Priscilla Fialho
OECD
OECD Economic Surveys: Argentina 2025
Abstract
After years of turbulence, Argentina is going through an ambitious stabilisation and reform period. Reform efforts have started to bear fruit, as inflation is coming down, fiscal outcomes have improved, the economy is now beginning to recover, and poverty started decreasing again. The stabilisation was based on an upfront and unprecedented fiscal consolidation starting in 2024, which put an end to years of monetary financing of fiscal deficits and was instrumental for taming high inflation. A new monetary and exchange rate regime, and structural reforms to improve the business environment and progressively open up to international markets, have contributed to improving economic sentiment. Going forward, fiscal policy will require further fine-tuning to maintain fiscal prudence while boosting potential growth.
The Argentine economy has had a turbulent history characterised by a series of boom-and-bust cycles (Figure 1.1). A major financial and economic crisis in 2001 marked the end of a currency board exchange rate regime and resulted in a currency, banking and debt crisis. The 2002 recession saw a contraction of GDP of 11.1% and a significant exchange rate depreciation while inflation reached 41%. After that, rising commodity prices and favourable global liquidity conditions allowed growth to recover, raising real incomes, and reducing poverty in the mid-2000s.
Still, longstanding structural policy challenges continued to hold back productivity, competitiveness, human capital and the quality of institutions. After the commodities cycle ended in the 2010s, external and fiscal imbalances built up again, amid public spending pressures that exceeded revenue capacity. With little access to international financial markets, deficits were mostly financed through monetary expansion and the seizure of private assets. This fuelled inflation and further aggravated the lack of investor confidence. Capital controls, import restrictions, and foreign currency rationing were introduced to avoid further deterioration of the macroeconomic situation, but at the cost of hindering the efficient allocation of resources and further depressing productivity growth.
Real GDP growth
Note: LAC 6 is the unweighted average of the GDP growth for Argentina, Brazil, Chile, Colombia, Costa Rica, and Mexico.
Source: OECD Economic Outlook database.
A stabilisation programme that started in 2016 managed to tame inflation for some time and saw macroeconomic imbalances improve, but remaining vulnerabilities, including in the fiscal accounts, eventually caused a return of economic instability with inflation exceeding 200% in late 2023. In fact, weak fiscal fundamentals have been at the core of Argentina’s macroeconomic instability for years. Previous attempts to address Argentina’s macroeconomic imbalances failed to frontload the painful task of addressing persistent fiscal deficits, leaving the economy vulnerable to external shocks and shifts in investor sentiment.
Recognising that, a new administration that took office in December 2023 embarked on an upfront fiscal consolidation process. Primary budget surpluses were recorded for most of 2024, something Argentina had not seen since 2010. The primary fiscal surplus reached 1.8% of GDP in 2024, a significant turnaround from the 2.9% deficit observed in 2023. The headline fiscal balance reached a small surplus of 0.3% of GDP, a 4.9 percentage point improvement from 2023 (Figure 1.2). History holds few examples of such a sharp fiscal adjustment, and none of Argentina’s previous stabilisation attempts managed to reduce fiscal vulnerabilities so decisively.
Source: CEIC, OECD ADB dataset.
The marked fiscal adjustment put an end to years of monetary financing of fiscal deficits, which together with improvements in the central bank’s balance sheet, was instrumental for taming high inflation. Since the end of the currency board, an accumulated 60% of GDP had been transferred from the Central Bank to the Treasury as an “inflation tax” while money held by the private sector lost its purchasing power. High inflation disproportionally affected low-income households given their limited capacity to hedge against inflation through financial instruments. Inflation has now fallen from 211% year-on-year in December 2023 to 44.7% year-on-year in May 2025 and market expectations of inflation have declined to levels that Argentina has not seen in years (Figure 1.3, Panel A). As inflation has receded and well-targeted social spending has been scaled up (Chapter 2), poverty decreased again at the end of 2024, after a historical peak in the first quarter of the year (Figure 1.3, Panel B). Poverty has now fallen below levels observed in late 2023 for all age groups (Figure 1.3, Panel B).
Note: Poverty in Panel B is measured as the share of households with an income below the poverty line. The poverty line is calculated based on a basket of goods and services considered of basic necessity, including food items, clothing, transportation, education and health.
Source: Banco Central de la República Argentina; Instituto Nacional de Estadística y Censos de la República Argentina.
External accounts and a dependence on foreign financing have been another traditional vulnerability of Argentina’s economy. Current account deficits have been recorded in 12 of the past 15 years, often in the context of fiscal deficits and currency overvaluation. The current account improved to a 1% of GDP surplus in 2024, up from a 3.2% deficit in 2023, as a sharp currency devaluation in December 2023, together with a stronger harvest and weaker domestic demand, significantly strengthened the goods and services trade balance (Figure 1.4, Panel A). Improvements in public finances also contributed to improve domestic savings and reduce external financing needs, although gross domestic savings and investment remain low in international comparison (Panels B and C).
Note: LAC 7 is an unweighted average of ARG, PER, BRA, CHL, COL, CRI and MEX.
Source: OECD ADB dataset, WorldBank WDI, IMF World Economic Outlook (WEO) - October 2024 Edition.
A new IMF Extended Fund Facility programme of USD 20 billion, with an upfront disbursement of USD 12 billion in April 2025, bolstered international reserves, allowing the government to lift almost all remaining currency and capital controls. At the same time, a new monetary and exchange rate regime has been introduced, enhancing exchange rate flexibility (Section 1.3). The new regime is expected to strengthen economic sentiment, private investment, and medium-term growth, while also supporting further foreign reserve accumulation and improving resilience to external shocks.
Ongoing structural changes in the energy sector, including new gas production in the Vaca Muerta shale formation and new pipelines, will likely transform Argentina into a net energy exporter, favouring better prospects for external accounts and reducing external vulnerabilities (Chapter 3). The energy sector has already started to generate trade surpluses in 2024.
Structural reforms have been a key element of the stabilisation process and are an important factor behind improving economic sentiment. Significant progress has already been achieved and sustaining the reform momentum will play a crucial role in the near future (Box 1.1). Further improving the business environment, progressively opening-up to international markets, and strengthening institutions have strong potential to pave the way for a strong investment cycle, boosting productivity, competitiveness and exports (Chapter 4).
The ambitious reform efforts have started to bear fruit, and the economy has now reached a turning point. After a strong contraction in the first half of 2024, when economic activity fell by about 6% at annualised rates, activity bounced back to growth of more than 17% in annual terms in the third quarter of 2024 and 8% in the last quarter of 2024 (Figure 1.5, Panel A). The strong recovery observed in the second half of the year led to a much softer contraction than initially expected, with real GDP declining by 1.3% during 2024. This rebound will lay the grounds for strong growth in 2025 and 2026.
Source: BCRA; INDEC; Centro de Investigación en Finanzas (CIF) de la Universidad Torcuato Di Tella; Vistage.
Short-term indicators are pointing towards further improvements. Credit to the private sector is recovering quickly (Panel B). Survey indicators suggest that consumer confidence already exceeded its December 2023 level in the last quarter of 2024, and business sentiment has also improved (Panel C). Construction has started to recover from its sharp decline in December 2023 (Panel D).
Private consumption has been one driver of the recovery, sustained by gains in purchasing power and a remarkably resilient labour market (Figure 1.6). Private investment also bounced back in the second half of 2024. Investment has benefited from improved business sentiment amid strong reform momentum, including the introduction of a new preferential regime for large projects in September 2024 (Box 1.1). As of April 2025, 13 projects have been submitted for a total amount of USD 16 billion in investments, about 2% of GDP. This includes two projects worth USD 2.7 billion that have already been approved. Further projects are expected to be submitted in 2025.
Source: Instituto Nacional de Estadística y Censos de la República Argentina.
Most currency and capital controls were lifted in April 2025.
A new incentive regime grants tax, customs, and foreign exchange benefits for large investments above USD 200 million, guaranteed for 30 years.
The personal income tax base has been increased and corporate tax compliance costs reduced.
A temporary tax amnesty has created incentives to disclose undeclared assets, increasing the availability of USD financing in the economy.
Pension benefit indexation has been adjusted to preserve long-term benefit purchasing power.
A labour market reform has increased the length of the probationary period and the scope for temporary hires. Spending on well-targeted social assistance programmes has increased.
