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BUENOS AIRES, June 28 (Reuters) - Argentina's fiscal targets, on track so far this year, are about to get squeezed as pension payouts rise and tax revenues weaken amid a biting economic rut, potentially leaving a poisoned chalice for whoever is elected president at the end of this year.
The recession-hit government has been tightening its budget to trim crippling public debts which forced it to strike a $56.3 billion standby financing deal with the International Monetary Fund (IMF) last year and agree to meet fiscal targets.
This helped the government of President Mauricio Macri, seeking re-election, to post a respectable primary surplus of 0.2% of gross domestic product (GDP) in the January-May period. The surplus in May alone was a eight-year high of 25.97 billion pesos.
Four analysts surveyed by Reuters said the second half of 2019 would be much tougher, however, estimating the country would post a primary deficit - not including debt interest payments - of 0.7% of GDP, or higher than the deficit of 0.5% agreed with the IMF.
The pressure would mount further in 2020, raising the need for controversial reforms to rein in public spending after presidential elections in October and November of this year.
"Next year poses a huge fiscal challenge," Nadín Argañaraz, director of the Argentine Institute of Fiscal Analysis (IARAF), told Reuters, predicting a primary deficit of 0.7% of GDP in 2019.
"The paths of how to achieve a sustainable surplus should be a matter of debate for the presidential candidates," he added.
The analysts polled said the surplus would start to disappear in the coming months as expenses outgrew revenues ahead of the elections and inflation linked pensions spiked.
Argentina would likely get a pass from the IMF for a near miss, but a steeper 1% surplus target in 2020 now looked much tougher to hit.
"If that indexation to past inflation is not broken, Argentina will not be able to consolidate fiscally, that is the most urgent thing that the markets are going to ask for," said Martin Vauthier, an economist at the consultancy Eco Go, who estimates a primary deficit of 0.9% of GDP in 2019.
Macri last month hinted he could modify the pension scheme if he won, citing the "consolidation of the sustainable and equitable pension system" as part of a list of proposals, without giving more details.
The coalition of his Peronist rival in the elections, Alberto Fernandez, instead called for "recovering the purchasing power" of retirees, who he said had been hit hard by a previous tweak Macri made to the pension scheme.
This initiative, approved by Congress in 2017, relieved pressure from pension payments in the short term, but was criticized by Peronists on the left as overly tough on retirees and conservatives on the right, who said it did not resolve underlying imbalances.
Further signs of pension reform would go down well with financial markets, but would rile the electorate ahead of what is expected to be a closely-fought election battle.
Both Macri and Fernandez have stayed largely quiet on the matter.
Macri's administration and Fernandez's campaign team did not respond to Reuters inquiries on the matter.
Some polls indicate the current balance of power in parliament will stay largely intact after the elections, which would hinder fiscal reforms during the next presidency.
But Macri would be more likely to make changes, according to Juan Lezica, an economist at consultancy ACM.
"If the ruling party continues, we may see some reforms," he said.
(Reporting by Gabriel Burin; writing by Nicolas Misculin; editing by Adam Jourdan and G Crosse)