## 1argea2020001

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---

### Background
- Date of staff note: March 19, 2020.
- Purpose: Staff views on a feasible macroeconomic framework that could underpin a debt restructuring operation to restore debt sustainability with high probability.
- Nature of the note:
  - Different from the Fund’s Debt Sustainability Assessment in Article IV consultations or use of Fund resources: anchored to authorities’ broad policy announcements and staff’s view that policies could be developed and implemented to make the framework achievable.
  - Views expressed are those of IMF staff and do not represent those of the IMF’s Executive Board.
  - Has no implications—and is not intended to signal any implications—for future Fund financing for Argentina.
- Key recent developments and deterioration (since July 2019):
  - Peso depreciation: over 40 percent.
  - Sovereign spreads: risen by over 2700 basis points.
  - Net international reserves: fell by half.
  - Real GDP: contracted more than previously anticipated.
  - Gross public debt: rose to nearly 90 percent of GDP at end-2019, 13 percentage points higher than projected at the time of the Fourth Review.
  - Reserve adequacy: reserves now represent less than 50 percent of the IMF’s Assessing Reserve Adequacy (ARA) metric.
- Authorities’ actions:
  - Legislation adopted to give the executive the power to negotiate a debt restructuring.
  - Authorities remained current on foreign-law debt service and domestic-law AR$ debt, but unilaterally reprofiled maturing domestic-law FX T-bills and a dual-currency bond.
  - Appointed financial and legal advisors; envisage presenting an offer to creditors soon.
- Caveats emphasized by staff:
  - Exceptional global economic and financial uncertainty due to the COVID-19 pandemic.
  - Key near-term downside risk: larger and more prolonged adverse global and domestic effects of COVID-19.
  - Framework hinges on steadfast implementation of assumed policy agenda and an orderly debt restructuring that achieves high participation.

### Coverage of Public Debt (key statistics and composition)
- Total federal government debt at end-2019: US$323 billion, equivalent to 88 percent of GDP.
- Decomposition of total federal government debt:
  - Debt held by the IMF: US$44 billion (14 percent of total).
  - Other official creditors: US$29 billion (9 percent of total).
  - Private creditors: US$133 billion (41 percent of total).
  - Other public sector bodies (including BCRA and the social security trust fund): US$117 billion (36 percent of total).
- Private sector breakdown:
  - Foreign-law debt: US$73 billion.
    - Eligible debt issued prior to 2016: US$28 billion.
    - Issued after 2016: US$41 billion.
  - Domestic-law debt: US$60 billion, of which US$24 billion is denominated in foreign currency.
- Nonresident holdings: estimated to hold about 60 percent of all debt held by private creditors (US$80 billion), including most foreign-law debt and about 30 percent of all domestic-law debt.
- Staff’s analytical starting point for DSA in this note:
  - Federal government debt owed to official and private sector at end-2019: US$207 billion (about 56 percent of GDP).
  - Debt held by the BCRA and Fondo de Garantia de Sustentabilidad excluded from central aspect of analysis, with recognition that treatment of such debt affects ex-post overall federal government debt and central bank recapitalization needs.

### Gross Financing Needs (GFNs) and 2020 debt-service profile
- Estimated debt service in 2020: US$49 billion (components):
  - Payments to the IMF: US$1.6 billion.
  - Other official creditors: US$5.2 billion.
  - Private creditors holding foreign-law debt: US$5.1 billion.
  - Private creditors holding domestic-law FX-denominated debt: US$10.6 billion.
  - Creditors holding local currency debt: US$26.4 billion.
- Resulting gross financing needs in 2020: 13.3 percent of GDP, of which 6.1 percent of GDP is in foreign currency, beyond Argentina’s ability to generate financing sources.
- FX debt service obligations on originally contracted terms: would exceed US$30 billion annually during 2022–23.

### Restoring Debt Sustainability: Conceptual Framework and Targets
- Core requirement: public debt and GFNs must be lowered to levels consistent with Argentina’s ability to durably service its debt.
- Reference definition (IMF Executive Board-approved): public debt is sustainable when the primary balance needed to at least stabilize debt under both the baseline and realistic shock scenarios is economically and politically feasible, such that the level of debt is consistent with an acceptably low rollover risk and with preserving potential growth at a satisfactory level.
- Analytical necessities:
  - Assessment must be grounded in an economically and politically feasible macroeconomic framework and account for uncertainty, particularly to determine if criteria are met “with high probability”.
  - Feasible macroeconomic framework is critical because sustained debt and financing levels depend on growth, real exchange rates, primary balance, and post-restructuring refinancing terms.
- Post-restructuring uncertainty: given significant uncertainty about post-restructuring financing terms, the note considers several scenarios on post-restructuring financing.

