The government and the opposition have finally reached an agreement and approved the Fiscal Responsibility Law along with the issuance of $550 million in debt securities.
The issuance authorized by the Assembly may be made on the international or local market, and funds will be used to pay principal and interest on short-term debt, budget support and strengthening of the Fiscal Fund at the General Treasury of the Republic.
The government's inability to stop the growth of debt in the context of low economic growth and a high fiscal deficit is the reason for the reduction in the rating.
From a press release by Moodys:
New York, August 11, 2016 -- Moody's Investors Service has today downgraded El Salvador's issuer and debt ratings to B1 from Ba3 and placed the ratings on review for further downgrade.
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."
The countries facing the greatest risk of fiscal unsustainability within three years are El Salvador and Honduras, followed by Costa Rica and with less risk, Nicaragua and Panama.
From the "EconomicOutlook"section of the V Report on the State of the Region 2016:
The country continues to experience significantly lower growth than its neighboring countries in a context of low investment, high emigration, low competitiveness and political paralysis, and with significant fiscal pressures.
From the IMF report:
Main policy issues
- Raising potential growth will require far-reaching structural reforms to foster competitiveness and investment, supported by measures to reduce crime and regulatory uncertainty.
From 2014 to 2015 the size of central governments remained constant at an average 18.5% of gross domestic product (GDP).
From the introduction of the report: "Macrofiscal Profiles: 6th Edition" by the Central American Institute for Fiscal Studies (Icefi):
2015 proved to be a period of low tax advance for the Central American region. On average, the size of central governments remained constant compared to 2014, at 18.5% of gross domestic product (GDP). However, not all nations maintained this trend in the same way. While the governments of Nicaragua, Costa Rica and El Salvador, some of the largest fiscally in the region, continued to increase their participation in the economy, reporting increases of 1.5, 0.7 and 0.7% of GDP, respectively, the Government of Guatemala - one of the smallest in the world became even smaller, being reduced by 1.2% of GDP. For its part, the Government of Honduras reported a small decrease of 0.2% of GDP, fully converged with its policy of fiscal austerity, while that of Panama had a transient contraction of 1.4%, reflecting a reorganization established by the new administration and that, according to the plans for 2016, will be reversed in full.
As in old fashioned patriarchal homes, if there must be suffering, the first to suffer are the stepchildren, and only afterwards, if necessary, the legitimate children.
EDITORIAL
The announcement by the Solis administration that it has a plan B in case it does not manage to get legislative approval for the proposed tax increases designed to address the serious and growing fiscal deficit, highlights the existence in Costa Rica of first class citizens and second class citizens.
"Fiscal accounts for 2015 anticipate an additional burden of concerns about the sustainability of the public finances of the governments of the region."
From a report entitled "Macrofiscal Profiles: 3rd Edition" by the Central American Institute for Fiscal Studies (Icefi):
The close of fiscal year 2014 has left more uncertainties than certainties in the current panorama for Central America.
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