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Argentina maintains 2016 deficit forecast after spending hike

BUENOS AIRES, Dec 13 (Reuters) - Argentina still expects to finish 2016 with a budget deficit worth 4.8 percent of gross domestic product despite a sharp increase in end-of-the-year spending, vice cabinet chief Gustavo Lopetegui said on Tuesday.

In a decree published on Monday, the government altered the budget to boost public spending by about 130 billion pesos ($7.9 billion) to pay subsidies and retirees and to service debt.

Lopetegui said the government had already accounted for the increase when it projected the deficit. The idea that the spending hike would increase the deficit was an “incorrect interpretation,” he told journalists.

Since taking office one year ago, center-right President Mauricio Macri has tried to control the ballooning budget deficit inherited from former populist President Christina Fernandez, slashing subsidies for natural gas consumption and proposing to reform the tax code.

But his government has avoided drastic cuts that could threaten the economy’s recovery from a long recession or curb his popularity before next year’s midterm elections.

The 2017 budget, announced in September and approved by Congress last month, includes a deficit worth 4.2 percent of GDP, compared with earlier expectations for a 3.3 percent shortfall.

End-of-the-year spending increases were common under Fernandez’s government, which approved the budget that the current administration has worked with this year.

“We have been governing all year with a budget approved by the former government ... which did not reflect what was later going to happen in reality,” Lopetegui said.

$1 = 16.0300 Argentine pesos Reporting by Luc Cohen; Editing by Lisa Von Ahn