El Salvador: Economic Challenges for the Upcoming Government Administration

This special report by Fitch examines the credit risk dynamics of El Salvador as it coincides with the end of a political cycle in the country.

Wednesday, February 25, 2009

Financial pressures and external liquidity, exacerbated by political uncertainty during a pre-electoral period, led Fitch to modify the Prespectives of the IDRs of sovereign risk in the long-term regarding foreign and local currency in October 2008.

The next government will take public administration in the midst of what looks like a growing and difficult period of adjustment for the global economy, particularly for the economy of El Salvador, which will face a strong impact from the recession in the United States and tight external liquidity. In spite of the aforementioned, the political options of the government to face this situation are limited under the framework of dollarization and the visibly tight public finances of El Salvador.

A significant commitment between the major political parties will lay the foundation for the creation of an important precautionary support package...



More on this topic

El Salvador: Moody's Upgrades Debt Rating

February 2018

The key factor driving the rating upgrade is the significant reduction of the government liquidity risks, as political agreements have led to Congress´approval of long-term government financing and pension reform.

Risk rating firm Moody's announced on Friday, February 23 that El Salvador's debt was rated B3, which represents an improvement from the previous rating of Caa1. However, the country is still considered an issuer with risk of not fulfilling its obligations. 

El Salvador: Debt Rating Gets Worse

December 2016

Two months after reducing the rating from B + to B, Standard & Poor's has now reduced the note to B-, with a negative outlook.

From a press release by Standard & Poor's:

OVERVIEW
El Salvador's liquidity has deteriorated significantly because of protracted negotiations between the government and opposition parties on a comprehensive set of fiscal reforms that has weakened debt management.

S & P Downgrades El Salvador's Debt

October 2016

The ratings agency has reduced the rating for long-term sovereign debt from B + to B, arguing that political capacity to resolve the fiscal problem is shrinking.

From a press release by Standard & Poor´s:

Continued political stalemate in El Salvador has led to a deterioration of institutional and governance effectiveness, which has contributed to a weaker external profile, and a further erosion of the government's liquidity.

Fitch has affirmed Guatemala's IDRs at BB+

July 2009

Fitch Ratings has affirmed Guatemala's local and foreign currency Issuer Default Ratings (IDRs) at 'BB+'. The Rating Outlooks on both ratings are Stable.

Guatemala's track record of macroeconomic stability, low public and external debt burdens, as well as the government's solid commercial debt repayment history continue to support the sovereign's ratings.

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