Product market regulations are being simplified and modernised. Import processes have been streamlined and waiting times for approvals reduced. Some import tariffs have been reduced.
The economic recovery is expected to continue, with GDP growth of 5.2% in 2025 and 4.3% in 2026 (Table 1.1). Private investment will gain further momentum as currency and capital controls have been lifted. Real wages will continue improving as inflation declines, supporting private consumption. Export growth will slow compared to 2024, affected by the real appreciation of the currency in early 2025 and global uncertainty. Imports will continue their strong recovery, sustained by higher purchasing power, lower trade barriers and the easing of current account restrictions.
Headline inflation is projected to slowly continue its downward path, falling to 37% in 2025 and 15% in 2026, based on yearly averages, sustained by lower import costs, continuously balanced public accounts and positive real interest rates. Markets reacted positively to the lifting of currency and capital controls and the exchange rate remained close to its level prior to the announcement, limiting pass-through to inflation (Section 1.3). Inflation expectations only rose by an average of 0.5 percentage points after the announcements of the new exchange rate regime and inflation even eased in April compared to the previous month.
Source: OECD calculations based on UN Comtrade, United Nations Commodity Trade Statistics (database).
After deteriorating in 2025, the current account balance is expected to improve slowly, sustained by a positive energy and mining balance and a more flexible exchange rate regime to cushion external shocks. Other exports are expected to become more competitive in the medium-term amid improvements in productivity due to policy reforms. Foreign direct investment inflows will help to finance current account deficits in the meantime, while Argentina is expected to improve its access to international financial markets.
The outlook is subject to significant risks, particularly in the context of a more challenging external environment. New tariffs in key export markets and lower global demand could result in lower export growth and prices for commodities. Global uncertainty could weigh on economic sentiment, private consumption and investment growth. Higher international interest rates could make it more difficult to accumulate international reserves and swiftly re-access international capital markets. On the upside, export prospects in the agricultural and livestock sector could also benefit from changing trade patterns. In addition, the economy is vulnerable to tail risks, with a potentially significant impact on the projections (Table 1.2). Extreme weather events could affect agricultural performance, leading to lower than anticipated export growth. Heightened geopolitical tensions could raise government borrowing costs and lead to lower capital inflows, or even capital outflows, with repercussions on the exchange rate and the current account balance.
1. Contribution to changes in real GDP.
2. As a percentage of potential GDP.
3. As a percentage of GDP.
Source: OECD Economic Outlook database; INDEC main economic indicators.
Headline inflation has fallen from 211% year-on-year at the end of 2023 to 43.5% in May 2025, while core inflation declined to 44.7% year-on-year in May 2025. Short-term expectations of inflation continuously overestimated inflation during 2024 and continue to adjust downward. Market participants surveyed by the central bank in May 2025 expect year-on-year headline inflation to come down to 28.6% at the end of 2025, 16% at the end of 2026, and reach 10% by 2027 (BCRA, 2025[1]).
The decline in inflation is particularly remarkable in light of increases in regulated prices that were necessary to phase out expensive and inefficient public subsidies for energy, water and transport. Prices for electricity, gas, and other fuels increased 3.5 times faster than headline inflation in 2024, while public transport prices increased 2.8 times faster. Taken together, administered prices increased 88 percentage points above CPI inflation in 2024. Regulated prices for public services and utilities are now significantly closer to production costs, at 91.5% for electricity, for example.
More generally, a significant process of relative price adjustments took place throughout 2024 (Figure 1.8). This also reflects the unwinding of price controls through agreements with suppliers and manufacturers of food and basic goods, which had led producers to supply less, consumers to demand more, and supermarkets to introduce new varieties in the shelves at higher prices (Aparicio and Cavallo, 2021[2]). Price controls have now been fully eliminated.
Note: Each bar represents the ratio of the CPI group over the general CPI in November 2023 or November 2024, compared to the same ratio in the first half of 2019, a period of stable prices. Below 1 are groups whose relative price remains below what it was during a stable period. Above 1 are groups whose relative price remains above what it was during a stable period.
Source: Instituto Nacional de Estadística y Censos de la República Argentina, OECD calculations.
1.3.1. The monetary policy stance has become more restrictive
Beyond the sustained fiscal surpluses, monetary policy has also played a role in the ongoing stabilisation by putting an end to both direct and indirect monetary emission, which had been used to finance the fiscal deficit before. The central bank had abandoned its inflation-targeting framework in 2018 and in the years leading up to 2023, central bank money issuance to finance the fiscal deficit led to a strong expansion of unwanted money supply. Much of the resulting excess liquidity was absorbed through remunerated central bank bonds with short maturities, whose outstanding stock had reached 15% of GDP or 3.5 multiples of the monetary base in 2023. This large stock of central bank bonds, and the high cost of serving it through new monetary emission, had become a major risk.
To address this risk, the benchmark monetary policy rate was cut nine times between December 2023 and January 2025, from 133% to 29%. In the specific context of Argentina, with a weak credit channel due to shallow credit markets, lower interest rates did not have the expansionary effect that they would have had in more standard circumstances. In fact, with large outstanding volumes of remunerated central bank liabilities, lowering the key interest rate reduced the debt servicing cost of central bank bonds, which was entirely financed by new emission, and was crucial for containing money supply. In addition, the central bank established a cap on the broad monetary base (Figure 1.9, Panels A and B).
Cutting interest rates was part of a broader strategy to close almost all sources of money creation other than accommodating an increase in money demand, including from central bank reserve purchases, which have been sterilised since July 2024. The downside of this strategy was that holders of domestic-currency assets received negative returns during much of 2024. This was only possible in the context of tight currency restrictions and added pressure on the exchange rate (Section 1.3.2). Monetary aggregates have been increasing again since April 2024, reflecting higher money demand amid a strengthening economic recovery, while real interest rates are slowly becoming positive as inflation declines (Figure 1.9, Panel A and C).
*Includes deposits in national and international currency.
Source: Banco Central de la República Argentina, OECD database, INDEC, OECD calculations.
Significant efforts to strengthen the central bank’s balance sheet have been undertaken in parallel. The central bank has stopped offering interest-bearing instruments and most of the outstanding short-maturity central bank bonds have by now been replaced by Treasury bonds (Figure 1.10). This has transferred the debt-service burden from the central bank to the government, which further underscores the effort that was needed to achieve the observed fiscal consolidation. On the asset side of the central bank’s balance sheet, longstanding weaknesses are being addressed, especially through a sharp reduction of treasury debt to the central bank that was held in the form of so-called non-transferable treasury bonds. These bonds could not be sold on the market and therefore had no market price. As these bonds are being scaled back, a larger share of central bank assets is now valued at market prices. The four-year Extended Arrangement approved by the IMF in April 2025 was partly used to buy back the non-transferable treasury bonds maturing in 2025 and 2026, further strengthening the central bank’s balance sheet and rebuilding its international reserves (Section 1.3.2).
Source: BCRA, INDEC.
In April 2025, the authorities announced a new monetary policy regime. The central bank abandoned the broad monetary base ceiling and will instead monitor the evolution of the private M2 monetary aggregate to ensure that its growth rate is consistent with estimates of money demand. This includes currency in circulation, checks and non-remunerated sight deposits in domestic currency by the non-financial private sector. Under this arrangement, the monetary policy rate becomes endogenous and will adjust so that the money market remains balanced. In addition, a target has been established for the growth of net domestic assets, defined as the difference between the monetary base and net international reserves. Finally, the central bank implemented changes to the minimum cash requirements with the aim of supporting the bank-based transmission of monetary policy. Deductions for excess reserves have been reduced, leading to a significant increase in reserve requirements deposited in the central bank in April 2025. This new regime is meant to provide a more robust framework to achieve durable declines in inflation.
A continuously tight monetary stance will be necessary to build on past progress in reining in inflation. Beyond the monetary stance, Argentina should also continue to strengthen the balance sheet of the central bank and work on a continuous update of the central bank’s analytical tools and forecasting models to capture and evaluate inflationary pressures, as well as to gain insights into relationships between macroeconomic variables and the time frame for monetary policy impulses to affect inflation. These ongoing improvements could help prepare the grounds for eventually considering an inflation-targeting regime.