### Feasible Macroeconomic Framework (overview, policy assumptions, and projections)
- Framework anchors:
  - Anchored around authorities’ broad policy announcements.
  - Predicated on staff’s view that a set of policies could be fully developed and implemented to render the macroeconomic framework achievable.
- Main macro assumptions and key projections:
  - Growth: potential real GDP growth estimated at 1½ percent. Real GDP contracts by 2.3 percent in 2020, then gradually recovers starting early 2021.
  - REER and trade balance: REER remains near current levels to support a trade surplus; export volumes pickup in 2021 then stabilize near historical rates (2-3 percent) after 2020.
  - Inflation: assumed to fall gradually; disinflation supported initially by incomes policies.
  - Primary fiscal balance: primary fiscal deficit of 1.6 percent of GDP in 2020, improving to a primary surplus of 0.8 percent of GDP by 2023; continued improvement to a medium-term level of 1.3 percent of GDP starting in 2025.
  - International reserves: steady and gradual increase; reserve coverage could increase to over 70 percent of the ARA metric over the medium term.
- Macroeconomic policy assumptions:
  - Fiscal policy: feasible fiscal consolidation of about 2½ percent of GDP over 2021-23 via revenue and spending measures; domestic revenue mobilization plan could boost federal revenues by about 1 percent of GDP; primary spending envelope broadly unchanged as a share of GDP with rebalancing toward human capital and infrastructure.
  - Monetary policy and disinflation: official exchange rate as de-facto nominal anchor; incomes policy supports near-term disinflation; temporary price controls lifted starting second half of 2020.
  - Capital controls: remain in place in the medium term with gradual unwinding to encourage FDI.
  - Growth support: efforts to encourage exports and incentivize FDI, including in Vaca Muerta.

### Financing gap and need for debt relief
- Cash-flows from the assumed macroeconomic framework over the next five years are insufficient to cover:
  - FX interest obligations on existing debt to the private sector of about US$25billion (contractual terms).
  - Principal repayments on FX debt owed to private creditors of about US$45billion (cannot be refinanced at rates consistent with debt sustainability).
- Conclusion: definitive operation generating sufficient cash-flow debt relief over the medium term and reducing the debt-to-GDP ratio is required to restore debt sustainability with high probability.

### Illustrative financing scenarios for 2021–24 and required cash-flow debt relief
- New financing to official creditors during 2021–24 (US$66 billion) assumed sufficient under all scenarios; the terms of this financing materially affect required debt relief.
- Three illustrative scenarios for average interest rate and maturity of new FX borrowing during 2021–24:
  - Scenario 1. Average interest rate of 9 percent and a maturity of 3 years.
  - Scenario 2. Average interest rate of 7 percent and a maturity of 5 years.
  - Scenario 3. Average interest rate of 5 percent and a maturity of 7 years.
- Minimum FX cash-flow debt relief (difference between pre- and post-restructuring FX debt service to private creditors) over 2020-30 required to meet GFN and FX debt service targets:
  - Under Scenario 1 (S1), US$80-85 billion.
  - Under Scenario 2 (S2), US$70-75 billion.
  - Under Scenario 3 (S3), US$50-55 billion.
- Virtually no scope for FX debt service payments to private creditors during 2020–24 given the analysis.
- Combinations of restructuring parameters:
  - Many combinations of face value haircuts, maturity extensions, grace periods, and interest rate cuts could deliver the requisite minimum cash-flow debt relief while ensuring a falling debt-to-GDP ratio.
  - Final calibration must ensure that after 2030 the debt-to-GDP ratio remains broadly stable and GFNs remain manageable.
  - Achieving broadly similar overall GFN targets across scenarios requires different treatment of domestic peso-denominated debt (longest maturities and lowest interest rates needed in Scenario 1, followed by Scenario 2).

