Neuquen (Province of)

This report does not constitute a rating action. Overview Credit context and assumptions Base-case expectations The province outperformed our operating expectations in 2021 thanks to a strong revenue recovery and cost containment; however, Neuquen remains vulnerable to economic and financial conditions in Argentina. A recovery in oil prices and increasing exploration in the Vaca Muerta oil field will provide some relief to Neuquen's fiscal accounts in the next 12 months. Recent debt restructuring lowered the default probability in 2022, but amortizations increase starting in 2023. Budgetary flexibility is likely to remain weak, given expenditure pressures and a lack of fiscal flexibility. Absent the unexpected strengthening of economic and financial conditions in Neuquen and Argentina, the province's debt is unsustainable in

...Our ratings reflect Neuquen's fragile budgetary performance and liquidity position, along with the weak debt payment culture, given the recent debt restructuring. The recent debt restructure significantly reduced the province's debt service obligations in 2021 and 2022, reducing default risks during this period. Debt service will begin to increase again in 2023 as larger amortizations approach and the province will need tap a shallow domestic debt market to roll over debt service payments. The ratings also reflect our view that Neuquen's debt profile is unsustainable in the long term, absent an unexpected improvement in economic and financial conditions in the province and Argentina. The Argentine local and regional governments' (LRGs') institutional framework, which we consider very volatile and underfunded, limits the province's capacity for fiscal planning and exposes it to a potential transfer of fiscal stress from higher governmental tiers. In addition, amid a weak external position...

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