1.3.2. Most controls have been lifted and the exchange rate has become more flexible
Until April 2025, under Argentina’s managed exchange rate regime and crawling peg to the US dollar, scheduled devaluations regularly fell short of the inflation differential between Argentina and its trading partners, leading to an increasingly overvalued official exchange rate and a rising gap between the official and the parallel rates (Figure 1.11). In December 2023, the gap between the informal and the official exchange rates exceeded 100%. A one-off 54% devaluation in December 2023 was followed by more rapid monthly devaluations of 2%. The scheduled depreciation of the official exchange rate helped anchor inflation expectations throughout 2024. As monthly inflation and inflation expectations declined, the pace of monthly devaluations of the official exchange rate was reduced to 1% in February 2025. However, the gap between the official and the parallel exchange rates persisted at around 15%, despite USD sales on the parallel market by the central bank, which hampered the accumulation of international reserves in March and April 2025 (Figure 1.12).
Source: OECD Exchange rate database, Ambito.com, INDEC, OECD Consumer price indices, COICOP 1999, OECD calculations.
The April 2025 IMF programme supported international reserves and provided medium-term balance of payments assistance to support the next phase of their stabilisation to entrench macroeconomic stability. Argentina will also receive financial support from the World Bank and the Inter-American Development Bank for another USD 12 billion and USD 10 billion over three years, respectively. The boost in international reserves allowed Argentina to lift most of the currency and capital controls that had been in place since 2019. Individuals now have access to the foreign-exchange market without any restrictions. Firms can pay for most imports of goods and services with no need for payments in instalments, and profits accrued after January 1st, 2025 will face no repatriation restrictions. Access to the exchange market is still regulated, however, for the large outstanding stock of profits accrued before that date. The government will issue a dollar-denominated bond to progressively unwind these stocks. Non-resident investors are also able to access the official exchange market without prior approval to repatriate new investments with a minimum maturity of six months. These measures, together with the tax amnesty programme encouraging residents to declare foreign assets and the special investment regime RIGI (Box 1.1), are expected to encourage new Foreign Direct Investment and to attract currency inflows.
Following the easing of currency and capital controls, the authorities announced a new and more flexible exchange rate regime under which the exchange rate is allowed to float within bands that are set to widen by 1% every month (Figure 1.11, Panel A). Initial market reactions to the announcement were positive. The official exchange rate remained well within the bands and Argentina’s country risk premium fell from 900 to 726 basis points. The new exchange rate regime will facilitate the transition to a floating exchange rate in the future while rebuilding reserves and supporting disinflation.
Note: LAC 7 is an unweighted average of ARG, PER, BRA, CHL, COL, CRI and MEX.
Source: IMF World Economic Outlook (database), Banco Central de la República Argentina, IMF International Financial Statistics (database).
Argentina’s financial system is small compared to other Latin American and emerging countries. Credit to the private sector, the main source of financing, has been historically low hovering at around 10% of GDP, while local capital and stock markets also remain comparatively small (Figure 1.13).
History has limited public trust in the role of the domestic banking system as a savings vehicle. Decades of macroeconomic instability, sharp exchange rate swings and a forced conversion of dollar-denominated deposits in local banks in 2001 have nourished a tradition of saving in foreign currency, especially in cash and abroad, while keeping savings at a financial institution remains the exception rather than the norm (Figure 1.14, Panel A). Consequently, bank deposits, the main source of bank funding, are significantly lower than in regional peers of similar income levels (Figure 1.14, Panel B).
This may be one explanation for the limited degree of financial intermediation and maturity transformation provided by the banking sector. Companies and households mostly rely on their own funds for key production and investment decisions. Mortgage lending, for instance, represents only a small share of total bank credit, historically around 1.5% of GDP, and the real estate market largely operates in cash (Carrera, Aguirre and Raffin, 2020[3]; BCRA, 2024[4]). Bank funding and assets are mainly short-term and linked to the transactional needs of households and businesses’ operations.
Note: In Panel A, LAC 5 is an unweighted average of ARG, BRA, CHL, COL and MEX, and in Panel B includes ARG, BRA, COL. MEX and PER. LAC 7 is an unweighted average of ARG, PER, BRA, CHL, COL, CRI and MEX.
Source: BIS, World Bank Global Financial Development Database, World Bank WDI.
Credit to the private sector in domestic currency fell to its lowest level in more than twenty years in the first quarter of 2024, to only 5% of GDP, but then recovered to 8.5% of GDP in February 2025, reflecting exceptionally strong credit growth in historical comparison. The dynamic of private sector credit and deposits in foreign currency has been particularly impressive, largely explained by the tax amnesty. Credit to the private sector in foreign currency increased by 250.2% year-over-year in USD. Deposits in foreign currency increased by 130.3% over the same period (BCRA, 2025[5])(Figure 1.15).
Loans growing faster than deposits led to a slight decline in bank liquidity at the end of 2024, but bank liquidity ratios remain largely comfortable (BCRA, 2025[5]). Bank capitalisation is well-above regulatory minimums and compares quite favourably to other countries. The rapid credit growth has increased banks’ exposure to non-performing loans, but analysis by the Central Bank suggests that banks remain well-prepared to face a deterioration of repayment capacity given historical lows (Figure 1.16). Banks’ risk coverage margins in terms of liquidity, provisions and capital are high compared to previous years and economic downturns (BCRA, 2025[5]). Bank profitability remains positive, with a rate of return on equity of around 15% and a rate of return on assets of 4% accumulated over 12 months up to February 2025 (BCRA, 2025[5]).
In a highly dollarised economy, exchange rate swings affect financial stability. Based on the lessons from the 2001-02 financial crisis, supervisory authorities have reduced the potential adverse effect of exchange rate swings on depositors, debtors and banks (Carrera, Aguirre and Raffin, 2020[3]). For example, banks’ foreign currency deposits may only be used to finance borrowers who have foreign-currency receivables from foreign trade transactions and related activities. In December 2023, the stock of loans to the private sector in foreign currency accounted for only 13.5% of total loans to the private sector, while the stock of deposits in foreign currency totalled 25% of private sector deposits (BCRA, 2024[6]). Capital flow management measures have also limited the risks from exchange rate volatility in the past. Now that capital controls have been lifted, supervisory authorities will have to be particularly vigilant of potential hidden currency mismatches. Macroprudential tools and instruments may need to be adapted to minimise systemic risks.
Note: Panel A: % of respondents who report saving or setting aside any money at a bank or another financial institution, and for any reason and using any mode of saving. LAC 7 is an unweighted average of ARG, PER, BRA, CHL, COL, CRI and MEX.
Source: Global Financial Development Database; BCRA, OECD Annual GDP and components - expenditure approach.
Balance of total deposits and bonds in foreign currency
Note: Liabilities of the financial sector vis-a-vis the total sector.
Source: Banco Central de la República Argentina.
Note: LAC 7 is an unweighted average of ARG, PER, BRA, CHL, COL, CRI and MEX. LAC 6 excludes CHL. Data for 2024Q3 except for PHL, BRA, COL, MEX and IDN (2024Q4); VNM (2024Q2); and MYS (2024Q1).
Source: IMF Financial Soundness Indicators database.
Another important financial risk for Argentina’s banking system has traditionally been its relatively high exposure to the public sector (Figure 1.17). This situation has improved significantly over the last year. The share of financial system assets made of government securities, credit to the public sector and instruments from the central bank fell from 50% at the end of 2023 to nearly 35% in February 2025 (BCRA, 2025[5]). While this is still far from the historical low of about 20%, banks’ exposure to the public sector is expected to continue falling as public-sector financing needs decline, leaving room for additional growth in private sector credit.
Credit to the general government as a percentage of total credit to the non-financial sector, 2024Q3
Note: National data sources for Argentina suggest a decline to 46.3% based on the latest available data from BCRA (March 2025).
Source: BIS.
Despite recent progress, financial institutions in Argentina are still subject to a number of regulations that distort competition by restricting the offer of financial services, interfering with price setting and stifling financial innovation. Several regulations limit the volume of services that financial institutions can offer. Minimum cash reserve requirements, which limit the availability of funds to provide loans, have been used with multiple non-prudential goals and are relatively high in international comparison. In the case of demand deposits, minimum cash reserve requirements can go up to 45% compared with below 15% in most economies (IMF, 2022[7]). In the future, there may be a case for using minimum reserve requirements only for prudential and monetary motives (D´Amato et al., 2024[8]).