### GFN stress tests and manageability
- Stress test design:
  - Applied in 2026-27; combines weaker growth, higher exchange rate depreciation, higher interest rates and shorter maturities on newly issued debt.
  - Annual GFNs under stress are higher over 2026-30 by around 3-4 percent of GDP on average.
  - A rollover shock is superimposed: foreign private creditors do not finance any new borrowing needs and only partially roll over maturing debt.
- Manageability criterion and results:
  - The maximum manageable GFN level is defined so implied financing needed from the domestic banking system (residual financier) remains manageable.
  - Staff’s view: implied financing should remain below 2 percent of GDP (on average), or 10 percent of Argentine banking system assets.
  - The manageable post-2024 GFN level implied by the stress analysis is an average of 5 percent of GDP and not exceeding 6 percent of GDP in any year.
  - Within this GFN target, FX debt service would need to average around 3 percent of GDP to contain exchange rate volatility impacts in the stress scenario.
  - Levels materially above these benchmarks could be challenging to manage even with sound macroeconomic and debt management policies.

### Debt stabilization analysis, probabilities, and risks
- Methodology:
  - Used 10,000 draws of shocks to growth, primary balances, real exchange rates, and interest rates to simulate fan charts centered on the debt paths in scenarios 1, 2, and 3.
  - Inferred probability of debt stabilizing by calculating the share of simulated debt trajectories for which the projected primary balance exceeds the debt stabilizing primary balance.
- Results:
  - The probabilities of debt stabilization are high, around 90 percent, in all three scenarios.
  - Fan-chart outcomes:
    - Scenario 1: Prob(DSPB < Proj. primary balance 2030) = 0.92
    - Scenario 2: Prob(DSPB < Proj. primary balance 2030) = 0.89
    - Scenario 3: Prob(DSPB < Proj. primary balance 2030) = 0.88
  - Scenario assumptions (selected): assumed that, in 2026 and 2027 the foreign private creditors’ rollover rate is 67 percent; it then recovers to 100 percent after that, but these creditors still do not finance the primary deficit.
  - Caveat: Historical uncertainty may not capture the possible extraordinarily large adverse effects from the COVID-19 pandemic.
- Risks to the macroeconomic framework:
  - Key near-term risk: Stronger-than-projected negative impact of the COVID-19 pandemic leading to an even stronger and more prolonged decline of external demand and commodity prices, and even weaker domestic activity.
  - Policy implementation risk: Failure to contain wage, pension and other spending pressures (including provincial pressures), or insufficient revenue mobilization could jeopardize projected fiscal consolidation starting in 2021 and lead to sizably larger monetary financing needs.
  - Contingent liabilities risk: Realization of contingent liabilities—including those related to provincial debt—could adversely affect Argentina’s debt path.
  - Debt-restructuring participation risk: Framework assumes a sustainable debt deal with high creditor participation; failure to reach such a deal could have serious implications for economic and financial stability.
  - Implication: Significant materialization of these risks would require a reassessment of Argentina’s macroeconomic situation, policies, and, possibly, debt-bearing capacity.

### Fiscal consolidation path and historical comparison
- Characterization: The fiscal consolidation path in this analysis is ambitious.
- Key comparisons and historical context:
  - Argentina projected to move from a primary deficit of 3.8 percent of GDP in 2017, to a surplus of 0.8 percent in 2023.
  - Argentina achieved a primary fiscal surplus in only 9 out of the past 57 years.
- Contribution to debt dynamics:
  - The proposed primary surpluses are projected to contribute about 10 percent of GDP toward debt dynamics between 2022 and 2030.
- Growth linkage:
  - Restoring debt sustainability with high probability will help put Argentina on a more solid and sustainable growth path.

