This technical note is based on economic data, financial market developments, and policy announcements as of March 15,2020.
The “Management of Sustainable External Public Debt” Law approved in February 2020 provides the executive with powers to execute liability management operations, a debt exchange, and restructuring of interest and amortization payments of foreign-law debt.
Gross financing needs of the government in any year are defined as the sum of the primary fiscal deficit, the debt service (i.e. sum of principal and interest payments) falling due in that year, and any outlays to meet contingent liability materializations and/or building government financial assets.
While staff encourages constructive negotiations with creditors, it does not involve itself in the process or modalities of the restructuring, which is entirely the purview of the authorities and their legal and financial advisors.
The IMF Executive Board has approved the following definition of public debt sustainability: “Public debt can be regarded as 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.” (Staff Guidance Note for Public Debt Sustainability Analysis In Market-Access Countries, 2013, https://www.imf.org/external/np/pp/eng/2013/050913.pdf).
In the current context, uncertainty encompasses both historical uncertainty with regard to the main debt drivers and potential rollover shocks, as well as exceptional uncertainty arising from the ongoing COVID-19 pandemie. In this note, historical uncertainty is addressed through stress tests and fan charts tailored to Argentina (see Section F). Uncertainty arising from the COVID-19 pandemie is discussed in qualitative terms in Section G.
Debt to GDP is computed by dividing total end-year debt expressed in pesos (with FX debt converted at end-year exchange rates) by nominal peso GDP—evaluated at the average GDP deflator—that year.
This is not an unreasonable buffer given the potential size of contingent liabilities in Argentina that could arise from provincial governments and public pension-related court cases against the government.
These financing scenarios are purely illustrative and do not represent the views of the IMF Executive Board.
Achieving broadly similar overall GFN targets across scenarios would also require different treatment of domestic peso-denominated debt, with the longest maturities and lowest interest rates needed in scenario 1, followed by scenario 2.
Specifically, 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.
See Arslanalp and Tsuda (2014), for example, for explanations regarding domestic bank exposures to the sovereign can rise in a stress situation.
Historical uncertainty may not capture the possible extraordinarily large adverse effects from the COVID-19 pandemie.