Similarly, a measure requiring banks to get central bank approval to distribute dividends was introduced in 2019, in a context of financial stress, and was meant to be temporary. Although the limit for distributing dividends was increased from 40% to 60% in 2024, the measure remains in force. The continuation of measures unrelated to prudential considerations could foster regulatory uncertainty and mistrust in the financial system (D´Amato et al., 2024[8]).
There is also a differentiation on the maximum length of time to transfer funds to businesses from credit card payments, with shorter times for SMEs and firms in the health and hospitality sectors. This can distort competition between financial institutions depending on their relative concentration of purchases in businesses that receive this benefit (D´Amato et al., 2024[8]). These measures do not have any prudential or monetary policy justification and should be eliminated.
Going forward, developing capital markets in local currency with a broad domestic investor base remains another key challenge for Argentina’s financial system, and depends crucially on the successful stabilisation of the economy. The tax amnesty programme launched in 2024 had a positive impact on corporate debt issuance and total financing in capital markets (Box 1.1). In October 2024, corporate debt issuance reached an historical high that had not been seen since 2015. Public debt management will also have an important role to play by creating a reference yield curve in domestic currency. Future pension savings could also play a role in deepening financial markets (Chapter 2). Developing domestic capital markets would improve access to finance for many companies, including SMEs.
1.5.1. A rapid fiscal turnaround has been achieved during 2024
Fiscal consolidation has been at the centre of the stabilisation plan initiated in late 2023. An impressive fiscal adjustment has been achieved since then, with spending cuts of almost 5 percentage points of GDP, resulting in a headline fiscal surplus of 0.3% of GDP in 2024. By comparison, most consolidation episodes in recent history improved the cyclically adjusted primary balance by 1-2 percent of GDP per year over 3 to 4 years (Balasundharam et al., 2023[9]).
In their successful attempts to deliver a rapid turnaround of the fiscal deficit, fiscal authorities focused initially on expenditure cuts through measures that did not require congressional approval. This included discretionary cuts in capital spending and transfers to provinces, limits to public wage increases, downsizing parts of the public sector that were not deemed effective and progressively reducing energy, transport and water subsidies. To improve spending efficiency, the authorities also scaled back the role of intermediary social organisations in the delivery of social benefits. As a result, spending inefficiencies associated with social transfers, public procurement and the public wage bill have been significantly reduced (Figure 1.18). On the revenue side, temporarily increasing the tax rate on foreign exchange access for imports, known as the PAIS tax, helped partially offset declines in real tax revenues.
Continuous efforts will be necessary to sustainably improve Argentina’s fiscal position in the coming years, as a precondition for re-gaining access to international capital markets. For 2025, fiscal authorities target a 1.6% primary surplus. A package of tax measures approved in June 2024 is already helping. The package included a reduction of the basic allowance for personal income taxes (PIT), which had been raised in 2023, while the 2019 OECD Economic Survey of Argentina had recommended reducing it. As a result of the 2024 change, around 800 000 individuals who had been exempted of PIT under last year’s rule will now pay PIT again. The change is expected to bring an additional 0.5 percent of GDP in tax revenues each year. Moreover, wealth taxes now apply from a higher threshold and at a lower rate, but the change is expected to frontload tax revenues as taxpayers can benefit from preferential rates for anticipating payments. In addition, the scope of a targeted tax regime for small enterprises, known as “monotributo”, has been expanded by updating the eligibility thresholds and brackets, which is expected to decrease tax revenues slightly in the immediate term, while increasing tax revenue collection in the medium-term and reducing compliance costs.
On the expenditure side, recent changes in the pension indexation formula will generate fiscal savings in the medium to long-term. The pension index used to be adjusted every quarter to changes in formal wages and social security revenues, which made it highly pro-cyclical. As a result, old-age poverty tended to increase sharply during downturns and no buffers were built up during periods of economic expansion. Moreover, this pension adjustment formula performed poorly with respect to preserving the real value of pension benefits amid high inflation in 2023 and early 2024. Instead, the new pension indexation formula introduces monthly adjustments based only on monthly inflation. The new indexation formula raised pension spending by about 0.4% of GDP in 2024 but is expected to generate savings as inflation decelerates and the economy recovers. For 2025, these savings have been estimated at around 0.7% of GDP (OPC, 2024[10]).
Source: Navajas, F., A. Izquierdo, C. Pessino, D. Artana, K. Astudillo, O. Natale, M. Panadeiros, and N. Susmel. Forthcoming. “Changes in Subsidy Leakage in Energy, Social Assistance and Tax Expenditures in Latin America and the Caribbean.” IDB Working Paper Series. Washington, DC: Inter-American Development Bank.
1.5.2. Public spending efficiency can still be improved
Beyond the significant achievements already made, scope remains for further reforms both on the spending and the revenue side of public accounts. Argentina’s public expenditure is high in international comparison (Figure 1.19) and there is still scope for enhancing spending efficiency in several areas.
One area with scope for further progress is with respect to cutting back inefficient economic subsidies. Subsidies for residential energy, water consumption and public transportation have been introduced after the deep economic crisis of 2001-02. The subsidies were implemented through a combination of price caps and compensatory government payments to energy, water and transport providers. However, these price caps are broad-based and poorly targeted, with overall regressive distribution effects and high fiscal costs, similar to the experience of other OECD countries (Hemmerlé et al., 2023[11]). Moreover, by creating a gap between the price paid by end-users and production costs, price caps reduce incentives to save energy and water (Chapter 3).
Energy subsidies have been progressively scaled back since December 2023 and fell by about 0.5% of GDP in 2024 (Figure 1.20). In addition, energy tariffs have been increased progressively for higher-income segments, who are now paying close to production costs. These adjustments have been progressively extended to medium- and low-income users since February 2025, following a pre-announced schedule. Similarly, monthly increases in the social tariff for water has been outpacing inflation to reduce public subsidies, starting with regions with higher property valuations. Subsidised public transportation tariffs, on the other hand, which have had a positive distributional impact (OECD, 2019[12]), have been mostly preserved, falling from 0.5% of GDP in 2023 to 0.35% of GDP in 2024. The government should continue to phase out energy and water subsidies while redirecting some of the fiscal resources to more efficient forms of social protection (Chapter 2). Preliminary data from the first quarter of 2025 suggests that economic subsidies have continued to decrease.
Note: In Panel A, data for 2023 except for BRA, CRI and THA (2022); and VNM (2021). LAC 7 is an unweighted average of ARG, PER, BRA, CHL, COL, CRI and MEX.
Source: IMF World Economic Outlook database: April 2025, Ministerio Economía de la República Argentina
Note: “Others” includes mostly subsidies to the water and sanitation sector.
Source: ASAP - Asociación Argentina de Presupuesto y Administración Financiera Pública, EO database.
Another area with scope for improvement relates to public sector efficiency. Public employment, including all levels of governments and public enterprises, accounts for more than 15% of total employment (Figure 1.21). This level of public employment contrasts with the perceived low quality of public services in international comparison (Chapter 4). At the federal level, significant progress has been made to streamline functional areas and public employment. At present, 66% of civil servants are employees of provincial governments. Scope for rationalising public employment therefore appears concentrated in subnational governments, which spend 7% of GDP on staff costs, but with visible heterogeneity across provinces. Relative to total spending, staff costs range from 29% in Santiago del Estero to 61% in Rio Negro (OPC, n.d.[13]). Most provinces are not compliant with a 2018 rule limiting subnational public employment growth to population growth (Section 1.5.5). In 2022, one province had 128 public employees for each thousand inhabitants, while 4 others had above 100.
A careful assessment of the potential impact of cost-cutting measures on public employee engagement may be warranted to avoid losing high performers and employees with essential skills. To bring efficiency gains, public administration restructuring would need to be complemented with forward-looking human resource management practices. Several OECD countries eliminated tenure-based components in their public compensation schemes, replacing them with bonuses and opportunities for career progression based on performance. Performance objectives should be clearly set and followed up with regular progress reviews. Senior managers need to be held accountable when performance fails to progress. On-going and frequent communication with staff has also proved effective in keeping public employees engaged (OECD, 2016[14]). Finally, digitalisation creates an opportunity to reconsider the work of civil servants and focus it on high value-added tasks (Chapter 4).
