El Salvador at risk of facing high interest rates on $1 billion in bonds due to poor credit rating
El Salvador faces a critical financial situation as it struggles to improve its credit rating, which remains at CCC+ according to Fitch Ratings. The country’s high level of debt and challenges in accessing international financial markets are contributing factors to the poor rating.
Despite the government’s efforts to repurchase $487 million in bonds, Fitch Ratings has maintained its CCC+ grade for El Salvador. Economist Rafael Lemus warns that the country is only one step away from a rating that could lead to non-payment, citing a very substantial credit risk and very low safety margin.
Fitch Ratings highlights El Salvador’s high level of indebtedness, reaching 85% of its GDP in 2023, and a fiscal deficit of 4.7% of GDP. The agency also notes that the country’s access to international financing remains difficult, as evidenced by the high interest rates of 9.25% on $1 billion in bonds issued.
Moreover, El Salvador’s selective default in 2023 and the recent legislative actions to make changes to the Constitution could further deteriorate the country’s credit rating. The government’s ability to attract foreign direct investment is crucial for economic growth and resolving fiscal issues.
S&P Global Ratings has also maintained a firm rating for El Salvador at “B”, with a stable outlook. However, failure to improve the rating within 18 months could result in paying 16% on the bonds issued. The government is urged to reach an agreement with the IMF to alleviate fiscal problems and ensure debt sustainability.
El Salvador’s poor risk rating is one of the worst in the Central American region, posing significant challenges for the country’s financial stability.