### Feasible macroeconomic scenario — selected projections and key statistics
- Real GDP (percent change):
  - 2018: -2.4
  - 2019: -2.1
  - 2020: -2.3
  - 2021: 2.2
  - 2022: 2.2
  - 2023: 2.1
  - 2024: 2.0
  - 2025: 1.7
  - 2026: 1.5
  - 2027: 1.5
  - 2028: 1.5
  - 2029: 1.5
  - 2030: 1.5
- Primary fiscal balance (percent of GDP) 1/:
  - 2018: -3.5
  - 2019: -1.1
  - 2020: -1.6
  - 2021: -0.8
  - 2022: 0.0
  - 2023: 0.8
  - 2024: 1.1
  - 2025: 1.3
  - 2026: 1.3
  - 2027: 1.3
  - 2028: 1.3
  - 2029: 1.3
  - 2030: 1.3
- Trade Balance (percent of GDP):
  - 2018: -1.8
  - 2019: 3.0
  - 2020: 3.5
  - 2021: 2.7
  - 2022: 2.5
  - 2023: 2.0
  - 2024: 1.5
  - 2025: 1.3
  - 2026: 1.3
  - 2027: 1.3
  - 2028: 1.3
  - 2029: 1.3
  - 2030: 1.3
- REER (percent change, eop, + = appreciation):
  - 2018: -28.3
  - 2019: -4.7
  - 2020: 5.0
  - 2021–2030: 0.0 each year
- Base money (percent of GDP):
  - 2018: 9.3
  - 2019: 7.7
  - 2020: 7.7
  - 2021: 7.7
  - 2022: 7.7
  - 2023: 7.7
  - 2024: 7.7
  - 2025: 7.7
  - 2026: 7.7
  - 2027: 7.7
  - 2028: 7.7
  - 2029: 7.7
  - 2030: 7.7
- Memo items:
  - GDP (US$ billions) 2/:
    - 2018: 538
    - 2019: 450
    - 2020: 450
    - 2021: 482
    - 2022: 504
    - 2023: 526
    - 2024: 548
    - 2025: 570
    - 2026: 591
    - 2027: 611
    - 2028: 633
    - 2029: 655
    - 2030: 678
  - Gross reserves (percent of IMF ARA metric) 3/:
    - 2018: 62.9
    - 2019: 46.8
    - 2020: 50.6
    - 2021: 52.5
    - 2022: 55.5
    - 2023: 59.1
    - 2024: 60.9
    - 2025: 62.7
    - 2026: 63.9
    - 2027: 66.1
    - 2028: 68.1
    - 2029: 70.1
    - 2030: 72.0
- Notes:
  - 1/ Federal government. Excludes proceeds from FGS asset sales, BCRA profit transfers booked above the line in 2018, and other one-off measures.
  - 2/ Based on average period GDP and exchange rate.
  - 3/ Estimates based on the IMF's Assessing Reserve Adequacy (ARA) methodology.

_International Monetary Fund staff analysis (March 19, 2020)._

### Section 2(b), of the IMF’s Articles of Agreement. This note is different from the standard

### Section 2(b), of the IMF’s Articles of Agreement. This note is different from the standard

### Background
- Date of staff note: March 19, 2020.
- Purpose: Staff views on a feasible macroeconomic framework that could underpin a debt restructuring operation to restore debt sustainability with high probability.
- Nature of the note:
  - Different from the Fund’s Debt Sustainability Assessment in Article IV consultations or use of Fund resources: anchored to authorities’ broad policy announcements and staff’s view that policies could be developed and implemented to make the framework achievable.
  - Views expressed are those of IMF staff and do not represent those of the IMF’s Executive Board.
  - Has no implications—and is not intended to signal any implications—for future Fund financing for Argentina.
- Key recent developments and deterioration (since July 2019):
  - Peso depreciation: over 40 percent.
  - Sovereign spreads: risen by over 2700 basis points.
  - Net international reserves: fell by half.
  - Real GDP: contracted more than previously anticipated.
  - Gross public debt: rose to nearly 90 percent of GDP at end-2019, 13 percentage points higher than projected at the time of the Fourth Review.
  - Reserve adequacy: reserves now represent less than 50 percent of the IMF’s Assessing Reserve Adequacy (ARA) metric.
- Authorities’ actions:
  - Legislation adopted to give the executive the power to negotiate a debt restructuring.
  - Authorities remained current on foreign-law debt service and domestic-law AR$ debt, but unilaterally reprofiled maturing domestic-law FX T-bills and a dual-currency bond.
  - Appointed financial and legal advisors; envisage presenting an offer to creditors soon.
- Caveats emphasized by staff:
  - Exceptional global economic and financial uncertainty due to the COVID-19 pandemic.
  - Key near-term downside risk: larger and more prolonged adverse global and domestic effects of COVID-19.
  - Framework hinges on steadfast implementation of assumed policy agenda and an orderly debt restructuring that achieves high participation.

