In a response to Standard & Poor’s (S&P) Global Ratings’ recent upgrade of El Salvador’s credit rating to B-, JP Morgan asserts that this positive shift is not a stroke of luck but the result of a concerted effort to enhance the country. The multinational financial institution attributes the improved sovereign credit rating not only to effective debt management but also to various initiatives undertaken since Nayib Bukele’s administration.
According to S&P, the upgraded rating is a reflection of the promising outlook stemming from recent debt management operations aimed at mitigating default risks in the next two years. Particularly noteworthy is the short-term debt restructuring strategy announced by the Salvadoran government in collaboration with local banks.
JP Morgan’s analysis highlights, “Yesterday, S&P upgraded El Salvador’s credit rating to B- from CCC+, considering that recent debt management operations should mitigate the risk of default in the coming years.”
Moreover, JP Morgan emphasizes that the shift in the sovereign credit rating is not solely based on debt management outcomes but also on comprehensive efforts across various sectors since Nayib Bukele’s administration. The international firm states, “For us, this is not a matter of luck but rather a continuous effort in a handful of areas to improve the country’s situation.”
JP Morgan points out the fiscal corrections made by the Treasury, noting that the pace has been maintained, resulting in the country transitioning from a substantial primary deficit (around 6%) to a surplus exceeding 2%.
Additionally, the bank acknowledges the sustained dynamism across several sectors, predicting that El Salvador could close 2023 with a 4% growth rate. It notes, “Furthermore, growth has consistently exceeded expectations, and we believe it is likely to stabilize at around 4% year-on-year in 2023. This raises the question of whether the growth potential, estimated at around 2%, has increased, and we believe there are reasons to think it has.”
JP Morgan anticipates that improvements in security conditions could lead to sustained gains in production growth. The bank also foresees that infrastructure projects in various economic sectors could be beneficial.
Lastly, the report highlights the recovery of Foreign Direct Investment (FDI), suggesting that it could boost productivity. “These two trends, fiscal discipline and higher growth, if maintained, would imply that debt sustainability becomes more achievable, further reducing credit risk in the country,” concludes JP Morgan.