IMF Staff Technical Statement on Argentina

Via IMF (Den Internationale Valutafond)

IMF Staff Technical Statement on Argentina







June 1, 2020











  • IMF staff provides analysis of Argentine authorities’ revised debt restructuring proposal as part of ongoing technical assistance.
  • IMF staff analysis finds that Argentine authorities’ revised debt restructuring proposal would be consistent with restoring debt sustainability with high probability.
  • IMF staff’s assessment further suggests that there is only limited scope to increase payments to private creditors and still meet the debt and debt service thresholds.

Washington, DC – Introduction
. To address its unsustainable debt burden, Argentina is in the process of
seeking a restructuring of its debt to private creditors. Restoring public
debt sustainability with high probability is essential for Argentina to
return to sustainable and inclusive economic growth.

In the context of their debt negotiations with private creditors and as
part of ongoing technical assistance from the IMF, the Argentine
authorities requested that IMF staff assess their

revised debt restructuring proposal of May 26

against the framework set forth in staff’s

Technical Note on Public Debt Sustainability

, which was published on March 20, 2020.

[1]

The underlying macroeconomic assumptions contained in the March Technical
Note remain subject to exceptional uncertainties, particularly with respect
to the impact of the Covid-19 pandemic, with significant downside risks to
Argentina’s economic outlook, fiscal position,
and—potentially—debt-carrying capacity.

Findings
. Staff 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 (see below). However, staff’s analysis
suggests that there is only limited scope to increase payments to private
creditors while still meeting the debt and debt service targets and other
conditions set forth in the March Technical Note.

Technical Assessment
. Staff assessed the authorities’ revised debt restructuring proposal of
May 26 under two sets of assumptions. First, staff used the macroeconomic
framework elaborated in the March Technical Note and the financing
assumptions set forth in the March Technical Note.

[2]

Second, staff used the macroeconomic framework elaborated in the March
Technical Note and the financing assumptions contained in the authorities’
revised debt restructuring proposal of May 26.

[3]

Staff findings—predicated on the downside risks highlighted above not
materializing—are as follows:

· First, under the macroeconomic framework and financing assumptions
contained in the March Technical Note, the authorities’ revised debt
restructuring proposal of May 26 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 5 percent of GDP
and 3 percent of GDP medium-term thresholds, respectively, that staff deems
necessary to restore debt sustainability with high probability. Other
important conditions identified in the March Technical Note would be met,
however: the debt-to-GDP ratio would remain broadly stable after 2030 and
GFNs and FX debt service would remain manageable after 2030. In addition,
debt service payments to private creditors in 2020-24 would be sufficiently
low to mitigate near-term refinancing risk.

· Second, using staff’s macroeconomic assumptions contained in the March
Technical Note but the authorities’ financing assumptions, the
authorities’ revised debt restructuring proposal would result in GFN and FX
debt service ratios as a share of GDP that fall marginally below the 5 percent of GDP GFN and 3
percent of GDP FX debt service medium-term thresholds necessary to restore
debt sustainability with high probability. Moreover, the debt-to-GDP ratio
would remain broadly stable after 2030; GFNs and FX debt service would
remain manageable after 2030; and debt service payments to private
creditors in 2020-24 would be sufficiently low to mitigate near-term
refinancing risk.




[1]

At the request of the Argentine authorities, IMF staff prepared a
Technical Note on Public Debt Sustainability, which was published
on March 20, 2020. The March Technical Note provided staff’s view
on the envelope of debt relief that could underpin a debt
restructuring consistent with restoring public debt sustainability
with high probability. Specifically, it presented staff’s views of
manageable levels of gross financing needs (GFNs) and debt service
denominated in foreign currency (FX debt service) in the
medium-to-long term, conditional on a feasible macroeconomic
framework and policy assumptions, and under alternative assumptions
about post-restructuring borrowing conditions. The March Technical
Note and this Staff Statement are a form of technical assistance
under Article V, Section 2(b), of the IMF’s Articles of Agreement.


[2]

The Technical Note contained three scenarios with different
financing assumptions about the terms at which the Argentine
government could borrow during 2021-24 to meet the obligations to
official creditors falling due during this period (see paragraphs
21-24 of the Technical Note).


[3]

The authorities assume the financing gap arising from the official
debt service falling due during 2021-24 is refinanced at a weighted
average interest rate of 3.5 percent and maturity of 8.8 years.
Under the most generous financing scenario in Staff’s March
Technical Note (Scenario 3), this financing gap was assumed to be
refinanced at an interest rate of 5 percent and maturity of 7
years.


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