Moody’s Ratings has upgraded El Salvador’s long-term foreign currency issuer and senior unsecured ratings from Caa3 to Caa1. The outlook remains stable, signaling positive changes in the country’s credit profile. Let’s delve into the details.
Reduced Credit Risks and Liability Management El Salvador’s credit upgrade is driven by a material decrease in credit risks. The recent liability management operations, including a debt buyback in April 2024, have significantly reduced external debt amortizations through 2027. The government’s strategic move to extend the maturity profile of its domestic debt has also played a crucial role in managing short-term financing needs.
Moody’s says that despite these positive developments, El Salvador faces challenges. Weak institutions and governance persist, and the country’s susceptibility to event risk remains relatively high due to limited access to cross-border funding. Addressing these issues will be essential for sustained progress.
Foreign-Currency Ceiling and Market Access The foreign-currency ceiling has been raised to B2 from Caa1, reflecting El Salvador’s policy effectiveness, capital account openness, and the government’s share in total external debt. Notably, El Salvador’s full dollarization means there’s no local currency country ceiling assigned.
Market Sentiment and Liquidity Risks El Salvador’s funding capacity remains limited, but new financing options have opened up with access to international capital markets. The April transactions helped the sovereign regain market access and reduce financing needs through 2027, effectively managing liquidity risks.
This credit upgrade is a positive step and El Salvador will continue addressing fiscal challenges and formulating an effective financing strategy. The improved debt profile and reduced repayment risks are encouraging signs, but sustained efforts are necessary for long-term stability.