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 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 Salvadoran economy continues to stagnate in a cycle of low growth and uncontrollable public debt, while economic and social policies focus on short-term relief, driving away employment opportunities."
From a statement by the Salvadoran Foundation for Economic and Social Development (FUSADES):
The Salvadoran economy continues to stagnate in a cycle of low growth and uncontrollable public debt; while economic and social policies focus on short-term relief, driving employment opportunities away.
Businessmen are asking for "... the establishment of concrete commitments and legal limits on the financial debts that the government may take out in the name of all Salvadorans."
From a statement issued by the Chamber of Commerce and Industry in El Salvador:
Approval of new issues of government bonds are not the solution to the problem of the government's lack resources, until there is a Fiscal Responsibility Law to address comprehensively the problem of sustainability of public finances, there is no guarantee that the government will not continue acquiring more debt which is not translated into improvements in the areas of security, education, health, infrastructure and other essential services for the population.
The productive sectors have indicated that the state budget approved for 2015 is underfinanced and will force the government to raise taxes or issue more debt in order to comply with it.
The approved general budget for the nation is $4.824 billion an amount which according to the private sector can not be covered by current tax revenues, therefore in order to raise this amount there must be either be cuts made to services such as subsidies or social programs, increases or creation of more taxes, or more debt taken on.
The private sector demands limits on the government's ability to borrow, through means of a Fiscal Responsibility Law.
From a press release issued by the Chamber of Commerce and Industry of El Salvador (Camarasal):
The Camarasal has expressed dissatisfaction with the fact that the Legislature has authorized the government to issue a new bond debt for $1.156 million, without having first limited the state's debt capacity through the adoption of a Fiscal Responsibility Law.
The Central American Institute for Fiscal Studies has concluded that only the public debts of Panama and Nicaragua, using official data, are sustainable in the medium term.
The main theme of the fifth edition of the 'Lente Fiscal Centroamericano' (Central American Fiscal Lens) is an analysis of debt sustainability in Central America, which depends greatly on interest payments on debt, economic growth, inflation, revaluation and management of the fiscal deficit.
Failure to meet macroeconomic goals set by the IMF for 2011 would jeopardize the precautionary facility that has been negotiated.
The Salvadoran Foundation for Economic and Social Development (Fusades) has recommended the Government on several occasions to adjust the budget and make a fiscal pact.
"One of the main commitments and that which most worries the IMF, is the fiscal deficit for this year, which was projected at 3.5% of gross domestic product (GDP), but due to the high public debt and government current expenditure will increase to 4.2%.
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