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���������ֳ� - New York - 12 May 2025: ���������ֳ� Ratings has upgraded Argentina's Long-Term Foreign-Currency and Local-Currency Issuer Default Rating (IDR) to 'CCC+' from 'CCC'. ���������ֳ� typically does not assign Rating Outlooks to sovereigns with a rating of 'CCC+' or below. A full list of rating actions is at the end of this rating action commentary.

Key Rating Drivers

Upgrade to 'CCC+': Argentina's upgrade reflects the launch of a new IMF program and major liberalization of the foreign-exchange (FX) market, which have bolstered external liquidity and the durability of President Javier Milei's economic stabilization program. The economic recovery and disinflation have already exceeded our prior expectations and should be further supported by these policy changes.

These developments have enhanced the sovereign's capacity to make near-term debt service payments, although challenges and uncertainties over the medium-term persist, as captured in our 'CCC+' rating. Reserve accumulation is not assured under the new FX regime due to the authorities' preference for a strong currency, while external market access remains prohibitively costly. Legislative midterm elections in October will likely be an important determinant of international reserve dynamics and market access, as they represent a crucial test of support for Milei's economic program, as well as a source of potential volatility during the campaign.

FX Liberalization: In April, the authorities replaced the crawling-peg with a new exchange-rate regime in which the peso will float within a band (1,000-1,400 per USD, widening 2% per month), requiring FX intervention at the upper and lower bounds, and allowing discretionary intervention within the band to manage volatility. The authorities dismantled FX controls, preserving only some to gradually unwind pockets of pent-up FX demand (e.g. corporate dividends), as well as the 'dollar blend' scheme that had been diverting some FX export earnings from the official market. The start of the new regime has been smooth, with the peso depreciating towards the center of the band (1,200/USD) and fluctuating and appreciating afterward.

Large-Scale Multilateral Support: The FX market liberalization is backed by a new Extended Fund Facility (EFF) with the IMF providing funding of USD20 billion over four years, with a substantial USD12 billion provided up front in April and another USD3 billion subject to reviews in June and November. Gross international reserves, which fell significantly to USD24 billion due to FX demand in anticipation of the devaluation, are now around USD38 billion after the arrival of the IMF funds. Net reserves (excluding the China swap, bank reserve requirements, and other short-term FX liabilities) rose from negative USD7 billion to positive USD5 billion. Pledged funds from other multilaterals should further support the reserves position.

Further Reserve Buildup Uncertain: The authorities have signaled that they do not intend to purchase FX within the band, reflecting a preference for a strong currency as an anchor for disinflation. This approach to the new FX regime reduces the chances of reserve losses seen earlier this year, but also clouds the path for the gains envisioned in the EFF. Peso appreciation to the bottom of the band could allow for reserve buildup, but this may only occur as a result of carry-trade inflows (which the authorities are encouraging) rather than the current account (set to shift back into deficit from a 1% of GDP surplus in 2024) and thus may be precarious. Reserve buildup could also come from external borrowing, but options are currently limited as global bond yields have fallen remain high at around 10%-12%.

Debt Payments Rising: Annual federal government USD bond payments (interest and capital) total USD8.6 billion in 2025 (half of which half was paid in January, with the rest due in July) and will rise above USD11 billion in the coming years. The authorities have been able to buy sufficient FX to make bond payments so far and have a larger cushion for upcoming payments thanks to the up-front EFF funds. But some combination of reserve buildup and market access will eventually be needed to more durably bolster repayment capacity. Prospects for both of these conditions may hinge on the outcome of upcoming elections, which could have major bearing on market confidence and FX inflows by demonstrating the support and viability of Milei's economic program.

Entrenched Fiscal Anchor: Milei's economic program has centered on an aggressive fiscal adjustment to quickly end monetary financing from the central bank (BCRA), and unwind past financing. The federal primary deficit of 2.3% of GDP in 2023 flipped to a 1.8% surplus in 2024. Even preserving this fiscal improvement will require further efforts, as much of the real reduction in spending induced by high inflation last year will revert as inflation declines. But we expect the authorities can meet their 1.6% primary surplus goal in 2025, considering their unwavering commitment to this key policy anchor, and a robust recovery in taxes seen so far.

