Moody's upgrades Argentina to B3 on Milei's fiscal overhaul

Moody's Ratings lifted Argentina's sovereign credit rating two notches to B3, citing sustained fiscal surpluses and declining inflation under President Javier Milei's reform agenda.

Moody's Ratings raised Argentina's long-term foreign and local-currency issuer ratings to B3 from Caa1 on Tuesday and revised the outlook to positive, reflecting a material decline in default risk as macroeconomic stabilization advanced beyond the initial adjustment phase.

"Argentina's sustained fiscal surpluses, a decline in inflation and continued economic liberalization have acted to strengthen its policy credibility and reduce macroeconomic volatility," Moody's said in a statement accompanying the upgrade.

The central bank has purchased more than $11 billion in foreign exchange through the middle of the year without generating exchange rate pressures, Moody's said, pointing to stronger export performance, rising foreign direct investment in energy and mining, and improved access to external financing as additional positive factors. Argentina's benchmark Merval index closed up 1.8 percent before the rating action was announced.

The upgrade narrows Argentina's path toward investment-grade status and could lower the government's borrowing costs ahead of the 2027 general election, though Moody's cautioned that political risks remain and the range of policy outcomes has narrowed relative to previous cycles, increasing the probability of policy continuity and sustained gains in external liquidity and debt payment capacity.

Fiscal Transformation Under Milei

President Javier Milei, who took office in December 2023 on a promise to tame inflation and implement market-friendly economic policies, has delivered consecutive fiscal surpluses after years of deficits that had eroded investor confidence. The government's primary fiscal surplus has been sustained through spending cuts and reduced subsidies, allowing the central bank to rebuild reserves that had been depleted under previous administrations.

The upgrade follows a similar action by Fitch Ratings, which raised Argentina to B- from CCC+ in May after October 2024 midterm elections gave Milei a stronger popular mandate. The two-notch upgrade by Moody's places Argentina's rating one level above Fitch's assessment, though both remain deep in speculative-grade territory.

The positive outlook signals that further upgrades are possible if Argentina maintains its fiscal discipline and inflation continues to moderate. Consumer price increases, which peaked at an annual rate above 200 percent in early 2024, have decelerated significantly as the central bank tightened monetary policy and the government reduced money printing to finance the budget.

Rising foreign direct investment in Argentina's energy and mining sectors — particularly the Vaca Muerta shale formation and lithium projects in the northwest — has strengthened the country's export capacity and external accounts. The energy sector is on track to deliver a trade surplus for the first time in more than a decade, providing a buffer against external financing shocks.

Moody's said it considers the range of policy outcomes ahead of the 2027 general election has narrowed relative to previous electoral cycles, which increases the probability that the current reform trajectory will be maintained regardless of the political outcome.

This article is for informational purposes only and does not constitute investment advice.