Argentina's Budget Predicts 3.5% Economic Growth Next Year

By Taos Turner Features Dow Jones Newswires

Argentina's government presented its 2018 budget to Congress on Friday, forecasting economic growth of 3.5% and annual inflation of 15.7% next year.

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The budget also expects Argentina's currency to depreciate to an average of 19.3 pesos to the U.S. dollar while investment would rise 12%. This year, the exchange rate is on track to average 16.7 pesos, and investment is expected to increase 10% from 2016.

President Mauricio Macri's government expects the primary fiscal deficit to decline to 3.2% of economic output, down nearly one percentage point from this year.

"The economy is already running on all cylinders, and the same thing will happen in 2018," the Treasury Ministry said in a statement.

The budget, which could be modified in Congress, aims to modernize an outdated national infrastructure system and address socioeconomic problems, including the number of people living in poverty, which rose steadily between 2011 and 2016. The budget's forecasts reflect an improvement over 2016, when the economy shrank 2.3% in 2016 and inflation surged to almost 40% during parts of that year.

Separately, the government aims to submit another bill to simplify the federal tax code. The Treasury Ministry is developing a plan to reduce some taxes, including a possible gradual reduction in the country's 21% value-added tax, according to two government officials familiar with the plan.

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The 2018 budget would reduce government subsidies by 16% next year and increase spending on social programs by 22% from 2017. As a percentage gross domestic product, economic subsidies would fall to 1.4% from 2% this year.

Apart from the macroeconomic forecasts typically included in the budget, this year's proposal includes a critique of allegedly widespread corruption during the administration of former President Cristina Kirchner. According to the bill, corruption in infrastructure projects was so pervasive during the previous government that it would be equivalent to 0.4% of Argentina's total economic output this year.

"Corruption and the lack of transparency in public spending led to the enormous overpayment of public-works projects over the last decade," the bill said. "A comparison of average costs for each kilometer of road built between 2012 and 2015 shows that in 2016 the government spent 700,000 U.S. dollars less per kilometer for new roads than it did previously."

That alleged overspending on roads cost the government $2 billion, according to the bill.

Mrs. Kirchner, who is running for a Senate seat in a midterm election next month, couldn't be reached for comment.

A recent survey of economists by FocusEconomics, which provides global economic forecasts, estimated that Argentina's GDP would grow 2.6% this year and 2.9% in 2018.

The survey also forecast that annual inflation would total 22.7% this year and decelerate to 15.4% in 2018.

"A strengthening economic recovery is on the horizon for Argentina," the report said. "Buoyed by business-friendly reforms adopted by the Macri administration, the economy is expected to rebound this year and next."

Write to Taos Turner at taos.turner@wsj.com

(END) Dow Jones Newswires

September 15, 2017 21:47 ET (01:47 GMT)