### Coverage of Public Debt (key statistics and composition)
- Total federal government debt at end-2019: US$323 billion, equivalent to 88 percent of GDP.
- Decomposition of total federal government debt:
  - Debt held by the IMF: US$44 billion (14 percent of total).
  - Other official creditors: US$29 billion (9 percent of total).
  - Private creditors: US$133 billion (41 percent of total).
  - Other public sector bodies (including BCRA and the social security trust fund): US$117 billion (36 percent of total).
- Private sector breakdown:
  - Foreign-law debt: US$73 billion.
    - Eligible debt issued prior to 2016: US$28 billion.
    - Issued after 2016: US$41 billion.
  - Domestic-law debt: US$60 billion, of which US$24 billion is denominated in foreign currency.
- Nonresident holdings: estimated to hold about 60 percent of all debt held by private creditors (US$80 billion), including most foreign-law debt and about 30 percent of all domestic-law debt.
- Staff’s analytical starting point for DSA in this note:
  - Federal government debt owed to official and private sector at end-2019: US$207 billion (about 56 percent of GDP).
  - Debt held by the BCRA and Fondo de Garantia de Sustentabilidad excluded from central aspect of analysis, with recognition that treatment of such debt affects ex-post overall federal government debt and central bank recapitalization needs.

### Gross Financing Needs (GFNs) and 2020 debt-service profile
- Estimated debt service in 2020: US$49 billion (components):
  - Payments to the IMF: US$1.6 billion.
  - Other official creditors: US$5.2 billion.
  - Private creditors holding foreign-law debt: US$5.1 billion.
  - Private creditors holding domestic-law FX-denominated debt: US$10.6 billion.
  - Creditors holding local currency debt: US$26.4 billion.
- Resulting gross financing needs in 2020: 13.3 percent of GDP, of which 6.1 percent of GDP is in foreign currency, beyond Argentina’s ability to generate financing sources.
- FX debt service obligations on originally contracted terms: would exceed US$30 billion annually during 2022–23.

### Restoring Debt Sustainability: Conceptual Framework and Targets
- Core requirement: public debt and GFNs must be lowered to levels consistent with Argentina’s ability to durably service its debt.
- Reference definition (IMF Executive Board-approved): public debt is sustainable when the primary balance needed to at least stabilize debt under both the baseline and realistic shock scenarios is economically and politically feasible, such that the level of debt is consistent with an acceptably low rollover risk and with preserving potential growth at a satisfactory level.
- Analytical necessities:
  - Assessment must be grounded in an economically and politically feasible macroeconomic framework and account for uncertainty, particularly to determine if criteria are met “with high probability”.
  - Feasible macroeconomic framework is critical because sustained debt and financing levels depend on growth, real exchange rates, primary balance, and post-restructuring refinancing terms.
- Post-restructuring uncertainty: given significant uncertainty about post-restructuring financing terms, the note considers several scenarios on post-restructuring financing (described in Section E of the full note).

### Feasible Macroeconomic Framework (overview and caveats)
- Framework anchors:
  - Anchored around authorities’ broad policy announcements.
  - Predicated on staff’s view that a set of policies could be fully developed and implemented to render the macroeconomic framework achievable.
- Main caveats:
  - Exceptional uncertainty due to COVID-19 pandemic and rapidly worsening economic conditions.
  - Framework assumes containment of wage and price pressures and consolidation of public finances.
  - Assumes an orderly debt restructuring operation that avoids default and achieves sufficiently high participation.
  - The feasible macroeconomic framework represents staff’s views at this time and has not been agreed with the Argentine authorities; future staff analysis would reexamine the framework in light of evolving conditions and policies.

### Staff mandate in this note
- Provide staff’s view on:
  - A feasible medium-term macroeconomic framework that could underpin a restructuring operation restoring debt sustainability with high probability.
  - Manageable levels of GFNs and debt service denominated in foreign currency in the medium-to-long run.
  - The envelope of debt relief on foreign-currency denominated debt that would deliver these targets and imply a declining debt-to-GDP ratio with high likelihood, conditional on the feasible macroeconomic framework, policy assumptions, and alternative assumptions about post-restructuring borrowing conditions.
- Clarification: staff does not involve itself in the process or modalities of the restructuring, which remain the purview of the authorities and their legal and financial advisors.

_Technical note, IMF staff (March 19, 2020)._

### 10.      Conditional on these macroeconomic and financing projections, a debt restructuring is

### 10.      Conditional on these macroeconomic and financing projections, a debt restructuring is

### Debt sustainability framework and objectives
- A debt restructuring is deemed to result in a sustainable debt position if it stabilizes the country’s debt to GDP ratio with an acceptably low rollover risk, operationalized by sufficiently low post-restructuring GFNs.
- First step: establish a medium-to-long-term GFN target appropriate to Argentina’s debt structure and depth of domestic financial markets; this defines a minimum cash-flow debt relief for 2020-30.
- Terms of the debt operation that deliver this minimum cash-flow debt relief must lead to a decline in the debt-to-GDP ratio between 2020 and 2030 with high likelihood.