Reducing inefficiencies in the execution of public works could be another source of fiscal savings. In 2024, part of the burden of a rapid fiscal adjustment fell on public investment as capital expenditure decreased from 1.6% of GDP to only 0.4% of GDP, the lowest in 25 years. However, low levels of public investment may have damaging effects on the quality of infrastructure and productivity growth in the long-term (Chapter 4). Fiscal policy will have to strike a more sustainable balance between fiscal prudence and addressing infrastructure bottlenecks. Sharing the risks associated with large projects with the private sector may be one way forward to increase cost-effectiveness and encourage timely project delivery while reducing the financial burden on the public sector (Chapter 4).
Public sector employment, 2023
Note: Data from 2023, except Korea (2019), Greece (2020), Australia, Japan, and Israel (2021), and France and the Slovak Republic (2022). LAC 7 is an unweighted average of ARG, PER, BRA, CHL, COL, CRI and MEX.
Source: ILO, based on Labour Force Statistics.
The merits of delivering infrastructure services through Public-Private Partnerships (PPPs) should be carefully weighed against those of traditional procurement, in each case, taking into account the specificity of the asset under consideration (Araújo and Sutherland, 2010[15]). When opting for PPPs, their long-term impact on public accounts should be published in a transparent manner in the budget and long-term budget planning, avoiding any off-budget liabilities. A thorough assessment of the long-term fiscal implications should be part of the decision-making process.
Public procurement would be another area where there is scope for gains in public spending efficiency. Argentina lacks a public procurement law setting general principles, and e-procurement remains underdeveloped as the procurement platforms COMPR.AR and CONTRAT.AR are mostly informative and provide limited support for transactions. The authorities should also make sure that procurement offices have adequate human resources to conduct their activities.
Systematic spending reviews have proven to be a useful tool across many OECD countries to identify potential efficiency gains in public spending (OECD, 2022[16]). Many OECD countries have integrated spending reviews as a permanent feature of the annual budget process, allowing recommendations from spending reviews to be reflected in fiscal management and policy. The spending review timetable should be planned so that findings are available in time for the budget formulation process.
1.5.3. A comprehensive tax reform would also enhance efficiency and equity
Argentina has traditionally been characterised by a high tax burden compared to other Latin American countries (Figure 1.22, Panel A). Continuous increases in public spending over the years have been partly financed by the introduction of highly distortionary taxes, often meant to be temporary and to respond to short-term urgent financing needs. Regular and unexpected changes in taxes created uncertainty and imposed additional costs on households and firms. By disrupting business plans, this had a detrimental impact on investment decisions and economic growth. Most of these taxes, however, were never fully phased out and an inefficient and unequal tax system emerged.
Like other emerging-market economies, Argentina has traditionally found it easier to tax consumption, trade flows and financial transactions rather than personal income, partly related to the high levels of labour market informality (Chapter 2). This is reflected in Argentina’s current tax structure, which differs significantly from OECD countries, but less so from OECD members in Latin America (Figure 1.22, Panel B).
Besides the tax mix, a salient feature of Argentina’s tax system is a number of particularly distortionary and inefficient taxes in specific areas, often levied on narrow bases, at high rates and with strong implications for economic incentives. These have left their mark on investment and consumption decisions and the allocation of resources across the economy. Even if the scope for reducing Argentina's high tax burden is limited in the near term given the need for fiscal consolidation, rethinking some of the most distortionary taxes should be a priority.
One example for a highly distortionary tax is a financial transaction tax called the “impuesto al cheque”, levied on transactions made using a checking or saving account. In fact, this tax created incentives to settle payments in cash, working as a barrier to financial development and formalisation (OECD, 2019[12]). Letting it expire at the end of 2027, as planned, is a step in the right direction. The government could even consider eliminating it earlier, but with around 1.7% of GDP in tax revenues each year, it will not be easy to replace. Similarly, the stamp duty, levied on legal instruments including contracts, notarial deeds and promissory notes, also creates incentives for informality and should be phased out, especially given that its revenues are close to zero. The recent elimination of a real estate transaction tax is a step in the right direction.
Export taxes are another example of highly distortionary taxes as they work against the needed outward re-orientation of the economy. Argentina has a highly competitive agricultural sector, for example, and a long history of using export taxes to extract resources from the agricultural sector. This has led to high effective tax rates on agricultural exports, currently close to 25% for soybeans and related products, for example. Export taxes limit incentives for investment in new machinery and technology, including solutions to adapt to climate risks, hampering the sector’s productivity, competitiveness, and economic resilience (Chapter 4). Revenues obtained from export taxes currently amount to about 1% of GDP (MECON, 2023[17]). In 2025, export taxes on some agricultural products have been eliminated. Export taxes should be phased out entirely, as recommended in the 2019 OECD Economic Survey of Argentina (OECD, 2019[12]).
Taxes on imports, such as tariffs, on the other hand, increase domestic prices for producers and consumers of many traded goods, conferring domestic producers an artificial competitive advantage. This reduces competition and the incentives for productivity improvements. In addition, tariffs and other import barriers also limit the use of inputs and intermediary goods in domestic production, further hampering the efficiency and competitiveness of domestic producers (Chapter 4). Import duties have already been reduced across a number of items and currently amount to 0.5% of GDP. Remaining import tariffs could be progressively reduced in coordination with MERCOSUR partners, following a credible pre-announced schedule that would provide sufficient time for domestic firms to anticipate the increased foreign competition.
Another highly distortionary tax is a provincial business turnover tax known as “Ingresos Brutos”, which generated around 4% of GDP in revenues in 2022 and overlaps with the national Value-Added Tax (VAT), which in turn generated 7.1% of GDP in tax revenues. While the value-added tax allows the deduction of VAT paid on intermediate inputs, the turnover tax applies to gross revenues from the sale of goods and services at every stage of the supply chain, without any deduction of the tax paid at earlier steps. Such cascading taxes are highly distortionary since they distort value chains and create artificial incentives for vertical integration. Moreover, each province applies its own turnover tax rate, often differentiated by industry and firm size, tax exemptions, credits and benefits, potentially distorting location decisions. Turnover taxes are also applied to revenues in the financial sector, where they increase the cost of financial intermediation.
Note: LAC 7 is an unweighted average of ARG, PER, BRA, CHL, COL, CRI and MEX.
Source: OECD Global tax revenue database (Comparative tables of countries in the global database).
Phasing out the most distortive taxes requires identifying alternative revenue sources, at least in the immediate term, so as not to jeopardise on-going fiscal consolidation efforts. One solution for reducing the distortions created by the provincial turnover taxes, while recognising the need of provinces for their own tax revenues (Section 1.5.4), would be to consolidate these taxes and the VAT into a dual value-added tax, as recently done in Brazil (OECD, 2023[18]). The two components could apply to the same tax basis nationwide and would be collected at the destination of goods and services. Revenues from a first component would revert to the federal government, with the same standard rate, while those from the second component would replace the current turnover taxes reverting to provinces. Rates for the second component could be freely set by provinces within bounds to be determined between the provinces and the national government (Box 1.2). Some estimates suggest that a revenue-neutral consolidation of these two taxes would require a standard rate from the dual value-added tax to be set somewhere between 25% and 27.5% (IDESA, 2025[19]). This is above the current rate of 21%, and close to the level of Hungary, the OECD country with the highest value-added tax rate (OECD, 2024[20]), but could be lower if additional measures are implemented to strengthen the formalisation of the economy, such as e-invoicing for example. Given the sizeable distortions from the turnover taxes, such a consolidation would likely lead to lower prices for consumers and significant potential efficiency gains for producers.
The 2023 tax reform in Brazil consolidated five consumption taxes at the federal, state and municipal levels into a dual value-added tax, one of which managed by the Federal government, and the other managed by states and municipalities. Two distinct features of the reform were its revenue-neutral character and the careful consideration of the distribution of revenues across levels of government.
Both the national and the subnational tax have the same basis and both components are collected together. The Federal government sets the rate for the national component, while states and municipalities set the rate for the subnational component. A Federative Council coordinates states and municipalities with respect to collecting the subnational component, managing and implementing the tax, offsetting credits and distributing resources across subnational entities. The new system is helping to reduce special regimes and harmonise the rules across products, services, sectors, and regions.
The tax reform affects the distribution of revenues between the federal and subnational governments. Some states and municipalities will experience revenue losses as the new tax rate will depend on the residence of the buyer rather than the producer (destination principle). To address these concerns, the reform guarantees a transition period of 50 years, during which the current distribution across states is to be preserved initially, and progressively adapted to the new rules. The reform also introduces a fund to compensate states that are most affected by these changes, to be financed by the Federal government.
