
The fund said the country was presenting a prudent macroeconomic management and efforts to mobilise external financing
The International Monetary Fund (IMF) said it has reached a agreement with Argentine authorities on a third review under its Extended Fund Facility Arrangement, which could give the South American country access to around $6 billion.
The IMF said in a statement the staff-level agreement remained subject to approval by its executive board, expected to meet this month.
The fund said the country was presenting a prudent macroeconomic management and efforts to mobilise external financing.
It said that the actions were supporting macroeconomic stability: “Fiscal order is being restored, inflation is moderating, the trade balance is improving, and reserve coverage is being strengthened,” it added.
IMF said its programme objectives remain unchanged during the remainder of 2022 and 2023, and highlighted the importance of “continued decisive policy implementation” as domestic and external environments become more challenging.
Latin America’s third largest economy signed an agreement with IMF in March to
refinance a debt for $44 billion, a deal that set targets around the country’s central bank reserves and the financing of the fiscal deficit.
Meanwhile the Inter-american Development Bank (IDB) has approved a $500 million credit line to Argentina to mitigate the impacts of climate change, its Economy Ministry said in a statement.
The loan will be granted with a single payment in December, the ministry said, adding it is linked to targets looking to mitigate and adapt to the impacts of climate change.
“This loan focuses on supporting climate planning capacity, promoting green finance and promoting the circular economy,” it said in the statement.
“This is a clear example of Argentina’s commitment to policies to combat climate change,” it added, pointing to effects such as floods and a prolonged drought that is causing the country heavy agricultural losses.
The organisation for Economic Cooperation and Development (OECD) forecast said that the Argentina’s economy will grow 4.4 per cent this year but will suffer a sharp slowdown in 2023.
Analysts from the group said in a report that a drop in economic activity in the last two quarters of this year would have a knock-on effect for the following year. They also warned that Argentina’s government will be forced to roll back on spending if it is to comply with the targets outlined in its $44.5 billion debt repayment programme with the International Monetary Fund.
Despite a likely downturn towards the end of this year, gross domestic product is still expected to rise 4.4 per cent, in large part due to an expansion in the first half of the year, the OECD said.
For next year, experts forecast that GDP will rise by just 0.5 per cent – way below the two per cent predicted in the government’s 2023 Budget bill and the current estimate from the IMF.
In practice, if the forecast is correct, it would only be statistical growth based on what is known as the “drag effect,” and in practice the dayto-day situation will not result in improvements for the population, the OECD report warned.
“The economy is projected to contract in the third and fourth quarters of 2022, but annual GDP growth in 2022 will nevertheless reach 4.4 per cent, before slowing to 0.5 per cent in 2023 and then recovering to 1.8 per cent in 2024,” it said.
The organisation noted that “in a context of high inflation, tighter import restrictions, low international reserves and severely constrained fiscal space, risks remain elevated and investment and private consumption will remain subdued in 2023.”
Experts cautioned that “the IMF agreement has significantly reduced near-term macroeconomic policy uncertainty, but the external situation remains fragile.”
It concludes: “High inflation will weigh on private consumption and will take time to recede. Tight capital controls and policy uncertainty are causing investment to fall sharply in the second half of 2022 and their persistence will allow only a modest recovery in 2023 and 2024.”
Meanwhile International Monetary Fund Managing Director Kristalina Georgieva said the chance of global growth falling below 2 per cent next year was increasing due to continued effects of the war in Ukraine and simultaneous slowdowns in Europe, China and the United States.
Georgieva told the Reuters NEXT conference that she was particularly concerned about the slowdown in China because the world’s secondlargest economy has been a strong engine of global growth.
The IMF will update its economic outlook in January and the picture “has darkened recently on the basis of what we see in consumer sentiment, in investor sentiment,” she said.