Barclays Warns El Salvador of Limited Financing Options
Financial giant Barclays has issued a warning to El Salvador, stating that the country’s fiscal conditions have closed off financing alternatives, and there are suspicions that pension money is being used to fund the government. The bank has indicated that the government’s weak fiscal execution in 2023 has reduced the probabilities of reaching an agreement with the International Monetary Fund (IMF).
According to Barclays, El Salvador’s fiscal deficit is higher than reported, as the government has separated pension debt from the total public debt. This separation makes the fiscal deficit appear smaller than it actually is. The bank suspects that the government is funding itself through loan schemes using the pension system’s savings of workers in the AFPs.
Barclays emphasizes that an agreement with the IMF would be a “lifesaver” for El Salvador, opening doors to other financial entities. However, the bank does not expect this to occur in the short term due to limited internal financing alternatives and diminished capacity of other multilateral institutions.
Barclays recommends investors to sell El Salvador bonds that mature in 2029 and suggests changing the 2052 notes to a maturity in 2050 for better rates. The bank also highlights the financial stress that the pension system’s debt swap could create by mid-2027.
The report from Barclays also mentions President Nayib Bukele’s visit to Washington, where he criticized globalism and the lack of an agreement with the IMF. The government of El Salvador had been in talks with the IMF for a financial agreement since 2021, but setbacks such as the adoption of Bitcoin as legal tender and a lack of fiscal transparency have hindered progress.
Overall, Barclays’ assessment of El Salvador’s financial situation raises concerns about the country’s limited financing options and the potential repercussions of relying on pension money to fund the government.