RIO DE JANEIRO, BRAZIL – Argentina leads the ranking of the most vulnerable emerging countries, according to an indicator developed by the Bloomberg agency, based on figures from the International Monetary Fund and the World Bank.
As a result, it has overtaken Turkey, which is in second place. South Africa completes the podium, while Egypt and Colombia rank fourth and fifth, respectively, out of a list of twenty countries.
Five factors account for Argentina’s top position on the podium of the countries with the worst economic and financial indicators:
1) Very high short-term external debt to GDP ratio (40.5 percent);
2) A deviation of 35.8 percentage points above the inflation target set for this year’s first quarter (Bloomberg uses the ten percent the government had announced when it still followed the inflation target scheme as a benchmark for comparison purposes);
3) Low hedging reserve ratio. It is only 85.9 percent, compared to, for instance, Brazil’s 159.9 percent, Colombia’s 133 percent, Mexico’s 116.1 percent, and Peru’s 239.9 percent;
4) Current account deficit of two percent of GDP. Turkey has a 0.7 percent surplus, Mexico and Brazil a 1.7 percent deficit and Peru a 1.4 percent deficit, but there are other nations in the ranking with worse performance than Argentina such as South Africa (-3.4 percent), Egypt (-2.4), Colombia (-3.9), Indonesia (-2.7), and Chile (-3.2 percent);
5) Poor performance in the category entitled “government effectiveness” (0.16 percent against, for example, 0.85 percent for Chile, which has one of the best indicators in the region).
In line with the indicator designed by Bloomberg, Moody’s vice president Gersan Zurita stated a few days ago that “the growing risk of policy change in Argentina could represent a threat to market access.”
“This would put significant pressure on the government’s liquidity position and increase the likelihood of debt restructuring in the next two or three years,” he added.
The rating agency forecasts that the Argentinian economy will contract by 1.5 percent in 2019, after recording a drop of 2.5 percent last year. “This, combined with high inflation and growing political uncertainty will endanger several sectors of the economy,” the agency explained in its statement.
The U.S. rating agency expects that provinces and municipalities will be affected by lower tax collection, higher spending and foreign currency debt, while companies will be exposed to the weakening of the economy and currency, as well as uncertainty over the future of government policies.
In fact, last week Moody changed the credit outlook of eight provinces, the Federal Capital and the municipality of the capital of Cordoba from “stable” to “negative” within the framework of deteriorating prospects for the future of the country.
The rating agency also announced that it had changed the outlook from stable to negative for ten Argentinian public utilities and infrastructure companies.
The companies affected by this rating adjustment are Camuzzi Gas Pampeana, Distribuidora de Gas Cuyana S.A, Naturgy Ban, Metrogas, Empresa Distribuidora de Electricidad Salta, and Empresa Distribuidora Norte. Also on the list of the ten companies are the Córdoba Provincial Energy Company, Albanesi SA Generación Mediterránea, Transportadora de Gas del Sur, and the company YPF Energía Eléctrica.
The decision to uphold the ratings, but change the future outlook for these Argentinian companies was taken by Moody’s Latin America Risk Rating Agent. The change reflects the Argentinian government’s review of its B2 rating outlook from stable to negative on July 12th and reflects the companies’ exposure to Argentina’s regulatory and operational environment.
“The revision of the rating outlook to negative for the issuers listed above primarily reflects the government’s negative outlook due to the fact that all companies remain subject to the local regulations and operating environment,” the rating agency said.