Fitch Ratings has decided to downgrade its rating for Argentina’s long-term foreign currency and local currency bonds from ‘CCC’ to ‘CCC-‘.
The decision “reflects deep macroeconomic imbalances and a highly constrained external liquidity position”, which should undermine the country’s ability to “repay” as foreign currency debt service picks up in the coming years.
For the rating agency, the Extended Fund Mechanism that the International Monetary Fund (IMF) created in March has not yet proved to be a strong enough anchor to promote policies that improve international reserves and the prospects for a recovery in access to markets.
In this context, “it is not clear whether this (the IMF instrument) will be capable of any result until the next elections in 2023, increasing the risks of a credit event”, he points out.
In addition, Argentine inflation is expected to reach 100% in 2022, the highest level in decades, Fitch projects.
The Central Bank of the Argentine Republic (BCRA) raised interest rates to 107% per year, from 45% before the start of the upward cycle, but has not yet managed to achieve positive real interest rates as intended, the institution highlights.
In this scenario of high basic interest rates and scarce reserves, the sustainability of the Argentine public debt presents risks, in Fitch’s assessment.
The government has recently financed its spending through the local peso market, as funding from the BCRA has been reduced, he recalls.
“This required shorter terms and higher rates, resulting in a pooling of maturities in mid-2023 that could be difficult to roll over amid potential electoral instabilities,” the agency warns.
Source: CNN Brasil
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