The overall fiscal surplus of 0.3% of GDP in 2024 under the official cash-basis accounting does not capture large capitalizing interest on various domestic securities, which if included would show a moderate overall fiscal deficit. But the sharp primary fiscal adjustment has improved underlying debt dynamics, while real currency appreciation and inflation effects induced a dramatic reduction in federal government debt/GDP to 83% of GDP in 2024 from 157% in 2023, and should deliver a further reduction to 72% in 2025 in our projections.

Seeking Remonetization: Capital-account liberalization creates a new dynamic for the Treasury, forcing it to compete for funds that were previously captive, and lifting the domestic yield curve. However, the strong fiscal position and a large cash buffer (recently boosted by a large dividend from the BCRA) give it room to maneuver. In recent auctions, the Treasury has only partially rolled over maturing securities to free up liquidity for reactivation of credit to the private sector (i.e. "remonetization"), thus assuming a key role in monetary policy alongside the BCRA.

Disinflation Still on Track: Inflation rose to 3.7% m/m in March after five months below 3%, driven by seasonal factors but also devaluation expectations. The FX liberalization does not appear to have posed an inflation setback, as it did not entail a major depreciation, and with limited pass-through as it is a more sustainable regime that has helped calm behavior among price-setting agents. We expect inflation to fall below 2% m/m by 4Q25 and to 28% in interannual terms by December (down from a peak of 289% in April 2024), though it could face some resistance from rebounding domestic demand and potential currency volatility surrounding elections.

Swift Economic Recovery: Argentina's economy is achieving a swift recovery, supported by disinflation that is increasing real incomes, and reactivation in credit intermediation after a long period of crowding-out by public borrowing. Microeconomic reforms, deregulation efforts, and large investments in energy and mining are lifting economic prospects as well, both via their direct effects and a broader boost to business confidence. Real GDP contracted 1.7% in 2024, much less than our previous projection, and we expect a strong 5.6% recovery in 2025.

Elections Loom: Legislative midterm elections will take place on October 26, though several provincial races have been pulled earlier into May. The economic recovery and disinflation have supported approval for President Milei despite some missteps (e.g. "cryptogate"), and likely continuation of these trends could support chances for his La Libertad Avanza party to gain seats and strengthen alliances. However, elections could be a source of financial-market volatility, as seen in the past, particularly should Milei's popularity falter or candidates eager to change the policy direction gain traction.

ESG - Governance: Argentina has an ESG Relevance Score (RS) of '5' for both Political Stability and Rights and for the Rule of Law, Institutional and Regulatory Quality and Control of Corruption. These scores reflect the high weight that the World Bank Governance Indicators (WBGI) have in our proprietary Sovereign Rating Model (SRM). Argentina has a medium WBGI ranking at the 43rd percentile, reflecting a recent record of peaceful political transitions, moderate scores for institutional capacity rule of law and control of corruption, and favorable score for participation in the political process.

RATING SENSITIVITIES

Factors that Could, Individually or Collectively, Lead to Negative Rating Action/Downgrade

--External Finances: Increased likelihood of restructuring or default, due to depletion of external liquidity or erosion of market confidence that undermine the sovereign's ability to make upcoming debt payments;

--Macro: Policy setbacks or political shocks that undermine macroeconomic stability and prospects for recovering market access.

Factors that Could, Individually or Collectively, Lead to Positive Rating Action/Upgrade

--External Finances: Sustained build-up in international reserves, and/or increased confidence in prospects for recovery of external market access.

Sovereign Rating Model (SRM) and Qualitative Overlay (QO)

���������ֳ�'s proprietary SRM assigns Argentina a score equivalent to a rating of 'B-' on the Long-Term Foreign-Currency IDR scale. However, in accordance with its rating criteria, ���������ֳ�'s sovereign rating committee has not utilized the SRM and Qualitative Overlay (QO) to explain the ratings in this instance. Ratings of 'CCC+' and below are instead guided directly by the rating definitions.

