Because the Debt/GDP ratio increased from 69.4% to 70.7% between 2018 and 2019, Fitch forecasts that, in the absence of additional fiscal adjustment, the debt burden will continue to grow in the coming years.
A political stalemate leading to the failure of the 2020 budget proposal and the approval of the necessary external financing could lead to pressure on El Salvador's rating (B- / Stable), informed the risk rating agency.
Although the goal for this year was to issue $100 million in debt bonds, during the first quarter the Nicaraguan government only awarded $1.1 million, doubting the level of investor confidence.
According to the "Public Debt Report, First Quarter 2019", prepared by the Central Bank of Nicaragua, from January to March regarding Investment Securities in dollars, 1.03 million was issued at an average rate of 5.31% and an average term of 7 months.
After the country issued $1.097 million in Eurobonds for a 30-year term, Moody's gave them a "B3" rating, while Fitch Ratings assigned them a "B".
Fitch Ratings has assigned a 'B-' rating to El Salvador's $1.097 million notes due January 2050. The notes have a coupon of 7.1246%, the agency said.
The Fitch statement dated July 31 adds that "... The proceeds from the issue will be used in accordance with local laws for general budgetary purposes, including the redemption of bonds maturing this year. The rating of the bonds is aligned with El Salvador's long-term foreign currency issuer default rating (IDR) of 'B-' with a stable outlook."
The issue was announced at an initial rate of 7.5% and a 30-year term, and $1.097 million was issued, with total demand five times greater than the amount of the issue.
The issue was for a 30-year term, maturing in 2050 and with a 7.1246% coupon, informed the Central Reserve Bank (BCR).
Authorities from both countries agreed to work on the unification of their stock markets, starting with the issuance of a quota of Guatemalan subsidized debt directed to Salvadoran investors.
Representatives of the Guatemalan Ministry of Finance and the Ministry of Finance of El Salvador informed that before the end of this fiscal year, the Guatemalan subsidized debt will be approximately $13 million.
The IDB loan will be used to finance the payment of pensions in general and of the Armed Forces, subsidize electricity, and increase salary scales for police officers and teachers.
The $200 million loan from the Inter-American Development Bank (IDB) has an amortization period of 20 years, a grace period of five and a half years, and an interest rate based on LIBOR, according to the international organization.
"The 'B-' rating reflects the recent history of local currency defaults, as well as the political uncertainties influencing congressional approval of key economic reform measures."
This is the second consecutive year that the agency decided not to change the country's rating, as Fitch Ratings reported a year ago that it had decided to maintain the rating of foreign currency debt at "B-", and on that occasion argued that political tensions made it difficult to reach agreements on government financing.
The rating agency decided to keep the debt rating at B3 with a stable outlook, arguing that the country's tax burden is high, but stable.
The last rating variation was made in February 2018, when it was reported that at that time the political agreement reached to approve the resources to pay pension funds and the reduction in liquidity risk based the decision of the rating agency to raise the score from Caa1 to B3.
Guatemala and El Salvador are the Central American economies that have registered the lowest levels of economic growth, when this is associated with the size of their public sector.
Panama, Nicaragua, Honduras and Costa Rica are the countries that would be obtaining exceptional results in their economic growth from the average expenditure of the region during 2011 to 2018, which could be associated with the investment made in past periods, informed the Central American Institute of Fiscal Studies (Icefi).
The latest risk ratings for the issuance of long-term debt of Central American economies identify Panama as the most attractive country to invest in.
On March 8, Moody's decided to raise its long-term issuer rating in foreign currency from Baa2 to Baa1, arguing that the outlook remains more favorable in the medium term.
Driven by the financial commitments of the Central Government and those originated by pensions, the country's public debt increased 3% at the end of 2018, reaching $18.975 million.
Finance Ministry statistics detail that between 2017 and 2018 the public debt that includes credits contracted by the Central Government, its financial and non-financial public companies, as well as the Central Reserve Bank, increased $602 million, from $18.373 million to $18.975 million.
The governments of Costa Rica and Nicaragua will face greater challenges in obtaining financing in external markets, because of the lowering of their risk ratings by international agencies.
Arguing that Costa Rica reflects consistently large fiscal deficits, short-term financing needs because of a strong repayment schedule and budget financing constraints, Fitch Ratings reported on January 15 that the country's long-term foreign currency issuer default rating was downgraded from BB to B+.
"The tightening of global financing conditions is a concern for Central American countries with large current account deficits or those highly dependent on capital flows."
According to the report "World Economic Outlook - January 2019" compiled by the World Bank (WB), countries with a high external debt burden would be at risk if a sudden change in investor confidence in emerging market and developing economies were to occur.
Standard & Poors raised the rating from CCC+/C to B-/B, with a stable outlook, arguing that in the next three years the fiscal deficit will be moderate, and its debt levels will remain unchanged.
From the Standard & Poors report:
RATINGS
Foreign Currency: B-/Stable/B
Local Currency: B-/Stable/B
For further details see Ratings List.
The budget presented by the Salvadoran government for next year will be 23% higher than in 2018 and increases to $1.613 million the gap to be financed.
The Salvadoran Foundation for Economic and Social Development (Fusades) reported that the draft National General Budget 2019 (PP2019) totals US$6,733.2 million, an increase of US$1,265.7 million (23.1%) over the voted budget 2018 and is equivalent to 24.9% of the gross domestic product (GDP) 1.