Global ratings agency Standard and Poor’s (S&P) has provided Argentina with a much needed boost after it upgraded the country’s long-term sovereign credit rating to “CCC+” with a stable outlook and removed its “SD” (or “selective default”) rating as a result. The short-term rating was also upgraded to “C” from “SD”.
According to the agency, the recent restructuring of Argentina’s foreign and domestic debts ($66 billion and $40 billion respectively) has prompted an upgrade and provided positive news during a period of recession, default, hyperinflation and the ongoing coronavirus pandemic. S&P also forecasts a 12.5% contraction in real gross domestic product (GDP) in 2020, followed by a rebound of 4.8% in 2021 and a trend growth of around 3% beyond 2021.
With the restructuring of the complex debt deal now done and dusted, it is expected that the government will now turn its attention towards policies that will boost economic growth and tackle inflation beyond the short-term, as well as dealing with pressures facing the foreign exchange market and struggling currency. There will also be a major push to renegotiate the payment scheme with the International monetary Fund (IMF) that was signed in 2018 by the previous administration for $5.7 billion, which will have a significant effect on both fiscal and monetary decisions that the country’s officials can make.
S&P also highlighted that, while both the long-term and short-term ratings have been upgraded, there are still significant near-term challenges that will be faced. Aside from the macroeconomic issues that we’ve already mentioned, Argentina’s debt burden still remains high and small domestic capital markets will heighten financing vulnerabilities for the government and corporates. They also noted that the country’s history of economic stability and sudden changes in economic policy have painted a picture of low credibility and predictability of Argentina’s governing institutions.
While the credit upgrade will be greeted with much positivity, Argentinian officials and investors will also be waiting in anticipation for any potential changes in the nation’s credit rating by other ratings agencies such as Fitch and Moody’s. They will also be waiting on decisions made by index compilers MSCI and FTSE, both expressing concerns over the capital controls that were put in place last year which ledArgentinian equities being removed from the latter’s Frontier Market Index and its Emerging Markets status being put under the microscope by the former.