Argentina: Consolidating the economic recovery 

Blog post accompanying the launch of the 2025 Economic Survey of Argentina. Read the version in Spanish here.

By Priscilla Fialho and Jens Arnold

Over the last decades, Argentina has struggled to realise its economic potential as growth fell behind many regional peers. Public spending continuously exceeded revenue capacity, and successive governments kept resorting to money creation to fill the gap. This fuelled inflation, compromised macroeconomic stability and weighed on investor and consumer confidence. Capital controls, import restrictions, and foreign currency rationing were introduced on several occasions to avoid major financial and economic crises, but at the cost of depressing productivity growth, reducing employment and real incomes, and increasing poverty.  

Recognising that weak fiscal fundamentals have been at the core of Argentina’s macroeconomic instability for years, a new administration embarked on an upfront fiscal consolidation process in 2024. Primary surpluses have been recorded almost every month since, something Argentina had not seen for decades. The fiscal adjustment in 2024 reached more than 5% of GDP. History holds few examples of such a sharp fiscal consolidation process and none of Argentina’s previous stabilisation attempts managed to reduce fiscal vulnerabilities so decisively.  

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. Inflation fell from 211% year-on-year in December 2023 to less than 45% in May 2025. As inflation receded and well-targeted social spending has been scaled up, poverty decreased again at the end of 2024 to below levels observed in 2022. Real wage gains supported the recovery of private consumption and investment, helping to boost growth.  

Figure 1. Inflation has fallen to levels not seen in years 

In addition, structural policy measures have been taken to improve the business environment and Argentina’s attractiveness for investment. For example, to simplify regulation, a silence-is-consent rule has been introduced in administrative procedures. To promote competition, several authorisation, registry and import procedures have been streamlined in the areas of agriculture, transport and retail trade. Price controls have also been phased out, while trade barriers have been scaled back for a series of products. 

To address external vulnerabilities, a new exchange rate regime was put in place in April 2025, allowing the exchange rate to float within bands that are set to widen every month. The new regime will improve resilience to external shocks, while also strengthening economic sentiment. A recently approved IMF programme of USD 20 billion will support international reserves in the short term, until structural changes favour better prospects for external accounts.  

Reform efforts have started to bear fruit, and the economy is set for a robust recovery in the next two years. Argentina is now entering a new phase, which will require further fine-tuning of its policies to maintain fiscal prudence in a durable way while also boosting potential growth. The OECD Economic Survey of Argentina 2025 proposes several avenues for consideration.  

Despite recent improvements, Argentina’s public expenditure remains high in international comparison and there is still scope for enhancing spending efficiency. One avenue for further progress is to continue cutting back inefficient subsidies. Energy subsidies were implemented after the deep economic crisis of 2001-02 through a combination of price caps and broad-based government compensation to energy providers. These subsidies have had mostly regressive effects on income distribution. Moreover, by creating a gap between the price paid by end-users and production costs, they reduce incentives to save energy. Energy subsidies have been progressively scaled back in 2024, but still represent about 1% of GDP. Continuing to phase them out while redirecting some of the fiscal resources to more efficient forms of social protection would improve spending efficiency.  

Phasing out the most distortionary taxes, introduced over the years to finance continuous increases in public spending and respond to short-term financing needs, would help enhance tax efficiency while also favouring a more efficient allocation of resources across the economy. Phasing out these taxes requires identifying alternative revenue sources, to safeguard on-going fiscal consolidation efforts. Broadening income and consumption tax bases, and improving Value-Added tax compliance, could be potential solutions. Personal income tax revenues amounted to only 2.5% of GDP in 2022, compared to 8.6% of GDP in OECD countries. A high basic allowance, which exceeds the average wage and results in only about 10% of the active population paying personal income taxes, explains most of the difference. In addition, Argentina has Personal Income Tax exemptions and other generous tax deductions that are unusual in international comparison.  

Figure 2. Revenues from taxes on personal income are low in international comparison 

Argentina’s fiscal federalism has always been characterised by a significant imbalance between provinces own resources and their expenditure. In 2022, provinces carried out 42.2% of all public expenditures, while own-revenues of provincial governments account only for about 16% of total public revenues. A complex system of intergovernmental transfers has been developed in response. However, the distribution of transfers across provinces has not responded to changes in the level of demand for public services across provinces over time and appears arbitrary by now. As soon as public finances have strengthened more durably, Argentina could strengthen the link between resources and spending needs across provinces. This would reduce the need for discretionary transfers to provinces, which have frequently been used as a political bargaining chip. 

Argentina’s renewed commitment to tackling long-standing weaknesses and distortions needs to be recognised and praised. The reform momentum needs to continue to maintain Argentina’s economy on a solid growth path, which is essential to lift living standards in a durable manner. 

For more information, please visit the OECD’s Economic Snapshot of Argentina webpage.

References:

OECD (2025), OECD Economic Surveys: Argentina 2025, https://doi.org/10.1787/27dd6e27-en, OECD Publishing, Paris.