Source: OECD (2023), “Redesigning Brazil’s consumption taxes to strengthen growth and equity”, brazil-tax-policy-brief-2023-final.pdf.
Additional VAT reforms could include revising exemptions and reduced rates, which currently amount to almost 1% of GDP in lost revenues (Lódola, Moskovits and Zack, 2024[21]; OECD, 2019[12]). These have often been motivated by attempts to benefit low-income households. In many cases, however, such as exemptions applying to medicines, education, transportation, books and newspapers, lower taxes also benefit high-income households. Several studies show that exemptions and reduced VAT rates are a poorly targeted means of supporting low-income households (Thomas, 2024[22]). Targeted benefits are often more effective to support the purchasing power of those with low incomes than lower VAT rates, and measures to broaden the Value-Added Tax base could be accompanied by such targeted benefits to compensate vulnerable households. Argentina has well-targeted cash transfer programmes that could be harnessed for this purpose (OECD, 2020[23])(Chapter 2).
Low value-added tax compliance further reduces revenue collection by an estimated 3.5% of GDP, the highest share in Latin America (Figure 1.23, Panel A). Compliance could be improved by strengthening and modernising the tax administration, including through improvements in information systems and the use of advanced technologies. Recent measures are expected to help progressively improve VAT compliance rates. In October 2024, several steps were taken to simplify VAT filing procedures. A Digital VAT Ledger, containing details of each company’s incoming and outgoing invoices for each VAT period, was developed. Data from the Digital VAT Ledger will now be automatically integrated into the VAT return digital form to leverage on pre-registered data. Starting from January 2025, invoices now must itemise VAT and other indirect national taxes to increase transparency. Measures to facilitate payments in dollars by debit card and using QR codes are also expected to increase VAT compliance as transactions in foreign currency were often more difficult to report than those in domestic currency.
Narrow tax bases are also a feature of Argentina’s income taxes, which explains why their revenues are lower than in OECD countries. Personal income tax revenues amounted to 2.5% of GDP in 2022, compared to 8.6% in OECD countries (Figure 1.24, Panel A). A main reason for this is the high basic allowance, which exceeds the average wage and results in only about 10% of workers paying personal income taxes in 2021, compared to 51% in OECD countries (Chapter 2) (Lódola, Moskovits and Zack, 2024[21]). In addition, Argentina has a PIT exemption for judges and judiciary employees, which is highly unusual, and other generous PIT tax deductions. Estimates put foregone PIT revenues at around 5% of GDP (Lódola, Moskovits and Zack, 2024[21]).
The political economy of the personal income tax has traditionally been difficult in Argentina as the PIT has often been understood as a tax on the wealthy. However, expanding the PIT base beyond the current 10% holds significant potential for raising revenues in a progressive way and would allow reducing other highly distortionary taxes whose distributional footprint is probably much less progressive. It would also bring Argentina closer to OECD practice, as recommended in the 2019 OECD Economic Survey of Argentina. Given how high the basic allowance currently is, it could be lowered substantially without even coming close to the income levels of low-income workers, for which PIT could present an additional barrier to formalisation (Chapter 2).
Revenues from corporate income taxes could be increased by improving tax compliance and limiting tax expenditures. Several studies point to high levels of corporate tax evasion in Argentina, compared to other Latin American countries (Gómez Sabaini and Morán, 2020[24]; Centrángolo and Gómez Sabaini, 2009[25]) (Figure 1.23, Panel B). This can be partly explained by high levels of business informality (Chapter 2). The RIGI investment programme, the tax amnesty, and on-going reforms to improve the business environment (Chapter 4) are likely to improve corporate tax compliance.
Reducing corporate tax expenditures such as targeted tax regimes for specific sectors and locations, would also help raise corporate tax revenue (Figure 1.24, Panel B). One of these targeted regimes reduces the tax burden on industrial companies located in the southernmost province of Tierra del Fuego, which has allowed the province to attract significant activity in the assembly of electronics goods, despite its remote location some 3000 km from the capital region, where close to half of Argentina’s consumers reside. This special tax regime, for instance, has been estimated to cost 0.22% of GDP in lost tax revenues (Hallak et al., 2023[26]).
Argentina has a wealth tax levied at the federal level whose current revenues amount to about 0.1% of GDP (Lódola, Moskovits and Zack, 2024[21]). The complicated manner of calculating tax liabilities, including the valuation of shares and holdings in the capital of local companies, adds significantly to tax complexity. The tax also overlaps with provincial taxes on immovable property. Several measures have been taken to simplify this tax. Its basic deduction and tax rate were reduced in July 2024 and the distinction between domestic and foreign assets in terms of applicable rates has been eliminated. Finally, a special regime has been introduced allowing taxpayers to frontload future payments, in exchange for a reduced rate and less stringent form completion and filing requirements. These steps are most welcome.
Note: LAC 6 is an unweighted average of ARG, PER, CHL, COL, CRI and MEX. In Panel A, data is from 2017 except for Costa Rica and Mexico (2016). Panel B: ARG (2005); CHL (2009); CRI (2015); COL and MEX (2016), and Peru (2021).
Source: CEPAL - Estrategias para abordar la evasión tributaria en América Latina y el Caribe; Peru's national authorities
Going forward, Argentina could consider eliminating the wealth tax while strengthening provincial taxes on immovable property. Harmonising the valuation methodology and updating property registries in cooperation with subnational tax authorities would limit the scope for local politicians to reduce the immovable property tax of their constituents for electoral purposes. Most rural immovable properties are currently exonerated from property tax. As export duties on agriculture are phased-out, such exoneration could be eliminated. Higher property taxes on highly productive agricultural land in Argentina’s main grain production area would be a way to extract some of the rents from concentrated land ownership without distorting production and investment decisions as export taxes do.
Another possible alternative to distortive taxes would be to increase excise taxes on tobacco and alcohol, as well as introducing an excise tax on sugar-sweetened beverages. Beyond generating revenues for the general budget, excise taxes on unhealthy products make their consumption less affordable, saving on future health care expenditure. In Argentina, excise taxes on harmful products only generate 1.4% of GDP, compared to 3.7% in Latin American countries and 3.1% in OECD countries. Higher excise taxes on fossil fuels could also help to steer the economy towards less carbon-intensive technologies, where Argentina has significant economic opportunities to reap (Chapter 3).
Source: OECD Revenue Statistics; MECON, Secretaría de Hacienda, Subsecretaría de Ingresos Públicos.
1.5.4. Fiscal relations across different levels of government can be improved
Argentina is a federal republic with significant constitutional powers transferred to the provincial level of government. According to the constitution, provinces hold all powers that they have not delegated to the federal government. Primary and secondary education, healthcare, social welfare, law enforcement, roads, ports, and water and sanitation infrastructure development are responsibilities that are largely assigned to provincial governments. To carry out their responsibilities, provinces have the power to raise their own tax revenues, except for taxes on foreign trade, which are exclusive to the federal government. Nonetheless, provinces have delegated the task of administering most taxes to the federal government, including personal and corporate income taxes and the value-added tax. Provinces directly manage the provincial turnover tax, the stamp tax, taxes on immovable property and a tax on car ownership. As a result, Argentina’s fiscal federalism has always been characterised by a significant imbalance between provinces own resources and their expenditures. In 2022, provinces carried out 42.2% of all public expenditures, while own-revenues of provincial governments accounted only for about 16% of total public revenues (Moskovits, 2024[27]).
A complex system of intergovernmental transfers has been developed to distribute federal tax revenues to the provinces. The main form of transfer is an automatic revenue-sharing mechanism, known as “coparticipación federal”, stipulating that 57% of certain federal taxes, including excise taxes, personal and corporate income taxes, and parts of the value-added tax, shall be distributed to provinces. The way these tax revenues are distributed across provinces has been the result of political negotiations held in 1988, with little changes since, and do not necessarily reflect the provinces population weight or spending needs. These automatic transfers are complemented by discretionary transfers that are not mandated or fixed by law. Discretionary transfers have frequently been used as a political bargaining chip and allowed the federal government to gain support from provincial governors in congress (Artana et al., 2021[28]). A third form of intergovernmental transfer is based on earmarked revenues for specific purposes. On average, automatic transfers represented more than 60% of provinces total resources in 2022, and discretionary transfers accounted for about 10% (Moskovits, 2024[27]). For some provinces, total federal transfers reach as much as 90% of their total resources.
