Latam Strategy
6 August 2018
globalmarkets.bnpparibas2
ae(1+r).
The formula is intuitive and helpful to identify the most important drivers for a
sustainable debt path.
Charts 1-4 show the automatic debt dynamics of Argentina since 2014 until now (last years of
Cristina Kirchner administration and since the Macri government started).
We did not include the provincial debt, liabilities and quasi-fiscal deficit of the central bank
(BCRA), and the program to reduce the central government liabilities with the BCRA. Otherwise the
results would have been worse.
According to the IMF staff report of July 20181, the projected reduction of liabilities with the BCRA
will be USD 2.2bn until the end of 2018 and USD 5.2bn in Q1 of 2019, USD 1.0bn in Q2, USD 3.8bn
in Q3, and USD 1.5bn in Q4 (a total of USD 11.5bn).
Due to the relatively high proportion of hard currency government debt, ARS performance tends
to significantly impact on the debt-to-GDP ratio. According to our calculations, the contribution of
ARS to the deterioration of the debt dynamics is equivalent to 3.4% of the GDP (Chart 2).
The impact of real GDP growth and currency performance is expected to worsen in the coming
months (real growth will turn negative while the full impact of the nominal ARS depreciation in
Q1 2018 on the debt-to-GDP ratio will be reflected in the coming quarters).
A combination of high inflation and proportion of hard currency debt has been beneficial for the
debt dynamics, though. Despite the recent surge in the cost of rolling over the public debt (both in
hard and local currencies), inflation has been consistently above the weighted average of the
interest rates on hard and local currency central government debt, contributing positively to the
public debt dynamics (Chart 4).
Unfortunately, rolling over the public debt will be more expensive in the coming quarters (due to
the recent spike in ARS rates and credit premium). Thus, the positive contribution of real interest
rates (Chart 4) is expected to contract.
According to our calculations, interest payments should account for 2.7% of GDP in 2019 (without
including provinces and quasi-fiscal deficit). Thus, the consolidated nominal deficit should
remain at above 7% of GDP.
Unless further fiscal consolidation effort is made, the scenario described above may lead to
potential liability management or further support from IFIs.
Chart 1-4: Automatic debt dynamics2
-2.2%
2.1%
-26%
-18%
-10%
-2%
6%
Feb-14Feb-15Feb-16Feb-17Feb-18
Automatic debt dynamicsPrimary fiscal deficit
Argentina | Automatic debt dynamics (% GDP)
thehigher, the worse for the public debt
3.4%
-12%
-6%
0%
6%
Feb-14Feb-15Feb-16Feb-17Feb-18
Argentina | Automatic debt dynamics | FX rate depreciation contribution(% GDP)
thehigher, the worse for the public debt
0.1%
-3%
-2%
-1%
1%
2%
Feb-14Feb-15Feb-16Feb-17Feb-18
Argentina | Automatic debt dynamics | Real GDP growth contribution
thelower, the betterfor the public debt
-5.7%
-14%
-10%
-7%
-3%
1%
Feb-14Feb-15Feb-16Feb-17Feb-18
Argentina | Automatic debt dynamics | Real interest rate contribution(% GDP)
thehigher, the worse for the public debt
Sources: Bloomberg, BNP Paribas, IMF | contribution to public debt in % of GDP.
1 imf/en/Publications/CR/Issues/2018/07/13/Argentina-Request-for-Stand-By-Arrangement-Press-Release-
and-Staff-Report-46078Caveat:the approach may not be adequate in examining roll-over risks—the risk that maturing debt cannot be re-
financed. Liquidity risk may arise even in the presence of solvency, hence, a full evaluation of these risks requires a more
disaggregated—and higher frequency—data on the debt stock.
Due to the relatively high
proportion of hard currency
government debt, ARS
performance tends to
significantly impact on the
debt-to-GDP ratio.
Rolling over the public debt
will be more expensive in
the coming quarters. Thus,
the positive contribution of
real interest rates is
expected to contract.
