Effective Debt Management Leads to 40% Reduction in EMBI.

Bolstered by the timely payment of bonds maturing in January 2023, El Salvador embarked on a promising trajectory this year, resulting in a 40% reduction in its Emerging Markets Bond Index (EMBI). Consequently, the country gained a more positive outlook for its securities on the international market.

This development has motivated the domestic banking sector to also engage in this positive momentum. On Thursday, they formalized a proposal to the Government for expediting the payment of short-term debt, a move deemed feasible due to the sustained reduction of the EMBI.

Data accumulated between January and June of this year indicates that El Salvador’s EMBI dropped to 1,096 points, a significant decrease compared to its 2022 closing point of 1,839.

Exor Latinoamérica, a reputable brokerage firm consulted by this media outlet, deemed that “the substantial causes of this improvement are primarily due to a series of actions demonstrating the Government’s commitment to its international creditors.”

The international firm highlighted that the timely payment of the entire 2023 bond, along with partial repurchases of the 2025 bond (executed at the end of 2022), “had immediate impacts on the perception of risk associated with El Salvador.” This was evidenced by the country’s improved credit ratings announced by Fitch Ratings and S&P Global in May.

The recognition of El Salvador’s improved market conditions by heavyweight economic institutions such as JP Morgan Chase further bolstered its status in the securities market, according to Exor.

In this context, Exor believes that the significant 40% reduction in country risk during the first half of 2023 signifies “a signal of a paradigm shift and a gradual recovery of market confidence.” They assert that “if this trend continues, it is expected that the reduction in EMBI will translate into better credit and investment conditions for the country.”

Regarding the performance of international bonds, a report published by the financial magazine Bloomberg in July highlighted El Salvador’s impressive 60% improvement in traded yields during the first half of the year, comparing this performance to the same period in 2022.

The publication notes that “El Salvador’s bonds showed the most improvement” between January and June 2023, contrasting the country’s situation with economies like Bolivia and Ecuador, which experienced significant deterioration in their bond values.

For instance, a Salvadoran bond maturing in 2029 cost $65.70 in July 2023, a notable improvement compared to its price of around $44.26 at the end of December 2022.