Argentina’s credit rating has been raised from C to CC by Fitch Ratings, who define the new rating as a default or similar event being imminent in the next few years, and that the next administration faces an uphill struggle. Although Fitch stated that the country was not in a “default process,” the new rating reflects a revised view considering the country’s authorities’ decision to abandon an exchange plan in March. The agency says that the CC rating means a default or similar event seems likely in the next few years, regardless of the outcome of this year’s general election. The new rating marks a deteriorating outlook for Argentina, as the country fights a further contraction in the Gross Domestic Product (GDP), hardening of the foreign exchange market, and a severe drought. The agency projects a 3.4% contraction in the GDP in 2023 due to the drought, and it still expects the primary deficit of the federal government to increase to 3.2% of GDP this year, from 2.6% in 2022.
Argentina’s economic problems
One of the reasons that Fitch Ratings raised the country’s credit rating to CC from C is the authorities’ apparent unorthodox measures to resolve this year’s negative economic situation- a severe drought and the renegotiation of a deal with the International Monetary Fund (IMF) to secure new financing. However, Fitch’s rating reflects concerns that the measures being taken, along with unorthodox USD30bn in peso swaps, have pushed out maturity profiles, weakened the central bank, and overwhelmed the next government.
Difficult governance scenario
Furthermore, Fitch’s analysis noted that Argentina’s system of governance may face additional obstacles after the election, complicating the outlook for the country. The issues include ongoing social unrest, the rise of Peronist leader Alberto Férnandez, and environmental concerns. Due to the government’s unorthodox steps to fight the economic damage caused by the drought, Fitch now believes that it has become increasingly difficult to anticipate a post-election adjustment plan viable enough to prompt a sustained accumulation of reserves and the recovery of market access.
In conclusion, the negative outlook on Argentina’s credit rating by Fitch highlights the country’s economic struggles and governance scenarios, which may cause significant issues in the coming years. However, it remains to see how the country will react to these challenges and turn their fortunes around.
Summary (blend with the article):
Fitch Ratings has raised Argentina’s credit rating to CC from C following the country’s apparent abandonment of exchange, announced in March, which would have constituted a default. The new rating marks a deterioration, as Fitch believes that there is a high likelihood of a default or similar event occurring in the next few years, regardless of the outcome of this year’s general election. Additionally, the agency projects a 3.4% contraction in the GDP in 2023, together with the primary deficit of the federal government increasing to 3.2% of GDP this year, up from 2.6% in 2022. The rise in the credit rating reflects concern about Argentina’s economic situation, raised further by the negative impact of a severe drought and the renegotiation of a deal with the IMF to secure additional financing. Moreover, Fitch identifies governance as a key area of concern, with unorthodox steps being taken by the government in dealing with the economic damage caused by the drought, undermining the central bank, and weakening the next administration, making it difficult to guarantee a sustained accumulation of reserves and recovery of market access.
Argentina’s economic struggles
Following years of economic instability, Argentina continues to face challenges after a default in 2019. With the pandemic bringing significant disruption, the country has struggled to regain its footing in recent years. The country’s economy has suffered from a severe drought, hardening of the foreign exchange market, and an unorthodox response from its government. Many of the measures being taken, including the recent USD30bn peso swaps, have been criticized for pushing out maturity profiles, weakening the central bank, and overwhelming the next administration. With the primary deficit of the federal government increasing to 3.2% of GDP this year, up from 2.6% in 2022, and the deficit in external accounts rising to 2.8% of GDP from 0.6 % in 2022, there appears to be little respite from their economic struggles.
Challenging political climate
The country’s political climate is also causing concern, with many issues appearing that may pose problems for future administrations. These include ongoing social unrest, the rise of Peronist leader Alberto Férnandez, who has led a campaign criticism of the government’s response to the pandemic, and environmental concerns, with many experts warning of the long-term effects of the recent droughts. Governance remains a crucial issue for Argentina, with unorthodox steps being taken by the government in dealing with the economic damage caused by the severe drought. As a result, Fitch now believes it has become increasingly challenging to anticipate a post-election adjustment plan viable enough to prompt a sustained accumulation of reserves and the recovery of market access.
Conclusion
Despite these challenges, it remains to see how Argentina will respond and attempt to regain its economic footing. With the deficit in external accounts rising, the central bank being weakened, and the government facing criticism for its unorthodox economic policies, there is undoubtedly a challenging road ahead. However, until there is greater clarity on the long-term effects of the pandemic and ongoing social unrest, there will remain considerable uncertainty about the country’s future. Until then, Argentina will likely continue to face difficulties as it navigates a challenging economic and political climate.
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This Tuesday the 13th, Fitch Ratings raised Argentina’s credit rating from C to CC. The agency also reaffirmed the long-term local currency rating at CCC-.
The agency says in a statement that it generally does not assign outlooks to ratings at or below the CCC+ level.
Fitch said the rating upgrade reflects its revised view that the country has not entered a default process.
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The reason, he said, is that the Argentine authorities gave up on carrying out an exchange, announced in March, which would constitute a default according to the agency’s definitions.
Fitch said, however, that the CC rating means a default or similar event seems likely in the next few years, regardless of the outcome of this year’s general election.
In a statement, the agency commented that authorities are using unorthodox measures to deal with this year’s negative economic situation, aggravated by a severe drought, and to renegotiate an International Monetary Fund (IMF) program to obtain new financing. This should overwhelm the next government and create a difficult scenario for the governance of the next president.
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“Thus, in Fitch’s opinion, it is increasingly difficult to contemplate a post-election adjustment plan sufficient to guarantee a sustained accumulation of reserves and the recovery of market access,” the agency said.
Fitch’s projection is for a 3.4% contraction in the Gross Domestic Product (GDP) in 2023, due to the drought and the hardening of the foreign exchange market. The agency still expects that the primary deficit of the federal government will increase to 3.2% of GDP this year, from 2.6% in 2022, and that the deficit in external accounts will rise to 2.8% of GDP, from 0.6 % last year.
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