### GFN and FX debt service targets (country-specific calibration)
- Targeted GFN path for Argentina (country-specific factors and small domestic banking system taken into account):
  - GFNs averaging no more than 5 percent of GDP after 2024, and not exceeding 6 percent of GDP in any year.
  - Debt service in foreign currency averaging no more than 3 percent of GDP after 2024.
- A debt service profile consistent with these targets would improve resilience to liquidity shocks of magnitude similar to past episodes.
- These GFN, FX debt service and debt targets exclude debt held by the BCRA and by FGS; including those obligations would raise the targets (example: the 2030 debt-to-GDP ratio including BCRA and FGS-held debt would be under 60 percent of GDP).

### Medium-to-long-term debt level and buffers
- Staff analysis suggests plausible debt operations delivering the minimum cash-flow debt relief could stabilize Argentina’s debt below 40 percent of GDP well beyond 2030.
- This benchmark creates buffers relative to the average level of debt from which past Argentine defaults have begun (around 45 percent of GDP) and would imply bringing FX debt to exports to about 130 percent (within the range realized after recent major restructurings).

### Feasible macroeconomic scenario (assumptions and key projections)
- Staff’s feasible macroeconomic framework (not underpinned by a fully articulated set of policies but assumed achievable given authorities’ broad announcements) includes:
  - Growth: potential real GDP growth estimated at 1½ percent. Real GDP contracts by 2.3 percent in 2020, then gradually recovers starting early 2021.
  - REER and trade balance: REER remains near current levels to support a trade surplus; export volumes pickup in 2021 then stabilize near historical rates (2-3 percent) after 2020.
  - Inflation: assumed to fall gradually; disinflation supported initially by incomes policies.
  - Primary fiscal balance: primary fiscal deficit of 1.6 percent of GDP in 2020, improving to a primary surplus of 0.8 percent of GDP by 2023; continued improvement to a medium-term level of 1.3 percent of GDP starting in 2025.
  - International reserves: steady and gradual increase; reserve coverage could increase to over 70 percent of the ARA metric over the medium term.
- Macroeconomic policy assumptions:
  - Fiscal policy: feasible fiscal consolidation of about 2½ percent of GDP over 2021-23 via revenue and spending measures; domestic revenue mobilization plan could boost federal revenues by about 1 percent of GDP; primary spending envelope broadly unchanged as a share of GDP with rebalancing toward human capital and infrastructure.
  - Monetary policy and disinflation: official exchange rate as de-facto nominal anchor; incomes policy supports near-term disinflation; temporary price controls lifted starting second half of 2020.
  - Capital controls: remain in place in the medium term with gradual unwinding to encourage FDI.
  - Growth support: efforts to encourage exports and incentivize FDI, including in Vaca Muerta.

### Financing gap and need for debt relief
- Cash-flows from the assumed macroeconomic framework over the next five years are insufficient to cover:
  - FX interest obligations on existing debt to the private sector of about US$25billion (contractual terms).
  - Principal repayments on FX debt owed to private creditors of about US$45billion (cannot be refinanced at rates consistent with debt sustainability).
- Conclusion: definitive operation generating sufficient cash-flow debt relief over the medium term and reducing the debt-to-GDP ratio is required to restore debt sustainability with high probability.

### Illustrative financing scenarios for 2021–24 (implications for required cash-flow debt relief)
- New financing to official creditors during 2021–24 (US$66 billion) assumed sufficient under all scenarios; the terms of this financing materially affect required debt relief.
- Three illustrative scenarios for average interest rate and maturity of new FX borrowing during 2021–24:
  - Scenario 1. Average interest rate of 9 percent and a maturity of 3 years.
  - Scenario 2. Average interest rate of 7 percent and a maturity of 5 years.
  - Scenario 3. Average interest rate of 5 percent and a maturity of 7 years.
- Minimum FX cash-flow debt relief (difference between pre- and post-restructuring FX debt service to private creditors) over 2020-30 required to meet GFN and FX debt service targets:
  - Under Scenario 1 (S1), US$80-85 billion.
  - Under Scenario 2 (S2), US$70-75 billion.
  - Under Scenario 3 (S3), US$50-55 billion.
- Virtually no scope for FX debt service payments to private creditors during 2020–24 given the analysis.

