Argentina: New IMF deal on the horizon 

In December 2024, for the first time in a decade, an IMF programme with Argentina was successfully concluded, with a new one possibly to be announced soon.

It follows a period of impressive reforms by neoliberal President Milei in his first year in office. This includes the biggest fiscal consolidation in 30 years, which led to a primary surplus in 2024 – the first since 2008. The government, a serial defaulter, paid USD 4.3 billion to sovereign bondholders in January, its largest repayment since a 2020 debt restructuring.

The country’s short-term political risk has also been upgraded amid improved liquidity and the prospect of a new IMF loan. 

Nonetheless, Argentina’s liquidity position remains precarious, with limited useable foreign exchange reserves due to the currency peg. Net foreign reserves remain deeply negative and are the main stumbling block to lifting currency controls. 

Large downsides remain. These include a delicate social situation, Milei’s falling popularity, high inflation, potential low harvests and with bankruptcies expected to rise, especially in the agricultural sector. Externally, Argentina faces a more volatile global environment, with potential US tariffs and a slowdown in export markets such as Brazil and China.

A new IMF programme with sizeable fresh funds would significantly ease liquidity, something perhaps more likely in light of the positive relationship between Milei and US President Trump. 

However, a new IMF loan could be delayed given Milei’s reluctance to lift currency controls, a key IMF request, or turn out to be smaller than anticipated. Any agreement must also be ratified by Congress, which may prove difficult given the president’s lack of congressional majority, and upcoming mid-term elections this year.

Egypt: Old challenges, amid Red Sea calm

While the situation facing maritime traffic in the Red Sea has eased, Credendo’s position on Egypt remains unchanged.

The Houthis have paused attacks on non-Israeli vessels in the area following the Gaza ceasefire, which could boost essential revenues from the Suez Canal. However, traffic remains subdued given ongoing uncertainties and the fragility of the ceasefire.

Much of Egypt’s economic challenges remain the same, including the sharp drop in Suez Canal revenues, a key source of foreign exchange income.

The most pressing risk remains Egypt’s weak public finances. Despite ongoing fiscal consolidation under the IMF EFF programme, public debt was estimated at 90.9% of GDP in FY2023/2024 – high for a lower-middle income country. More worryingly, Egypt is facing the highest public interest payments burden in the world, estimated at above 70% of public revenue.

In this context, Credendo maintains a stable outlook for Egypt’s short-term political risk rating given the somewhat improved liquidity prospects, despite other ongoing pressures. Given its difficult public finance challenges, though, the outlook for the medium-to-long term political risk rating is negative.

For more information, please contact your Credendo contact person.