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Rating Action:

Moody's affirms Argentina's Ca ratings; outlook stable

27 Sep 2022

New York, September 27, 2022 -- Moody's Investors Service ("Moody's") has today affirmed the Government of Argentina's Ca foreign-currency and local-currency long-term issuer and senior unsecured ratings and the (P)Ca senior unsecured ratings for shelf registrations. Argentina's short-term issuer rating was also affirmed at Not Prime (NP). The outlook remains stable.

The decision to affirm the Ca ratings balances Argentina's limited market access, weak governance, and history of recurrent debt restructurings with recent efforts to marshal fiscal and monetary measures to start addressing underlying macroeconomic imbalances in the context of the IMF program that was approved earlier this year.

At this rating level, the stable outlook implies that overall credit conditions are unlikely to improve materially and, consequently, expected losses remain aligned with those associated with a Ca rating.

The local-currency and foreign-currency ceilings remain unchanged. The Caa1 local-currency ceiling is three notches above the sovereign rating reflecting the degree of government intervention in the economy and the comparatively low respect for the rule of law. The Caa3 foreign-currency ceiling is two notches below the local currency ceiling and reflects the high risk of transfer and convertibility controls in the event of a default.

RATINGS RATIONALE

Argentina has a long history of credit-negative policymaking and currently faces a series of macroeconomic challenges that are likely to prolong existing credit risks. Lack of market access and persistent macroeconomic imbalances continue to undermine the sovereign credit profile. Even though Argentina has signed an Extended Fund Facility with the IMF, lack of political consensus over the pace and direction of fiscal consolidation will likely hinder the government's ability to consistently meet targets over the span of the program.

Lack of adequate and consistent market access remains one of Argentina's major credit constraints affecting both foreign-currency and local-currency obligations. A history of recurrent defaults and a weak institutional framework limit access to cross-border funding. And years of high inflation and confiscation of domestic savings have led to a comparatively underdeveloped financial system, conditions that restrict access to peso funding.

Inflation is a perennial issue for Argentina. In August, monthly inflation was 7% and inflation over the prior 12 months reached 78.5%. Moody's projects inflation will reach 85% in 2022 and 80% in 2023, with upside risks to both projections. Inflation is highly susceptible to exchange rate shocks and an abrupt devaluation, such as one triggered by lack of sufficient international reserves to defend the currency, would push inflation even higher.

International reserves stood at $37.6 billion on 21 September. This represents a $1 billion increase since earlier in the month after the government announced more favorable conditions to certain exporters that sold dollars to the central bank to boost overall reserves. But usable reserves are much lower. The gross number includes currency swaps, certain private sector deposits, and official bilateral loans. Excluding these items leaves Argentina with net reserves of less than $2 billion.

Earlier this year Argentina signed a new a 30-month $44 billion Extended Fund Facility (EFF) with the IMF. On 19 September the IMF announced it had reached a staff level agreement on the second review of the EFF. Full compliance with the EFF targets will require continuing with fiscal consolidation in 2023, a presidential election year. This will be a significant challenge to Argentina given political differences within the governing coalition on the pace of fiscal consolidation. Moody's estimates that the primary deficit for 2022 and 2023 will breach the IMF targets, reaching 2.7% and 2.3% of GDP respectively.

RATIONALE FOR STABLE OUTLOOK

       

The stable outlook reflects Moody's expectations that overall credit conditions are unlikely to materially improve and, consequently, expected losses will remain aligned with those associated with a Ca rating, which incorporates losses in the order of 65% to investors.

ENVIRONMENTAL, SOCIAL, GOVERNANCE CONSIDERATIONS

Argentina's ESG Credit Impact score is very highly negative (CIS-5), reflecting its very weak governance profile and limited resilience because of high debt metrics, as well as its moderately negative exposure to social and environmental risks.

Moody's assesses Argentina's exposure to environmental risks as moderately negative (E-3), reflecting the risks that water stress, other physical climate risks, and the loss of natural capital pose to this agricultural exporter. In 2018, a major drought was the key driver of an economic recession, and heat and water risks will remain a credit challenge.

Exposure to social risks is moderately negative (S-3), balancing high levels of exposure to labor and income-related risks with moderate demographic, housing and health and safety pressures. Argentina has a history of low job creation and macroeconomic instability that has increased domestic poverty. The country benefits from comparatively strong educational outcomes.

The influence of governance on Argentina's credit profile is very highly negative (G-5), reflecting the impact of the long-standing severe governance challenges that have in the past led to inconsistent policymaking and debt defaults. Years of unpredictable and unsustainable fiscal and monetary policy frameworks have repeatedly resulted in domestic and external macroeconomic imbalances that leave the economy highly susceptible to economic shocks.

GDP per capita (PPP basis, US$): 23,597 (2021) (also known as Per Capita Income)

Real GDP growth (% change): 10.4% (2021) (also known as GDP Growth)

Inflation Rate (CPI, % change Dec/Dec): 50.9% (2021)

Gen. Gov. Financial Balance/GDP: -3.6% (2021) (also known as Fiscal Balance)

Current Account Balance/GDP: 1.4% (2021) (also known as External Balance)

External debt/GDP: 55% (2021)

Economic resiliency: b2

Default history: At least one default event (on bonds and/or loans) has been recorded since 1983.

On 22 September 2022, a rating committee was called to discuss the rating of the Argentina, Government of. The main points raised during the discussion were: The issuer's economic fundamentals, including its economic strength, have not materially changed. The issuer's institutions and governance strength, have not materially changed. The issuer's governance and/or management, have materially decreased. The issuer's susceptibility to event risks has not materially changed.

FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS

A positive rating action would require clear evidence of will and ability on the part of the authorities to set a credible policy path that leads to a significant and sustained reduction in macroeconomic imbalances, such that  access to the capital markets is restored. Moody's would downgrade Argentina's rating if it considered underlying credit conditions were likely to lead to debt restructurings in which losses to bondholders could exceed the 65% mark.

The principal methodology used in these ratings was Sovereign Ratings Methodology published in November 2019 and available at https://ratings.moodys.com/api/rmc-documents/63168. Alternatively, please see the Rating Methodologies page on https://ratings.moodys.com for a copy of this methodology.

The weighting of all rating factors is described in the methodology used in this credit rating action, if applicable.

REGULATORY DISCLOSURES

For further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody's Rating Symbols and Definitions can be found on https://ratings.moodys.com/rating-definitions.

For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the issuer/deal page for the respective issuer on https://ratings.moodys.com.

For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.

The ratings have been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.

These ratings are solicited. Please refer to Moody's Policy for Designating and Assigning Unsolicited Credit Ratings available on its website https://ratings.moodys.com.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

Moody's general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at https://ratings.moodys.com/documents/PBC_1288235.

The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the EU and is endorsed by Moody's Deutschland GmbH, An der Welle 5, Frankfurt am Main 60322, Germany, in accordance with Art.4 paragraph 3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies. Further information on the EU endorsement status and on the Moody's office that issued the credit rating is available on https://ratings.moodys.com.

The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the UK and is endorsed by Moody's Investors Service Limited, One Canada Square, Canary Wharf, London E14 5FA under the law applicable to credit rating agencies in the UK. Further information on the UK endorsement status and on the Moody's office that issued the credit rating is available on https://ratings.moodys.com.

Please see https://ratings.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Please see the issuer/deal page on https://ratings.moodys.com for additional regulatory disclosures for each credit rating.

Gabriel Torres
VP - Senior Credit Officer
Sovereign Risk Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

Alejandro Olivo
MD-Sovereign/Sub Sovereign
Sovereign Risk Group
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454

Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

No Related Data.
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