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.
The 2018 budget approved by the Legislative Assembly includes allocations for the purchase of medicines and equipment and the improvement and expansion of police posts and jails.
From a statement issued by the Legislature:
January 5, 2018.After extensive analysis and reaching the respective consensus, the Legislative Assembly approved, during the Plenary Session on Friday, with 71 votes, the General State Budget andits respective Wages Act for the current fiscal year, which amounts to $5.5205 billion.
Salvadoran industrialists claim that with the presidential veto of the administrative simplification law, the country has lost a valuable opportunity to improve the already deteriorated business climate.
EDITORIAL
With the veto of the Administrative Simplification Act, the Salvadoran government is sending a clear message to the business community and to society in general: There is no interest in paving the way for the private sector to generate more jobs and, consequently, more wealth and socioeconomic development.
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.
While Costa Rica still has not defined a legal scheme to regulate the mode of transport offered by Uber, in El Salvador the company has started operations with the government´s approval.
The technology company that offers a private transportation network started operating in San Salvador on May 9, with the backing of the Sánchez Cerén administration.
The Salvadoran business sector is opposed to the decision of President Sánchez Cerén to veto reforms to the customs simplification law, which established concrete measures to streamline foreign trade procedures.
From a statement issued by the Inter-Trade Commission for Trade Facilitation (CIFACIL):
The Trade Facilitation Commission (CIFACIL), which groups together seven production unions from El Salvador, deplores the decision of the President of the Republic, Salvador Sánchez Cerén, to veto the reforms to the Customs Simplification Law, which were aimed at advancing the adoption of concrete measures to facilitate trade and which will help overcome the stagnation of foreign trade by our country.
The union of transporters has warned that if the increase in the fuel tax is approved, "the cost of transporting cargo to Guatemala will rise by $12.75."
Arguing a significant increase in liquidity risk and political divisions that are preventing approval of an issuance of long-term debt, the rating agency has downgraded the rating and changed the outlook to negative.
From a press release issued by Moody's:
New York, November 07, 2016 -- Moody's Investors Service has today downgraded El Salvador's issuer and long-term debt ratings to B3 from B1 and assigned a negative outlook to the ratings, concluding the review for possible downgrade initiated on 11 August.
The Sanchez Ceren administration is negotiating a contract with the Bolivian government for the purchase and sale of Liquefied Petroleum Gas in the medium term.
As part of the negotiations between governments the possibility is being considered of Yacimientos Petrolíferos de Bolivia (YPFB) "... participating in the marketing and distribution chain, in partnership with El Salvador's state owned company, said the Bolivian minister of Hydrocarbons and Energy, Luis Alberto Sanchez.
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.
A state of emergency has been declared and pressure has been put on the Assembly to approve borrowing in the order of $1.2 billion to honor short-term debts.
President Sanchez Ceren announced as a first step a declaratory emergency, so that before the close of 2016 they can 'attend to, discuss and build the best agreements that will provide the relevant results' on issues such as approval of bonds for $1.2 billion.With that amount the government hopes to deal with the illiquidity and respond to the state's short - term commitments.
The agency warns of weakening of the government's ability to access new resources, and that it could be downgraded in the next three months.
From a press release by Standard & Poor´s:
OVERVIEW
In our view, El Salvador's financial management is deteriorating, as reflected in a weakening of the government's ability to gain access to liquidity, due to heightened political polarization.
The government has announced that with funding from the Italian Cooperation Agency it plans to build 400 apartments in the center of the capital.
The project is part of a comprehensive plan that also includes the construction of an art and craftsschool on three plots located in the center of the capital.The funds will be granted by the government to cooperatives, through which apartment buildings will be built.
A year after the announcement, the project to establish a marine cargo ferry between El Salvador and Costa Rica remains on paper.
Although it had been announced that the service would begin in late July 2016, it seems that the idea of a ferry transporting goods between the ports of Costa Rica and El Salvador at a base cost of $800 will not happen, at least for now.
Businessmen have described as a "disguised tax" the decree by the Sanchez Ceren administration which adds a fee for social investment on to the energy rate .
The decree states that the new charge of 13% within the tariff will begin on July 15 and notes that"... the charge for social investment will be part of the fees in the system, which are transferred to the entire electricity demand in the different markets managed by the Transactions Unit and will be calculated quarterly as a dollar value per megawatt hour, equal to 13% of the value of the average price of Transferable Energy rates corresponding to the previous quarter ".
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