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ECONOMY | 26-10-2022 17:14

Argentina downgraded by Fitch on rising debt repayment risk

Nation's credit score cut by a notch to CCC- from CCC as Fitch Ratins agency warns of “highly constrained” external-liquidity position will undermine its ability to repay debt.

Argentina was slashed deeper into junk by Fitch Ratings on risk the nation’s deep macroeconomic imbalances and “highly constrained” external-liquidity position will undermine its ability to repay debt.

The South American nation’s credit score was cut by a notch to CCC- from CCC, according to a Wednesday statement. A deal with the International Monetary Fund reached earlier this year hasn’t been a strong anchor for policy improvement to build reserves and improve the prospect of accessing markets, according to Fitch. 

The downgrade “reflects deep macroeconomic imbalances and a highly constrained external liquidity position, which Fitch expects to increasingly undermine repayment capacity as foreign-currency debt service ramps up in the coming years,” Fitch analysts including Todd Martinez wrote.

Argentina’s dollar bonds maturing in 2030 slipped 0.2 cent to about 22 cents on the dollar, as of 1.40pm Wednesday in New York. The sovereign debt is down more than 36 percent this year as the government failed to meaningfully reign in annual inflation barrelling toward triple digits. 

Infighting between factions of the government’s ruling coalition has also given investors little faith the government will turn the economy around before the October 2023 presidential elections. Vice-President Cristina Fernández de Kirchner fuelled uncertainty on Wednesday, criticising price increases authorised by her own government amid a wave of cabinet resignations.

To be sure, efforts to reign in fiscal spending and reduce energy subsidies under Economy Minister Sergio Massa are signs of progress, according to Fitch. 

“Nevertheless, a comprehensive policy plan needed to boost confidence remains elusive,” Martinez wrote. “This appears unlikely to emerge until after the 2023 elections.”

 

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by Scott Squires & María Elena Vizcaino, Bloomberg

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