Fitch Ratings has downgraded El Salvador's Long-term (LT) Local Currency Issuer Default Rating (IDR) to 'RD' (Restricted Default) from 'B'/Negative.
From a report by Fitch Ratings:
Fitch Ratings-New York-10 April 2017: Fitch Ratings has downgraded El Salvador's Long-term (LT) Local Currency Issuer Default Rating (IDR) to 'RD' (Restricted Default) from 'B'/Negative. Fitch has also downgraded El Salvador's LT Foreign Currency IDR to 'CCC' from 'B'/Negative. El Salvador's senior unsecured foreign currency bonds are downgraded to 'CCC' from 'B'. The LT Local and Foreign Currency IDRs do not have an Outlook. The Country Ceiling is downgraded to 'B-' from 'BB-' and the Short-Term Local and Foreign Currency IDRs are downgraded to 'C' from 'B'.
The government has already reached 72% of the maximum amount of issuance of Treasury Bills that is permitted by law, and it only has $370 million available to borrow this year.
Given the critical fiscal situation, the Sanchez Ceren administration is insisting in the Legislature on the approval of a bill to issue another $1.2 billion in debt.According to the government, several commitments can not meet unless these funds are available.For the remainder of the year the only remaining possibility is the issuance of $370 million in short-term debt in the local market.
The delay in payments to suppliers to the state, corresponding to July, reflects the complicated situation of public finances in El Salvador.
Arguing that"... July was a very bad month fiscally," Finance Minister Carlos Caceres, justified the delay in payment to suppliers of goods and services. According to the minister, in July the government "... had to pay $260million in external debt and Treasury bills."
It is becoming more and more expensive for the Ministry of Finance to issue treasury bills in the local market, as the growing fiscal deterioration requires investors to demand higher rates in order to offset the risk.
The delicate fiscal situation of the Salvadoran economy is causing more and more concern among investors in the local market, particularly financial institutions, which are ceasing to purchase government securities and increasingly demanding higher rates in order to compensate for the risks involved in financing the State.
The issuance of Pension Investment Certificates at a rate of 3% means a charge to future income of contributors in the Salvadoran AFP.
The refusal by the Ministry of Finance to release the documents that justify the decision to pay a fee of 3% on the savings of the AFP entering the 'Fideicomiso de Obligaciones Previsionales' (FOP), was declared illegal by the Institute for Access to Public Information (IAIP), which stated that financial secrecy does not apply to the FOP and the criteria that supported the decision must be revealed.
A poorly developed state budget and unmet income targets are preventing control of the growth of total public debt, which has already reached 57% of GDP.
According to top analysts from El Salvador, the main cause of the runaway national debt is the lack of planning and transparency with which the national budget is prepared. "... Revenues are overestimated, as they predict higher economic growth rates than can actually be achieved, and the performance of the economy depends on tax collection. Moreover, costs are underestimated or not included, especially in areas such as subsidies and tax refunds. "
Preparations are being made for the expansion works, infrastructure renovation and replacement of equipment in the water treatment plant Las Pavas, in the department of La Libertad.
With a loan, which according to the Ministry of Finance has already been approved, the National Administration of Aqueducts and Sewers (ANDA), plans to correct the flaws and renovate the Las Pavas water treatment plant, works estimated at $64.4 million.
Exporters claim that the Ministry of Finance takes up to 10 months to give credit notes for tax refunds, accumulating a debt of $70 million.
To date the Ministry of Finance has issued $41 million in Treasury credit notes (NCTP) to pay off part of the debt. However, representatives from the Corporation of Exporters of El Salvador (Coexport) state that this type of payment represents a loss for exporters, as NCTP's can be sold but wat a discount of up to 5%.
It has been announced that starting May companies will be obliged to declare their income for tax and VAT purposes in digital form.
Long lines to file tax returns presented by hand will go down in history, as from May all tax procedures currently carried out in the Ministry of Finance in person will be undertaken online, obligatorily. The website to be used is www.mh.gob.sv.
In El Salvador the export sector claims that delays of up to nine months are being reported on tax refunds due from the Treasury, which should take no more than 30 days.
Seven months ago the Exporters Corporation of El Salvador (Coexport) submitted to the Ministry of Finance a proposal for self-assessment of Value Added Tax (VAT) with the aim of reducing the time it takes to receive tax refunds. To date they have not yet received a reply from the authorities and, according to the entrepreneurs themselves, the State owes approximately $50 million in this category.
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