El Salvador's Congress approved an IDB loan of $350 million to finance the government budget deficit at a 3.25% rate.
The president of the Legislative Assembly, Norman Quijano, stated that " ..." with the conditions offered by the IDB we will have an interest rate estimated at 3.25%, with the bonds we had an average rate of 7 and 8%, the reduction of interests will mean a saving of tens of millions of dollars for the country.' "
The institution highlights the progress that has been made in reducing the fiscal deficit and stabilizing the debt, but warns that a greater effort is needed to place the debt on a downward trajectory.
From a statement issued by the International Monetary Fund:
The IMF staff team visited San Salvador during February 5—16 for the 2018 Article IV consultation [1] and held productive discussions with the Salvadoran authorities, parliamentarians, business community, and social partners. The consultation was based on revised National Accounts statistics.
Salvadoran banks have been reducing their investments in Treasury Bills, and have stated that they will not increase them until the debt rating improves.
Representatives from the Salvadoran Banking Association (Abansa) acknowledged that since March this year the entities have been reducing their investment in 'Letras del Tesoro' (Letes), due to the delicate fiscal situation facing the government.
El Salvador's 'CCC' Long-Term ratings reflect Fitch's assessment that political polarization complicating the sovereign's ability to meet its financing gap for 2017-2018, continues, highlighting the risk for default.
From a statement issued by Fitch Ratings:
Fitch Ratings-New York-28 July 2017: Fitch Ratings has affirmed El Salvador's Long-Term Foreign and Local Currency IDRs at 'CCC'.
The issue of external debt was placed at 12 year terms and with an interest rate of 8.625%.
From a statement issued by the Ministry of Finance:
February 21, 2017.The Government of the Republic of El Salvador, through the Ministry of Finance and the Central Reserve Bank reports that today a successful issue was made of sovereign bonds (Eurobonds) in the international market for the sum of $600 million.
In line with recent warnings issued by other credit rating agencies regarding the country's bleak fiscal outlook, Fitch has reduced the debt rating from B + to B, and changed the outlook to negative.
From a press release issued by Fitch Ratings:
Fitch Ratings-New York-01 February 2017: Fitch Ratings has downgraded El Salvador's Long-Term Foreign and Local Currency Issuer Default Ratings (IDRs) to 'B' from 'B+'.
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.
Of the $100 million in debt that the government intended to place on the local market, offers were received for only $1 million.
The government was not able to place all of the debt securities it intended to, only managing to capture the interest of one bank, which bought $1 million in debt at a one year term and with an interest rate of 6.5%.
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.
Once again a warning has been given that without a fiscal agreement the country is at high risk of falling into debt default and losing access to international funding.
Elsalvador.com reports that "...Pedro Argumedo, from the Department of Economic and Social Studies at Fusades, said it is important to reach a Tax Agreement, as failure to do so would lead to consequences that would be 'terrible', and time is growing ever shorter."
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 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 government looks like it will be unable to cope with its obligations in the second half of the year, because "there is no money to make it to the end of the year."
Figures from the Salvadoran Foundation for Economic Development (Fusades) indicate that the current balance of government debt (Treasury bills) now exceeds $900 million, and to meet its obligations in the second half of the year $500 million more is needed, which will have also have to be borrowed.
For the first time in nine years, the Federal Reserve has raised the benchmark interest rate, by 0.25%, starting off a process of a gradual adjustment which will make credit more expensive.
After seven years of interest rates at historical lows, signs of recovery in the US economy have led the Federal Reserve to announce the first upward adjustment in the federal funds rate, the main reference rate for structuring interest rates in the United States and around the world.
Moody's has changed the outlook of the sovereign debt rating from stable to negative, noting the limited ability of the government to control the increased public spending and the high fiscal deficit.
From the press release by Moody's:
New York, November 19, 2015 -- Moody's Investors Service has today affirmed El Salvador's Ba3 foreign currency issuer and senior unsecured ratings and changed the outlook to negative from stable.