Financial giant Barclays has raised red flags over El Salvador’s fiscal conditions, citing concerns about the country’s limited financing alternatives and alleged misuse of pension funds to support the government. In a recent report, Barclays warned that the nation’s weak fiscal performance in 2023 has jeopardized the likelihood of striking a deal with the International Monetary Fund (IMF) in the near future.
Barclays contends that El Salvador’s fiscal deficit is more significant than officially reported, accusing the government of separating pension debt from the total public debt to downplay the actual deficit. The bank alleges that the government is accessing funds through dubious loan schemes, utilizing the savings of workers in the AFPs, El Salvador’s pension system.
The financial institution underscores the pivotal role of an agreement with the IMF, labeling it a “lifesaver” that could unlock opportunities with other financial entities. However, Barclays remains pessimistic about a swift resolution, citing limited internal financing alternatives and reduced support from other multilateral institutions.
In response to the report, El Salvador’s President Nayib Bukele criticized Barclays, accusing the bank of disguising political activism as market analysis. Bukele, in a statement on his X social media account, stated,
“The guys at @Barclays are just salty about my speech at @CPAC, they even mentioned it on their “research”, it’s political activism disguised as “market analysis”. We’ll prove them wrong”.
Barclays recommends investors to divest from El Salvador bonds set to mature in 2029 and suggests a shift in the 2052 notes to a 2050 maturity for better rates. The bank also highlights the potential financial strain resulting from the pension system’s debt swap, projecting possible repercussions by mid-2027.
The report also references President Bukele’s recent visit to Washington, where he criticized globalism and lamented the lack of an agreement with the IMF. Despite negotiations with the IMF since 2021, alleged issues such as the adoption of Bitcoin as legal tender and a lack of fiscal transparency have impeded progress for El Salvador.
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