May 19, 2013
S&P lowers ratings for BA province, Córdoba, Mendoza, Neuquén
The rating agency Standard & Poor’s said yesterday that local governments in Argentina are experiencing slower economic growth, high inflation, and difficulties financing their 2012 budget deficits.
“We are downgrading the province of Buenos Aires to ’raA’ from ’raAA-’, the province of Córdoba to ’raAA-’ from ’raAA’, the province of Mendoza to ’raA+’ from ’raAA’, and the province of Neuquén to ’raA+’ from ’raAA’, and affirming the ’raAA’ national scale rating on the city of Buenos Aires,” S&P said.
“We are also lowering the short-term national scale rating on Neuquen to ’raA-1’ from ’raA-1+’ and affirming the ’raA-1+’ short-term national scale ratings on the city of Buenos Aires and the province of Córdoba,” it added.
“The negative outlook on all entities reflects our belief that provincial finances could continue to deteriorate in the next year,” S&P said.
“The rating actions reflect the impact of current economic slowdown and high inflation on the provinces’ fiscal balances. The provinces’ revenues — both their own source revenues and federal revenue-sharing transfers — are shrinking. At the same time, high inflation is pressuring the public-sector costs especially amid demands for higher wages which account for more than 50% of the governments’ expenses,” according to the ratings agency.
“As a result, we expect increasing fiscal deficits for most of the provinces in 2012. The central government’s discretionary transfers to support the provinces’ individual capital programmes or its transfers to compensate unfavorable federal revenue-sharing distribution have been important funding sources in the past several years. For 2012, we are expecting these transfers to sharply decline, given the central government’s own fiscal needs,” it said.
“We are affirming the national scale rating on the city of Buenos Aires because we believe the city is better positioned to withstand a slowdown and high inflation than other local governments given its high fiscal flexibility both in terms of revenues and expenses and its low debt burden. The city covers 90% of its revenues from its own sources. We expect an operating surplus of about 15% of revenues in 2012 and fiscal deficit would depend on the city’s ability to execute capital expenditures which have significantly increased in the past several years. Its capital expenditures accounted for more than 15% of total expenses for the past three years and are expected to remain at those levels in 2012,” S&P added.
Outlook The negative outlooks on the provinces of Cordoba, Mendoza, Neuquen, and Buenos Aires, and the city of Buenos Aires parallel the outlook on the sovereign. The negative outlook on Argentina indicates at least a reasonably high chance of a downgrade this year or next,” the report said.