Credit ratings agency Fitch upgraded Argentina's long-term foreign-currency and local-currency issuer default rating to 'CCC+' from 'CCC' on May 12, citing a new International Monetary Fund programme and foreign exchange market liberalisation.

The upgrade reflects bolstered external liquidity and enhanced durability of President Javier Milei's economic stabilisation programme, Fitch said in a statement, noting that economic recovery and disinflation have exceeded prior expectations.

In April, Argentina replaced its crawling-peg exchange rate system with a new regime allowing the peso to float within a band of 1,000-1,400 per US dollar, widening by 2% per month. Authorities have dismantled most foreign exchange controls while preserving some measures to gradually address pent-up demand.

The exchange market liberalisation is backed by a new Extended Fund Facility with the IMF providing $20bn over four years, with $12bn already disbursed in April and another $3bn subject to reviews in June and November.

"Gross international reserves, which fell significantly to $24bn due to FX demand in anticipation of the devaluation, are now around $38bn after the arrival of the IMF funds," Fitch said.

The Washington-based lender described the programme as one that “supports a path toward entrenching macroeconomic stability, strengthening external sustainability, and laying the foundation for stronger and more resilient growth,” adding that its key pillars include “maintaining a strong fiscal anchor, transitioning towards a more robust monetary and FX regime."

However, Fitch cautioned that challenges remain, noting that 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."

Argentina's federal government faces annual US dollar bond payments totalling $8.6bn in 2025, with half already paid in January and the remainder due in July. This figure will rise above $11bn in coming years.

Midterm legislative elections scheduled for October will likely be a crucial test of support for the libertarian president’s bold economic programme and could impact market confidence and foreign exchange inflows, Fitch said.

Argentina's economic recovery is being supported by disinflation that is increasing real incomes and reactivation in credit after "a long period of crowding-out by public borrowing," the agency noted. After contracting 1.7% in 2024, Fitch expects Argentina's economy to achieve a strong 5.6% recovery in 2025.

The government has made significant fiscal adjustment, flipping a primary deficit of 2.3% of GDP in 2023 to a 1.8% surplus in 2024. Federal government debt declined dramatically to 83% of GDP in 2024 from 157% in 2023, with Fitch projecting a further reduction to 72% in 2025.

Despite progress, Fitch does not assign rating outlooks to sovereigns with a rating of 'CCC+' or below, reflecting continued uncertainties over Argentina's medium-term economic prospects.