### Combinations of restructuring parameters
- Many combinations of face value haircuts, maturity extensions, grace periods, and interest rate cuts could deliver the requisite minimum cash-flow debt relief while ensuring a falling debt-to-GDP ratio.
- Final calibration must also ensure that after 2030 the debt-to-GDP ratio remains broadly stable and GFNs remain manageable.
- Achieving broadly similar overall GFN targets across scenarios requires different treatment of domestic peso-denominated debt (longest maturities and lowest interest rates needed in Scenario 1, followed by Scenario 2).

### GFN stress tests and prospects for stability
- Stress test design:
  - Applied in 2026-27; combines weaker growth, higher exchange rate depreciation, higher interest rates and shorter maturities on newly issued debt.
  - Annual GFNs under stress are higher over 2026-30 by around 3-4 percent of GDP on average.
  - A rollover shock is superimposed: foreign private creditors do not finance any new borrowing needs and only partially roll over maturing debt.
- Manageability criterion and results:
  - The maximum manageable GFN level is defined so implied financing needed from the domestic banking system (residual financier) remains manageable.
  - Staff’s view: implied financing should remain below 2 percent of GDP (on average), or 10 percent of Argentine banking system assets.
  - The manageable post-2024 GFN level implied by the stress analysis is an average of 5 percent of GDP and not exceeding 6 percent of GDP in any year.
  - Within this GFN target, FX debt service would need to average around 3 percent of GDP to contain exchange rate volatility impacts in the stress scenario.
  - Levels materially above these benchmarks could be challenging to manage even with sound macroeconomic and debt management policies.

*Source: IMF staff calculations and analysis (Argentina).*

### 26.      Additionally, staff examined the prospects for debt stabilization in Argentina, accounting

### 1argea2020001 - 26.      Additionally, staff examined the prospects for debt stabilization in Argentina, accounting

### Debt stabilization analysis and methodology
- Operational approach:
  - Used 10,000 draws of shocks to growth, primary balances, real exchange rates, and interest rates to simulate fan charts centered on the debt paths in scenarios 1, 2, and 3.
  - Inferred probability of debt stabilizing by calculating the share of simulated debt trajectories for which the projected primary balance exceeds the debt stabilizing primary balance.
- Results:
  - The probabilities of debt stabilization are high, around 90 percent, in all three scenarios.
- Scenario assumptions (selected):
  - It is assumed that, in 2026 and 2027 the foreign private creditors’ rollover rate is 67 percent; it then recovers to 100 percent after that, but these creditors still do not finance the primary deficit.
- Caveat:
  - Historical uncertainty may not capture the possible extraordinarily large adverse effects from the COVID-19 pandemic.

### Fan-chart outcomes (scenarios and probabilities)
- Debt fan chart: Scenario 1
  - Prob(DSPB < Proj. primary balance 2030) = 0.92
- Debt fan chart: Scenario 2
  - Prob(DSPB < Proj. primary balance 2030) = 0.89
- Debt fan chart: Scenario 3
  - Prob(DSPB < Proj. primary balance 2030) = 0.88

### Risks to the macroeconomic framework
- Key near-term risk:
  - Stronger-than-projected negative impact of the COVID-19 pandemic leading to an even stronger and more prolonged decline of external demand and commodity prices, and even weaker domestic activity.
  - Resulting effects: Argentina’s fiscal accounts would worsen due to lower growth and the need to increase spending on health and support programs; strict financing constraints would constrain ability to address the shock despite strict CFMs.
- Policy implementation risk:
  - Framework hinges on steadfast implementation of the assumed policy agenda.
  - Failure to contain wage, pension and other spending pressures (including provincial pressures), or insufficient revenue mobilization could jeopardize projected fiscal consolidation starting in 2021 and lead to sizably larger monetary financing needs, hurting disinflation and CFMs effectiveness.
  - Absence of reforms to boost exports and growth could undermine ability to sustain growth, maintain external balance, and rebuild international reserves.
- Contingent liabilities risk:
  - Realization of contingent liabilities—including those related to provincial debt—could adversely affect Argentina’s debt path.
- Debt-restructuring participation risk:
  - Framework assumes a sustainable debt deal with high creditor participation; failure to reach such a deal could have serious implications for economic and financial stability.
- Implication:
  - Significant materialization of these risks would require a reassessment of Argentina’s macroeconomic situation, policies, and, possibly, debt-bearing capacity.

