Washington… we have some problems

Events are taking place at high speed. The severe drought, probably the worst in six decades, is creating new challenges for economic policies.  Exports are likely to drop by over USD 20 billion and it remains unclear how the Central Bank will manage a drastic shortage of dollars.  But the story does not end there. The Treasury is losing much needed tax revenues and the primary deficit is now likely to widen to 3.6% of GDP, well above the 1.9% of GDP target that is in the IMF program.  In addition, the drought is making the recession worse, and now we estimate that the economy will contract around 4.5% this year after growing 5.2% in 2022.