This system of intergovernmental fiscal relations, with provinces being highly dependent on transfers from the federal government, has several drawbacks. As revenue-raising responsibilities remain largely concentrated at the federal level, provincial governments have little incentives to contribute to efforts to increase the efficiency of revenue collection, given the high political cost implied. Provincial spending has also been highly pro-cyclical, contributing to exacerbate economic cycles and with little fiscal buffers being built during expansions. When automatic transfers fell with economic downturns, provinces often reacted by cutting on capital expenditures, which resulted in the deterioration of infrastructure, or by raising their own revenues through higher turnover taxes, exacerbating economic distortions and aggravating the downturn (Moskovits, 2024[27]). Finally, the fact that some federal taxes are shared with provinces and others are not has created incentives for the federal government to expand non-shared taxes such as export and import duties, even if they are highly distortive (Tommasi et al., 2001[29]).
Since the distribution of transfers across provinces is based on fixed coefficients established by law without any justification, it has also not responded to changes in the level of demand for public services across provinces over time (Tommasi et al., 2001[29]). Provinces are highly heterogeneous with respect to population density, natural resources endowment, productive capacity and structure, and institutional organisation. Some provinces have a much higher revenue raising capability than others. Production costs for public goods and services are also highly unequal. Transfers from the federal government to provinces have not always compensated for such differences, resulting in unequal public service access and quality across provinces (González, 2021[30]; Schwartz and Liuksila, 1997[31]).
As soon as public finances have been strengthened, improving the structure of the federal-provincial transfer mechanisms will be of key importance for improving Argentina’s public-sector efficiency. The ongoing fiscal adjustment and a tax reform with implications on provincial tax revenues, as discussed in the previous section, will make it even more of a priority. Argentina could include all national taxes and levies in the co-participation system, redesign the automatic revenue sharing mechanism so that redistribution across provinces is clearly linked to structural factors, and eliminate discretionary transfers to provinces. The revenue sharing mechanism could compensate provinces with higher per-capita costs to guarantee a minimum level of public services. The distribution rule could be based on demographic, geographical, and economic indicators. Australia, for example, has developed a comprehensive, yet complex, cost equalisation system, based on a variety of factors covering all aspects of state expenditure as well as the underlying drivers of cost disparities across the subnational jurisdictions (OECD, 2021[32]). To create incentives for provinces to promote tax collection efficiency, provinces with higher tax compliance rates or stronger enforcement efforts could be rewarded with a higher proportion of central revenues.
A reform of intergovernmental fiscal transfers would need to be complemented with improvements in fiscal management co-operation, including through information sharing, increased transparency, additional data collection, and regular performance monitoring. Creating a federal fiscal agency that would be responsible for tax administration coordination, overseeing the distribution of resources across provinces, and to provide technical assistance in the reform and harmonisation of provincial tax systems could be one way to achieve this.
1.5.5. The fiscal framework can still be strengthened
A set of fiscal rules has been put in place to improve public finances and ensure greater coordination across levels of government. An expenditure rule of zero real growth applies to current primary expenditures at the federal level, excluding increases in pension spending. Recent draft legislation that included automatic adjustments of spending caps to ensure an overall fiscal balance was not approved in congress. As an alternative, fiscal authorities could consider including pension spending into the expenditure rule as it is expected to continue growing, requiring an increasing amount of complementary resources from general public revenues (Section 1.5.6).
At the provincial level, a 2018 expenditure rule limits the nominal growth of most current primary expenditures to annual consumer price inflation. Expenses financed by international financial institutions, transfers to municipal governments, and earmarked transfers from the federal government for specific projects are excluded from this limit. Provinces with fiscal surpluses are also allowed to exclude investments in education, health, and policing. Moreover, provincial public employment cannot grow faster than population, the sale of assets cannot be used to finance operational expenses, and no permanent increases in primary expenditure can be approved in the final six months of a governor’s mandate. The expenditure rule is complemented by a debt rule stating that provincial debt service cannot exceed 15% of current revenues. To issue new debt, provinces need to obtain the approval of the federal government.
However, adherence to these rules is voluntary. Two provinces have not yet agreed to these rules. Provinces should be encouraged to participate in the on-going fiscal consolidation effort and to adhere with the fiscal rules. To encourage fiscal discipline at the provincial level, the government could consider the creation of an investment fund with financing provided by multilateral agencies that could only be used by provinces that adhered to the spending and debt rules. In addition, withholding transfers to provinces who fail to comply with the fiscal rules could also be considered (Artana et al., 2021[28]).
Budgeting procedures have also scope for improvement. Beyond a primary balance objective, budget laws include macroeconomic projections for a three-year period. This includes projections for GDP and its components, inflation, the trade balance, and the nominal exchange rate. While macroeconomic projections underlying annual budget laws are provided by the Ministry of Economy, the Congressional Budget Office (OPC), created in 2018, provides detailed reports assessing the quality of these macroeconomic projections. Budget laws also provide estimates for the main public revenue and expenditure items for a three-year horizon. After the approval of the budget law, an expenditure framework is submitted to congress outlining expenditure ceilings for each ministry in line with fiscal targets.
In practice, however, given the volatile macroeconomic environment, longer-term budget forecasting has been limited. As a result, annual budgeting often fails to assess the full cost of policy decisions, nor does it provide resource predictability for line ministries. As the macroeconomic stabilisation process progresses, planning and budgeting have much scope to improve, including by lengthening the horizon of projections, considering future operational costs, including those related to the maintenance of existing infrastructure and the completion of pipeline projects. This would lead to a more efficient and strategic allocation of resources.
The establishment of the Congressional Budget Office helped improving budget oversight, but its mandate could be extended even further, following best practices in OECD countries (Caldera Sánchez et al., 2024[33]). The OPC could, for example, provide its own macroeconomic and fiscal projections, contribute to monitoring compliance with fiscal rules and provide long-term fiscal sustainability analyses. The independence of the OPC could also be strengthened by removing the necessary political approval of its programme of work and recruitment decisions (OECD, 2020[23]). Finally, maintaining the necessary funding for the OPC will be a condition for it to fully implement its mandate.
1.5.6. Continuous consolidation efforts will improve the public debt outlook
The successful fiscal adjustment in 2024 has already led to a significant drop in Argentina’s country risk premium (Figure 1.25, Panel A). Together with large exchange rate valuation effects, this led to a significant drop in gross federal government debt, from over 150% of GDP in 2023 to 73% of GDP in April 2025 (IMF, 2025[34]) (Figure 1.27). For the moment, gross federal government debt is still above other Latin American countries (Figure 1.25, Panel B). More than 70% of outstanding debt will reach maturity within the next three years (Figure 1.26, Panel A), although rollover risks are lower for over 45% of public bonds held within the public sector, notably by the pension administration ANSES. About 23% of federal government debt is inflation-linked and more than 30% is denominated in foreign currency (Figure 1.26, Panels B and C). As fiscal discipline is maintained over the longer term, some of these risks are expected to decline as Argentina improves access to market financing in more favourable conditions and rely on an increasing share of fixed interest rate debt instruments.
Note: Panel A: moving-average of 11 data points from the spread of 10-year USD-denominated bond yields vis-à-vis US Treasury bonds (JP Morgan Emerging Markets Bond Index spreads). In Panel B, data is from 2023, except for TUR, DNK, LTU, IRL, NLD, SVK, CRI, BRA, BEL, ESP, PRT, FRA and GRC (2022). LAC 7 is an unweighted average of ARG, PER, BRA, CHL, COL, CRI and MEX.
Source: IMF World Economic Outlook database: April 2025, ambito.com.
The fiscal reforms suggested in the previous sections would help to maintain a positive primary balance beyond 2025 (Table 1.3). Based on the assumption that the government can maintain a positive primary surplus over time, public debt is expected to decline slowly relative to GDP and remain stable at around 40% of GDP until the mid-2030s (Figure 1.27).
After that, population ageing is expected to raise pension spending and would make it much more difficult to maintain a positive primary surplus without a reform of the pension system. Without such a reform, public debt would start rising again as fiscal outcomes would deteriorate amid an increasing old-age dependency ratio. A pension reform, phased in gradually, could reduce pension spending pressures and ensure debt stability beyond 2040.