### Fiscal consolidation path and comparison with past restructurings (Box 1)
- Characterization:
  - The fiscal consolidation path in this analysis is ambitious.
- Key comparisons and historical context:
  - Argentina projected to move from a primary deficit of 3.8 percent of GDP in 2017, to a surplus of 0.8 percent in 2023.
  - This projected fiscal effort is similar to that of other sizable restructurings, especially after considering fiscal effort in the years leading up to the restructuring.
  - Argentina achieved a primary fiscal surplus in only 9 out of the past 57 years.
- Contribution to debt dynamics:
  - The proposed primary surpluses are projected to contribute about 10 percent of GDP toward debt dynamics between 2022 and 2030.
- Growth outlook linkage:
  - Restoring debt sustainability with high probability will help put Argentina on a more solid and sustainable growth path.
  - Past restructurings have been associated with important expansion of economic activity, though there is no clear relationship between the size of the fiscal adjustment and the growth outcomes.

### Feasible macroeconomic scenario — selected projections and key statistics (Table 2)
- Real GDP (percent change):
  - 2018: -2.4
  - 2019: -2.1
  - 2020: -2.3
  - 2021: 2.2
  - 2022: 2.2
  - 2023: 2.1
  - 2024: 2.0
  - 2025: 1.7
  - 2026: 1.5
  - 2027: 1.5
  - 2028: 1.5
  - 2029: 1.5
  - 2030: 1.5
- Primary fiscal balance (percent of GDP) 1/:
  - 2018: -3.5
  - 2019: -1.1
  - 2020: -1.6
  - 2021: -0.8
  - 2022: 0.0
  - 2023: 0.8
  - 2024: 1.1
  - 2025: 1.3
  - 2026: 1.3
  - 2027: 1.3
  - 2028: 1.3
  - 2029: 1.3
  - 2030: 1.3
- Trade Balance (percent of GDP):
  - 2018: -1.8
  - 2019: 3.0
  - 2020: 3.5
  - 2021: 2.7
  - 2022: 2.5
  - 2023: 2.0
  - 2024: 1.5
  - 2025: 1.3
  - 2026: 1.3
  - 2027: 1.3
  - 2028: 1.3
  - 2029: 1.3
  - 2030: 1.3
- REER (percent change, eop, + = appreciation):
  - 2018: -28.3
  - 2019: -4.7
  - 2020: 5.0
  - 2021–2030: 0.0 each year
- Base money (percent of GDP):
  - 2018: 9.3
  - 2019: 7.7
  - 2020: 7.7
  - 2021: 7.7
  - 2022: 7.7
  - 2023: 7.7
  - 2024: 7.7
  - 2025: 7.7
  - 2026: 7.7
  - 2027: 7.7
  - 2028: 7.7
  - 2029: 7.7
  - 2030: 7.7
- Memo items:
  - GDP (US$ billions) 2/:
    - 2018: 538
    - 2019: 450
    - 2020: 450
    - 2021: 482
    - 2022: 504
    - 2023: 526
    - 2024: 548
    - 2025: 570
    - 2026: 591
    - 2027: 611
    - 2028: 633
    - 2029: 655
    - 2030: 678
  - Gross reserves (percent of IMF ARA metric) 3/:
    - 2018: 62.9
    - 2019: 46.8
    - 2020: 50.6
    - 2021: 52.5
    - 2022: 55.5
    - 2023: 59.1
    - 2024: 60.9
    - 2025: 62.7
    - 2026: 63.9
    - 2027: 66.1
    - 2028: 68.1
    - 2029: 70.1
    - 2030: 72.0
- Notes:
  - 1/ Federal government. Excludes proceeds from FGS asset sales, BCRA profit transfers booked above the line in 2018, and other one-off measures.
  - 2/ Based on average period GDP and exchange rate.
  - 3/ Estimates based on the IMF's Assessing Reserve Adequacy (ARA) methodology.

*International Monetary Fund staff analysis as presented in the provided content unit.*

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_Source: https://www.imf.org/-/media/files/publications/cr/2020/english/1argea2020001.pdf_