El Salvador has experienced a significant decline in its country risk during the first half of 2023, marking a positive turning point for the nation’s international standing. The sustained improvement in country risk serves as a signal of a paradigm shift and a gradual recovery of confidence from international markets.
In January, the timely payment of the 2023 debt by the Salvadoran government not only silenced speculations about a potential default but also led to an upgrade in the country’s credit rating by two out of the three rating agencies assessing this variable.
Now, with the first-half data available, it has been revealed that El Salvador has reported a 40% decrease in the Emerging Markets Bond Index (EMBI) indicator. The current reading stands at 1,096 points, compared to the country’s closing figure of 1,839 in 2022.
In response to this positive development, Exor Latinoamérica, a financial firm consulted by this media outlet, considers that «the substantial causes of this improvement are mainly due to a series of actions that demonstrate the government’s commitment to its international creditors.»
According to Exor Latinoamérica, the announcement of the full payment of the 2023 bond and partial repayment of the 2025 bond through two repurchases executed at the end of 2022 had an immediate impact on the perception of risk regarding El Salvador.
The reduction in the fiscal deficit and the subsequent recognition by institutions such as JP Morgan, along with the credit upgrades by Fitch Ratings and S&P Global in May 2023, have also contributed to a substantial improvement in the EMBI.
«As of June 2023, the EMBI stood at around 1,096 points, which represents a 40% decrease compared to the 2022 closing figure of 1,839 points. During the first half of 2023, this indicator has remained stable, with a 45% improvement compared to the same period in 2022,» emphasized the firm.
In this regard, Exor believes that the significant reduction in EMBI, in which El Salvador plays a leading role, signifies «a signal of a paradigm shift and a gradual recovery of market confidence.»
The positive developments in El Salvador’s country risk and the recognition from international financial institutions demonstrate the government’s commitment to its financial obligations and fiscal responsibility. These improvements not only silence doubters but also lay the foundation for sustained economic growth and increased investment opportunities in the country.