The pension system remains, in fact, the main recipient of public resources, almost exceeding the combined expenditure on health and education (Figure 1.28, Panel A). Public spending on pensions is similar to that of OECD countries, while the share of the older population remains significantly lower (Figure 1.28, Panel B). The current pattern of social spending, disproportionally targeted toward the elderly, is likely to leave many other vulnerable households behind in the future, unless the overall social spending envelope can be increased.
Source: OECD calculations; national authorities.
The magnitude of pension spending relates to both high coverage and high replacement rates in international comparison. Consecutive pension moratoriums in 2005, 2014, 2016, 2019, and 2023 opened up the possibility for elderly citizens with insufficient years of contributions to be included in the pension scheme by compensating the missing past contributions at a fraction of their nominal value. Finally, in 2016, a universal non-contributory pension benefit (PUAM) was established to ensure that all adults over the age of 65 would receive a monthly income equivalent to 80% of the minimum contributory pension. Following these changes, old-age pensions have now reached an almost universal coverage (Figure 1.29, Panel A). An automatic pension indexation mechanism was introduced to periodically update the value of benefits, leading to higher replacement rates than in other countries in the region and the OECD average (Figure 1.29, Panel B).
Progress in terms of coverage and adequacy has come at the expense of increasing fiscal and economic costs, and this will only exacerbate as the population ages and more people retire (Figure 1.27). At the end of 2023, about 95% of the population aged 65 and above was covered by a pension, while only 56% of the active population contributed to the social security system (ANSES, 2024[35]). Less than half of the National Social Security Administration (ANSES) spending, including pensions and other social benefits, is covered by current contributions, with the remaining funding coming mostly from earmarked general tax revenues and general budget resources (Figure 1.30).
Note: Numbers in this table are estimates and subject to uncertainty. They do not take into account gains in tax efficiency over time that would increase total revenue collection.
Source: OECD calculations.
The pension system is also characterised by a multiplicity of rules, schemes, and special regimes. The “Sistema Integrado Previsional Argentino” or SIPA, managed by the National Social Security Administration (ANSES), is the main component of the contributory pension system. The SIPA contributory pension regime can be divided into a general regime and special pension regimes for the army, law-enforcement forces, university faculty, teachers, scientific researchers, magistrates, and foreign service staff, with different parameters. Multiple reforms over the years, including the pension moratoriums, led to the coexistence of beneficiaries within SIPA who retired under different rules. Today, 62% of SIPA pension beneficiaries acquired their pension rights through pension moratoriums. Adding to the fragmentation, other institutions operate in parallel to SIPA. Provinces and municipalities can manage their own pension schemes for provincial and municipal civil servants. Consolidated spending on pensions amounted to 8.4% of GDP in 2023, of which 2.1% of GDP correspond to the provincial regimes. Only 2.1% of GDP was spent on the general SIPA contributory regime (Figure 1.31).
A series of parametric reforms could help contain pension spending growth in the near to medium-term. Currently, women can retire at age 60, while men can only retire at 65. Progressively increasing the statutory pensionable age of women until it equals that of men could help reducing financial pressures on the pension system. Another option, adopted by several OECD countries such as Denmark, Estonia, Finland, Greece, Italy, the Netherlands, Portugal, and more recently Sweden and the Slovak Republic, could be to establish an automatic mechanism to link the retirement age for both men and women to changes in life expectancy (OECD, 2023[36]). Reviewing the pension benefit calculation and base it on the average salary over a person’s work history instead of the last ten years, could also be considered. The current formula tends to be regressive as workers whose last salaries increase substantially over their working life, which tend to be high-wage earners, obtain a higher internal rate of return from the pension system.
Note: For all scenarios, real GDP and inflation follow OECD projections over 2024-2026 and then gradually converge towards potential output growth and an annual inflation of 3%. The ARS/USD exchange rate and the debt composition is assumed constant over the simulation period. The “current policies” scenario assumes maintaining a balanced headline budget in 2025 thanks to recent policy changes discussed in section 1.5.1. However, beyond 2025, it assumes that the headline balance becomes negative again, pending further lasting fiscal reforms. The headline deficit then progressively increases up to 4 percentage points of GDP in 2050, reflecting increasing pension costs, in line with simulations in (Apella, 2022[37]). The “fiscal reforms” scenario assumes primary surpluses consistent with a zero-headline balance in the absence of ageing costs, consistent with the implementation of the fiscal reforms suggested in Table 1.3. The “pension reform” scenario assumes compensatory measures for rising ageing costs, including an alignment of the retirement age of women with that of men, an increase in the retirement age by 1 year every ten years, the gradual elimination of survivors’ pension and the consideration of all contributory salaries for the calculation of pension benefits, with a revenue impact estimate based on (Apella, 2022[37]). The “structural reform” scenario assumes higher GDP growth over 2027-2050 due to additional structural reforms as reported in Table 1.4 and recommended in Chapters 2, 3 and 4.
Source: OECD calculations.
Note: Panel A: Social spending includes education and culture, health care, water and sanitation services, social housing, social assistance, pensions, employment services, and other urban services.
Source: Ministerio de Economía Argentina; WorldBank WDI, OECD Public Finance dataset.
Reducing the institutional fragmentation of the pension system would enhance the benefits of such parametric reforms, while also enhancing equity. Across the 13 provinces with independent pension regimes for their civil servants, replacement rates continue to be well above those of the SIPA general pension regime. A better alternative would be for provincial regimes to be gradually transferred to the SIPA regime. Regarding special regimes within SIPA, the rationale for certain groups of workers to receive higher pension benefits than the rest of the system’s beneficiaries should be reviewed considering the risk exposure of these occupations into account and gradually eliminating those that are deemed unjustified.
Beyond parametric reforms, there may be a case for moving the current fragmented pension system towards a unified and consistent multi-pillar model to improve the incentives for formal job creation and ensure cost-effective access to pension benefits for all (Chapter 2). In particular, further pension moratoriums should be avoided, and the basic universal pension PUAM could serve to maintain the current high level of pension coverage. Finally, as the labour market participation of women increases and given the universal access to pension benefits, survivor pensions, of which 83% revert to women, have lost some their original rationale and could be gradually phased out.
Other structural reforms recommended in this survey (Chapter 2, 3 and 4) could also have a positive effect on fiscal outcomes by boosting long-term economic growth (Table 1.4). Together, these reforms can significantly increase the speed of convergence towards high-income economies (Figure 1.32). In particular, improving framework conditions, including macroeconomic stability, global economic integration and the rule of law, would magnify the growth effect of other structural reforms, such as improvements in product market regulations (Guillemette, forthcoming[38]). The implementation of these additional structural reforms, together with a pension reform, would sustainably bring public debt on a downward path in the longer term (Figure 1.27). The rest of the survey will discuss these policy recommendations in greater detail.
Note: LAC6 includes Argentina, Brazil, Chile, Colombia, Costa Rica and Mexico. In Panel A, data for 2021 except for MYS (2023); COL, CRI, PAN, PRI, JAM, BRA and MEX (2022); LCA, THA, GUY, SUR (2020); and VNM (2019).
Source: ILOstat, OECD Pensions at a glance database.
Source: Ministry of the Economy, ANSES.
Spending by regime as % of GDP, 2023
Source: OECD calculations based on data provided by ANSES.
Estimated impact of reforms on potential GDP per capita up until 2050 respective to the baseline scenario
Note: Macroeconomic stability is measured as in (Guillemette et al., 2017[39]) and is based on both the level and the variability of headline inflation. The baseline scenario already includes an improvement in macroeconomic stability to take recent events into account. Global economic integration is measured using a sub-index of the composite globalisation index produced by the Swiss KOF Institute (Gygli et al., 2019[40]). Measures for the rule of law are based on the World Bank indicators Worldwide Governance Indicators (Kaufmann, Kraay and Mastruzzi, 2010[41]).
Source: Simulations based on the OECD long-term growth model (Guillemette and Château, 2023[42]).
Note: The “improved framework conditions” is equivalent to scenarios A, C and D in Table 1.4. The grey area shows the range of GDP per capita relative to the United States, as a percentage, for other Latin American countries, including Brazil, Chile, Colombia, Costa Rica and Mexico.
Source: Guillemette, Y. (forthcoming), “A range of possible worlds: global scenarios to 2100”, OECD Economic Department Working papers.
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