First Shot
The report of the Central Bank on possible impacts of the external shock on the inflation It was written when the rainfall generated by the climatic phenomenon still in progress had not yet intensified. The chances that inflation will be temporarily above the range/target now increase significantly due to the effect that the aforementioned phenomenon will have on the offer internal food products. The double shock (internal and external) will have at least three large-scale negative effects: 1) The inflationary effect, whose intensity and impact on poverty will depend on the amount of budgetary resources that the Government decides to allocate to generalized subsidies for fuel and electricity rates, and to targeted social protection programs. 2) The effect of the increase in the fiscal deficit (generated by the increase in subsidies) and the current account deficit of the balance of payments (generated by the increase in imports of fuel and food products), and 3) The effect on the reduction of growth and subsequently, on the decrease in employment and increase in monetary poverty.
Second Shot
The intensity, duration, and scope of the triple effect of the double shock depends on the vulnerability of the economy to the aforementioned events. The condition of a net importer of fuels and the high dependence on those of fossil origin, the almost zero fiscal space for the expansion of spending that absorption demands, the increase in the cost of refinancing public debt maturities that produces the fiscal deficit and the increase in public debt, and a persistent, chronic and unsustainable electricity sector deficit, are some of the main structural weaknesses that determine the degree of vulnerability of the economy to the effects of double shock to which it is subjected. A question that analysts and economists must answer is whether the strengths that the economy has would be sufficient to face and partially absorb the effects of the double shock for as long as necessary, since the duration of the first and second round effects of this is the main factor of uncertainty that hangs over the macroeconomic outlook.
Third Shot
A high level of international reserves (sufficient to finance part of the increase in imports produced by the external shock), little probability that the international conflict will affect the stability of the flow of remittances and the entry of tourists, access to international financing with a risk margin below that corresponding to the credit rating, and a tradition of high growth accompanied by relative macroeconomic stability, are the main strengths that the economy has to face the effects of the double shock. But an indefinite prolongation of the war, a sharp deterioration in the international production capacity of oil and derivatives, and the amount of budgetary resources and the time required to correct the damage to public infrastructure caused by the climate phenomenon, are the main risk factors to be faced, which will in turn determine the triplet of the double shock: the persistence and amount of generalized subsidies, the intensity and duration of inflation, and the magnitude of the slowdown, which should be in the expected action plan.