���������ֳ�'s SRM is the agency's proprietary multiple regression rating model that employs 18 variables based on three-year centered averages, including one year of forecasts, to produce a score equivalent to a Long-Term Foreign-Currency IDR. ���������ֳ�'s QO is a forward-looking qualitative framework designed to allow for adjustment to the SRM output to assign the final rating, reflecting factors within our criteria that are not fully quantifiable and/or not fully reflected in the SRM.

���������ֳ�'s SRM is the agency's proprietary multiple regression rating model that employs 18 variables based on three-year centered averages, including one year of forecasts, to produce a score equivalent to a Long-Term Foreign Currency IDR. ���������ֳ�'s QO is a forward-looking qualitative framework designed to allow for adjustment to the SRM output to assign the final rating, reflecting factors within our criteria that are not fully quantifiable and/or not fully reflected in the SRM.

Country Ceiling

The Country Ceiling for Argentina is 'B-'. For sovereigns rated 'CCC+' or below, ���������ֳ� assumes a starting point of 'CCC+' for determining the Country Ceiling. ���������ֳ�'s Country Ceiling Model produced a starting point uplift of 0 notches. ���������ֳ�'s rating committee applied a +1 notch qualitative adjustment to this, under the Balance of Payments Restrictions pillar. This +1 notch reflects that strict FX controls have largely been rolled back, with some lingering restrictions affecting corporates (e.g. unremitted dividends), and that even during periods of FX restrictions many corporates avoided restructurings or were able to access the official FX market after restructurings.

���������ֳ� does not assign Country Ceilings below 'CCC+', and only assigns a Country Ceiling of 'CCC+' in the event that transfer and convertibility risk has materialized and is impacting the vast majority of economic sectors and asset classes.

REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF RATING

The principal sources of information used in the analysis are described in the Applicable Criteria.

ESG Considerations

Argentina has an ESG Relevance Score of '5' for Political Stability and Rights as WBGIs have the highest weight in ���������ֳ�'s SRM and are therefore highly relevant to the rating and a key rating driver with a high weight. As Argentina has a percentile rank below 50 for the respective Governance Indicator, this has a negative impact on the credit profile.

Argentina has an ESG Relevance Score of '5' for Rule of Law, Institutional & Regulatory Quality and Control of Corruption as WBGIs have the highest weight in ���������ֳ�'s SRM and are therefore highly relevant to the rating and are a key rating driver with a high weight. As Argentina has a percentile rank below 50 for the respective Governance Indicators, this has a negative impact on the credit profile.

Argentina has an ESG Relevance Score of '4' [+] for Human Rights and Political Freedoms as the Voice and Accountability pillar of the WBGIs is relevant to the rating and a rating driver. As Argentina has a percentile rank above 50 for the respective Governance Indicator, this has a positive impact on the credit profile.

Argentina has an ESG Relevance Score of '4' for Creditor Rights as willingness to service and repay debt is relevant to the rating and is a rating driver for Argentina, as for all sovereigns. As Argentina has a fairly recent restructuring of public debt in 2020 and another default event remains a real possibility in ���������ֳ�'s view, this has a negative impact on the credit profile.

The highest level of ESG credit relevance is a score of '3', unless otherwise disclosed in this section. A score of '3' means ESG issues are credit-neutral or have only a minimal credit impact on the entity, either due to their nature or the way in which they are being managed by the entity. ���������ֳ�'s ESG Relevance Scores are not inputs in the rating process; they are an observation on the relevance and materiality of ESG factors in the rating decision. For more information on ���������ֳ�'s ESG Relevance Scores, visit .

Additional information is available on

APPLICABLE MODELS

Numbers in parentheses accompanying applicable model(s) contain hyperlinks to criteria providing description of model(s).

• Country Ceiling Model, v2.0.3 (1)
• Debt Dynamics Model, v1.3.2 (1)
• Macro-Prudential Indicator Model, v1.5.0 (1)
• Sovereign Rating Model, v3.14.3 (1)

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