The International Monetary Fund has expressed support for Javier Milei’s economic strategy while also challenging the government’s claims regarding the fiscal surplus. The IMF has emphasised the need for tax reform and a more accelerated approach to reserve accumulation in anticipation of the upcoming presidential elections next year. The IMF’s Executive Board concluded the second review of Argentina’s 48-month Extended Fund Facility arrangement late last week. The approval facilitated an immediate disbursement of approximately US$1 billion. In its Staff Report and Selected Issues documents, released on Friday, the fund emphasised the “reform momentum” generated by the enactment of significant legislation concerning fiscal, labour, and trade issues. The IMF indicated that program implementation “remained strong” and that the policies applied were “prudent.”
Even so, it recognised that the government had fallen short of its net international reserves target for last December by “a significant margin.” The government fell short of the target by US$10 billion, primarily due to “the increase in dollarization ahead of the midterm elections.” The document also clarified that the surplus the Milei government highlights does not account for capitalised interest. Including the real component of capitalised interest above the line would push the total fiscal deficit to around 0.8% of GDP’, the IMF stated. The fund stated that “recent tweaks to the monetary and exchange-rate regime, together with steady foreign-currency purchases, will leave the economy better prepared for the 2027 elections.” It emphasised, however, that “the low level of liquid reserves continues to pose risks to repayment capacity, especially against large debt maturities and the potential volatility ahead of the 2027 presidential elections.” For that reason, the fund emphasised the necessity of “decisively rebuilding reserves and aiming to overperform the targets in light of the uncertainties tied to the upcoming presidential elections.” The fund noted “Political uncertainties ahead of the 2027 presidential elections could trigger capital outflows and slow or reverse the reform momentum, especially if progress on boosting jobs and real incomes stalls.”
On reserves, the fund emphasised “a competitive exchange rate” and contended that although Argentina’s energy and mining sectors possess considerable export potential, the government must meticulously adjust its policies to address the risks associated with Dutch disease. In Economics, Dutch disease refers to the situation where an increase in foreign-currency inflows from exports leads to an appreciation of the local currency, thereby diminishing the competitiveness of other sectors, including industry. The documents strongly advocate for comprehensive tax reform. “Argentina’s tax system remains complex, highly distortive and unstable, which weighs on growth and competitiveness,” the IMF stated. The fund’s staff observed that general government tax revenues “are high by regional standards,” projected to be approximately 27% of GDP in 2025. That indicates “a system characterised by elevated statutory tax rates, a limited tax base due to various special regimes and an overwhelming number of taxes — exceeding 155 — that are frequently altered,” they stated.
The fund advocated for an expansion of the personal income tax to ensure that a minimum of 20% of formal-sector workers contribute, consistent with the levels observed in 2019. It also called for a reform of the Monotributo, the simplified tax regime for small taxpayers, to increase social security contributions. It advocated for the simplification of corporate income tax by implementing a flat corporate rate and removing tax breaks and subsidies. The IMF has called for collaboration with the provinces to transition from the gross income tax to a dual provincial-federal VAT over a period of 10 years. Argentina’s recent agreement with the IMF, sanctioned on April 11, 2025, grants total access of US$21 billion, which represents 479% of Argentina’s IMF quota. Fund data indicates that Argentina’s debt to the institution amounts to US$57.25 billion, positioning Argentina as the largest debtor to the fund. Ukraine holds the second position, with an approximate value of US$15 billion.