Moody’s warns of Argentine provincial debt restructuring risk

The risk rating agency Moody’s warned this Friday about the risk of restructuring the Argentine provincial debt.

In 2022 the economy will close with a growth close to 4.4%, according to different projections, but by 2023, the slowdown will reduce growth to 0.5%, according to the Organization for Economic Cooperation and Development (OECD).

This weakening in economic growth will have, among other repercussions, an impact on the fiscal soundness of Argentine local governments, as analyzed by the credit rating agency Moody’s, in a report published this Friday, which suggests that this slowdown will reduce the income of many of the provinces.

“Macroeconomic imbalances will weigh on Argentina’s growth through 2023 amid a high fiscal deficit, accelerating inflation, a weakening currency and political tensions ahead of the October 2023 presidential election,” Moody’s says.

SOCIAL PROBLEMS WILL PUT PRESSURE ON SPENDING

It also highlights another aspect that will impact provincial efforts: the growing social demands in the midst of falling purchasing power, high levels of poverty and unemployment.

These elements “will push regional and local governments to increase spending in the next 12 to 18 months.”

So, as a result of a slowdown in economic activity and spending growth, it will “test operating margins in most jurisdictions.”

And in a scenario of liquidity risk, and limited access to foreign currency, “the capacity of Argentine regional and local governments to refinance their debts will be put to the test,” says the report.

Warning: “Argentine regional and local government debt maturities will increase during the 2023-2024 period and peak in 2025, exacerbating the risk of debt restructurings in the medium term,” the report states.

With information from Bloombert Línea