IMF Staff Technical Statement on Argentina
IMF News, June 1, 2020
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- IMF Staff Technical Statement on Argentina
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Bibliographic details
- Published: June 1, 2020
Context and purpose
- Press Release No. 20/228; June 1, 2020.
- IMF staff provided analysis of Argentine authorities’ revised debt restructuring proposal of May 26 as part of ongoing technical assistance.
- Objective: assess the revised proposal against the framework set forth in staff’s Technical Note on Public Debt Sustainability published on March 20, 2020.
Key analytical assumptions and caveats
- The underlying macroeconomic assumptions in the March Technical Note remain subject to exceptional uncertainties, particularly regarding the impact of the Covid-19 pandemic, with significant downside risks to Argentina’s economic outlook, fiscal position, and debt-carrying capacity.
- Staff’s findings are predicated on the downside risks highlighted above not materializing.
- Two assessment approaches were used:
- Macroeconomic framework and financing assumptions from the March Technical Note.
- Macroeconomic framework from the March Technical Note and the financing assumptions contained in the authorities’ revised debt restructuring proposal of May 26.
Main findings
- Overall conclusion:
- IMF staff analysis finds that the authorities’ revised debt restructuring proposal of May 26 would be consistent with restoring debt sustainability with high probability under the March Technical Note’s macroeconomic assumption and the authorities’ financing assumptions contained in their revised debt restructuring proposal of May 26.
- Staff’s assessment also indicates there is only limited scope to increase payments to private creditors and still meet the debt and debt service thresholds.
- Technical assessment — using March Technical Note macroeconomic and financing assumptions:
- The authorities’ revised proposal would result in gross financing needs (GFNs) and debt service denominated in foreign currency (FX debt service) ratios as a share of GDP that exceed the medium-term thresholds deemed necessary to restore debt sustainability with high probability:
- GFN threshold: 5 percent of GDP.
- FX debt service threshold: 3 percent of GDP.
- Other conditions from the March Technical Note would be met:
- Debt-to-GDP ratio would remain broadly stable after 2030.
- GFNs and FX debt service would remain manageable after 2030.
- Debt service payments to private creditors in 2020-24 would be sufficiently low to mitigate near-term refinancing risk.
- Technical assessment — using March Technical Note macroeconomic assumptions and the authorities’ financing assumptions:
- The authorities’ revised proposal would result in GFN and FX debt service ratios as a share of GDP that fall marginally below the medium-term thresholds necessary to restore debt sustainability with high probability:
- GFN threshold: 5 percent of GDP.
- FX debt service threshold: 3 percent of GDP.
- Under these financing assumptions:
- Debt-to-GDP ratio would remain broadly stable after 2030.
- GFNs and FX debt service would remain manageable after 2030.
- Debt service payments to private creditors in 2020-24 would be sufficiently low to mitigate near-term refinancing risk.
Financing assumptions noted
- Authorities’ assumption for refinancing official debt service due during 2021-24:
- Weighted average interest rate: 3.5 percent.
- Weighted average maturity: 8.8 years.
- Comparison to Staff’s March Technical Note most generous financing scenario (Scenario 3):
- Assumed refinancing interest rate: 5 percent.
- Assumed maturity: 7 years.
- The March Technical Note contained three scenarios with different financing assumptions about terms at which the Argentine government could borrow during 2021-24 to meet obligations to official creditors falling due during this period.
Policy-relevant implications
- The revised proposal can be consistent with restoring public debt sustainability with high probability under the stated macroeconomic and financing assumptions.
- There is only limited room to increase payments to private creditors while still meeting the debt and debt service thresholds and other conditions set forth in the March Technical Note.
- Maintaining low debt service payments to private creditors in 2020-24 is important to mitigate near-term refinancing risk.
Source: IMF Staff Technical Statement on Argentina, June 1, 2020.