MercoPress. South Atlantic News Agency

Moody's improves Argentina's grades

Lifting exchange rate controls will bring on new challenges for the Libertarian administration

The international credit rating agency Moody's Friday improved Argentina's long-term foreign and local currency issuer grades from Ca to Caa3 but warned that “there are still significant risks to the country's ability to cover upcoming external debt payments.”

Moody's also twitched Argentina's outlook from stable to positive given the Libertarian “government's forceful policy change that has allowed a fiscal and monetary adjustment that is helping to correct economic imbalances and stabilize external finances, in addition to reducing the probability of a credit event.”

The agency also underlined that “there are still significant risks to the country's ability to cover the upcoming external debt payments, such as those related to the elimination of exchange and capital controls or negative shocks that could trigger a credit event with significant losses for bondholders.”

The change in outlook reflects, according to Moody's, “the upside potential for the ratings as Argentina continues to move toward the next phase of its macroeconomic adjustment” amid “an orderly transition to a more open capital account would be consistent with higher ratings.”

A “strong fiscal performance has led to a significant reduction in the public debt burden after it rose sharply in 2023 to 156% of GDP,” Moody's also noted. The public debt was 77% of GDP in 2024 and will continue to decline to close to 50% of GDP in 2026, it has been forecast.

“Debt affordability has stabilized, and we project that the interest-to-revenue ratio will gradually decline to 18.7% in 2026 from 20% in 2024″, Moody's also argued while highlighting that ”fiscal tightening allowed the central bank to strengthen its balance sheet and adopt a tight monetary policy that helped reduce inflation from very high levels.“

”The forceful change in fiscal and monetary policy, the stabilization of external finances, and the adoption of market-oriented reforms have increased the confidence of the local private sector and have revived the dynamism of the domestic credit and financial markets,“ Moody's also pointed out.

The future lifting of the exchange stocks will bring ”new challenges that could jeopardize the progress made to date, including balance of payments risks to which the authorities will need to respond,“ Moody's insisted while advising against possible ”new imbalances, capital outflows that would exacerbate existing imbalances, or the risk of excessive import growth, which could jeopardize the sustainability of the balance of payments.”