Government presents 2019 - 20 financial programme

Government presents 2019 - 20 financial programme

On January 7th the Treasury department presented its plan to meet its financing requirements in 2019 and 2020. The programme, which importantly does not rely on raising finance in international capital markets, has served to ease investors' concerns about fiscal sustainability

Analysis

In 2019 the government will have to close a financing gap of US$47.6bn. This reflects US$600m in delayed natural gas subsidies, interest payments of US$14.2bn, principal repayments of US$13.7bn (to both private creditors and multilateral organisations) and payments of US$19.1bn on Letras del Tesoro de la Nación (Letes, short - term public debt securities). The government is in a good position to meet these funding needs. It has started 2019 with an initial cash balance of US$10.9bn owing to higher than expected rollover rates of short-term debt in 2018. The government will also draw another US$22.5bn from its IMF  stand-by arrangement, borrow US$4.6bn from other multilateral institutions and take on repo loans of US$1.7bn from private banks. It expects that it will be able to rollover US$8.8bn (46%) of the US$19.1bn worth of Letes falling due in 2019.

 

In 2020, when the government anticipates a primary surplus of US$5.2bn, it will have a smaller financing requirement of US$25.9bn. The government plans to meet its needs th

at  year owing to an initial cash balance of US$0.9bn, IMF disbursements of US$5.9bn, domestic bond issues of US$15.2bn, repo loans of US$0.9bn and the rollover of US$9.4bn in Letes.

 

Although the government's plan hinges on its ability to rollover a significant amount of its short-term debt, the outlook is generally positive on this front. In its first tender of Letes in 2019, onJanuary 8th, the government exceeded expectations by rolling over 100% of the US$950m in Treasury bills that had fallen due. The

Letes — all dollar – denominated — have a 217 - day maturity period and offer a 4.75% rate of return.

 

The successful placement of Letes has improved expectations of compliance with the government's financial programme. This is also reflected in a reduction of Argentina's five - year US -

dollar credit default swap rate — an indicator of sovereign risk — which fell to 687 basis points on January 10th, down from a recent high of 808 basis points on December 27th 2018.

 

Impact on the forecast

The government's plan provides a reasonable path to meeting its financing needs in 2019- 20, in line with our forecasts. Although we expect the government to retain good access to debt markets, risks to this forecast are substantial amid economic and political uncertainty