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S&P upgrades Argentina by 1 notch on economic policy progress

S&P Global Ratings on April 4 upgraded Argentina's long-term ratings by one notch, citing progress in "overall economic policy aimed at resolving large economic imbalances while restoring the country's policy credibility."

S&P raised Argentina's long-term sovereign credit ratings to B from B-, with a stable outlook. It affirmed the short-term sovereign credit ratings at B and upgraded the national scale ratings to raA+ from raBBB.

The rating agency also raised its transfer and convertibility assessment on Argentina to B+ from B-, in line with S&P's assessment of sustained local access to foreign exchange.

Argentina has made progress in improving external liquidity and access to commercial funding, S&P said, noting that the country has issued around $29.4 billion of external bonds since the start of 2016. Initial measures aimed at resolving the country's economic imbalances and microeconomic distortions, such as lowering inflation to an expected 20% in 2017 and 15% in 2018, are also helping to gradually re-establish economic stability, the rating agency added.

S&P said Argentine institutions are strengthening, including the central bank, which is moving toward greater autonomy and an inflation-target regime.

However, Argentine President Mauricio Macri's popularity is at the lowest point since he was elected, and S&P believes the government will continue to deal with political and social challenges to implement its economic plan.

Assuming that the government's economic policy approach gradually improves investor and consumer confidence, S&P expects the Argentine economy to recover from a 2.3% contraction in 2016 and grow around 3% on average during the next three years.

The stable outlook on Argentina incorporates the rating agency's expectation for broad continuity in overall policies over the next two years, as well as uncertainties about how fast the government can implement its economic plan given ongoing political challenges.

"We expect higher investments in public works, agriculture, and energy, combined with stronger prospects for the agriculture harvest this year, to be the main drivers behind the initial recovery in 2017," S&P said.

S&P Global Ratings and S&P Global Market Intelligence are owned by S&P Global Inc.