Interest payments should
account for 2.7% of GDP in
2019 (ex-provinces and
quasi-fiscal deficit).
Latam Strategy
6 August 2018
globalmarkets.bnpparibas3
The following tables show the monthly maturities until Q4 2019. We identify September and
October of 2018 and March, April, and May of 2019 as the most critical months (high
concentration of hard currency debt and maturities with the private sector).
The table only includes existing debt from the central government; BCRA liabilities and debt of
provinces have not been included.
Total Maturities 2018Apr-18May-18Jun-18Jul-18Aug-18Sep-18Oct-18Nov-18Dec-18 September-December
Capital of local currency denominated debt1,8071,7443,8171,7241,0976,1141,0283,58612,79423,521
Capital of hard currency denominated debt2,7083,4912,7531,9851,9152,1421,3304,8168,56016,848
Interest payments of local currency debt932971,359294701,20788851,3103,410
Interest payments of hard currency debt9711,3701,548703433859921,1481,5564,081
(a) Total6,4176,7029,4774,7063,1259,8484,2389,55524,22047,861
of which: Intra-Public Sector 2018Apr-18May-18Jun-18Jul-18Aug-18Sep-18Oct-18Nov-18Dec-18Public Sector Tot% Total
Capital of local currency denominated debt1,1721,7333,1381,7128732,1811,0163,57512,77419,54683%
Capital of hard currency denominated debt628-348371165429321083,3887,27010,79864%
Interest payments of local currency debt19883837925561015147961,56146%
Interest payments of hard currency debt17720783242171111842058411,34133%
(b) Total2,1751,6755,1782,0111,3742,9341,4597,17221,68133,24669%
Total Maturities 2019Jan-19Feb-19Mar-19Apr-19May-19Jun-19Jul-19Aug-19Sep-19Oct-19Nov-19Dec-19Total 2019
Capital of local currency denominated debt2,4454,5535,2041,9943051,8574697180227617,048
Capital of hard currency denominated debt1,1501,2055,2402,8935,4891851901322,24514416923419,276
Interest payments of local currency debt23557468845871207557885058165,207
Interest payments of hard currency debt947423789747121,550700393758444691,5458,576
(c) Total4,7765,80511,5696,7466,5104,4631,5661833,3781,8616502,60150,107
of which: Intra-Public Sector 2019Jan-19Feb-19Mar-19Apr-19May-19Jun-19Jul-19Aug-19Sep-19Oct-19Nov-19Dec-19Intra-public Tot% Total
Capital of local currency denominated debt2,4393,3023,4911,9882991,828448117411013,97282%
Capital of hard currency denominated debt761191,922137481717301,9941413665,02926%
Interest payments of local currency debt304263151446254195114441372614%
Interest payments of hard currency debt5017110182848404316271261988391,19014%
(d) Total2,5953,4425,7862,3341,1353,147513512,3902552161,31820,91742%
Total until Q4 2019 (capital + interest)
Capital and interest (a)+(c)97,96845%
Intra-public sector (b)+(d)54,16355%
Hard currency48,78250%
Local currency49,18650%
13,783
11,852
9,929
8,497
7,3636,7466,373
5,50336,324
21,73827,28823,179
19,76516,89719,64713,81312,500
25,000
37,500
50,000
20192020202120222023202420252026
InterestCapital
58.8%
60.1%
59.0%
61.9%
64.9%66.9%
67.4%
68.5%
69.9%
57%
61%
64%
68%
71%
201020112012201320142015201620172018
Debt in hard currency as
% of total debt
40.0%
35.9%
37.4%40.1%
41.4%
48.6%
51.7%
56.6%58.8%
30%
38%
45%
53%
60%
201020112012201320142015201620172018
Central Government debt
as % of GDP
Gross Debt
119%110%123%140%176%
213%
254%
300%308%
75%62%64%68%82%
91%130%178%
189%
0%
75%
150%
225%
300%
201020112012201320142015201620172018
Debt in hard currency as % of
exports
Central government; external
debt as % of exports
142.9
199.9
80
110
140
170
200
201020