In a significant endorsement of the Salvadoran government’s financial strategies, Fitch Ratings has praised the country’s commitment to fiscal consolidation, particularly in light of recent efforts to rectify state finances. The American risk rating agency highlighted the government’s fully funded 2025 budget and a notable debt repurchase initiative, which collectively signify a positive shift in fiscal management.
Fitch’s press release underscored the government’s presentation of the 2025 General Budget of the Nation as a landmark moment, marking the first time in history that El Salvador will present a fully funded budget. This move, according to Fitch, is indicative of a serious commitment to reducing public debt sustainability risks.
The proposed budget forecasts a central government deficit of 0.8% of gross domestic product (GDP) for 2025, a marked improvement from Fitch’s earlier prediction of 1.8% for 2024. This shift is expected to result in a reduction of El Salvador’s fiscal deficit by at least eight percentage points, demonstrating the government’s focused approach towards achieving a more sustainable economic framework.
Fitch also praised the spending plan unveiled by Finance Minister Jerson Posada, which aims to finance all current expenses through government revenues while minimizing reliance on loans for capital expenditures with multilateral organizations. The agency highlighted this as a strategic move to close the financing gaps that have historically plagued the country’s budgets.
The rating agency detailed that the anticipated fiscal consolidation would stem from substantial spending cuts, including a freeze on public sector wages, the elimination of vacant positions, and reduced expenditure on goods and services. These measures are projected to outweigh the expected rise in interest spending due to high borrowing costs and financing constraints.
In the context of this positive fiscal landscape, Fitch noted that El Salvador has seen improved conditions in international bond markets. The agency particularly referenced signs of progress towards an agreement with the International Monetary Fund (IMF), which could further bolster investor confidence.
“Successful fiscal consolidation can continue to strengthen investor confidence in the sustainability of El Salvador’s debt, enabling greater borrowing in the market,” Fitch stated, reinforcing the potential for economic growth through strategic financial management.
The 2025 budget, totaling $9.663 billion, was presented to Congress on September 30, with Minister Posada assuring that the government would operate within its means, fulfilling both national and international obligations solely through its own revenue.
Additionally, on October 4, President Nayib Bukele announced a successful bond repurchase program, acquiring $940 million of Salvadoran bonds maturing between 2027 and 2052. Fitch confirmed that this maneuver does not indicate a distressed debt exchange, projecting continued service for non-participating bondholders under original terms.
With these developments, Fitch’s endorsement reflects a pivotal moment for El Salvador as it navigates its fiscal challenges, laying the groundwork for a more resilient economic future.
