The partial lockdown of the people and the economy in July and August reduced our projections for 2020
As the opening of the economy did not occur as anticipated, the outlook for economic activity, employment, tax revenue, etc., had to be revised lower this month, even assuming that a new normal − if contagion numbers improve − might take place in mid-to-late September. Our projections for 2020 fell from -11.4% in real terms to -13.6%, but they are higher for 2021 (7.1% compared with 6% in our previous analysis).
Minister Alexander mentioned in passing that the deficit of the NFPS for 2020 would reach -9% of GDP, but we project -9.5% for 2020. In a session of the Legislative Assembly, Alexander anticipated issuing new debt for US$ 2 billion before the end of the year, a figure close to our estimate of US$ 1,500-US$ 1,700 million reported previously. The 2021 budget, which we will analyze in detail next month, projects a deficit of US$ 4,726 million, and a gross financing need of US$ 6,524 million.
The current week will be important for the banking sector, which is already suffering from the effects of a de facto amnesty of debt payments by firms and individuals until December 2020. That affects approximately fifty percent of the total loans of the system. Last week, the Bank Superintendency (SBP) announced a new regulation obliging the banks to create additional provisions during the current fiscal year because of the deterioration of these unpaid loans (called “modified credits”). If this new ruling is accepted by the Board of Directors of the SBP, as proposed, several banks could show significant losses in their financial statements at the end of the year. In some cases, the regulatory capital requirements for medium-to-small-sized institutions may not be fulfilled, pressing actual (and potential) shareholders to capitalize the affected banks.
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