Moody’s Ratings announced today an upgrade to El Salvador’s long-term foreign currency issuer and senior unsecured ratings, raising them from Caa1 to B3. The outlook remains stable, reflecting significant improvements in the country’s credit profile and fiscal management.
This rating upgrade is attributed to recent liability management operations that have considerably reduced external repayment risks and eased liquidity pressures in the short and medium term. Moody’s highlighted that fiscal consolidation efforts by El Salvador’s government have bolstered debt sustainability, contributing to stronger overall investor confidence.
The B3 rating acknowledges El Salvador’s moderate economic strength, enhanced by improved security and investment prospects. Stronger government liquidity has lowered event risks, though challenges remain, including weak debt affordability and limited fiscal space. However, Moody’s noted progress in governance, with technocratic leadership fostering consistent economic policymaking and boosting investor sentiment.
El Salvador’s recent liability management operations have been pivotal in this upgrade. The government’s bond buybacks in October and November reduced external amortizations significantly, with near-term repayments now manageable through 2029. The buybacks also saved the country over $352 million, with $350 million earmarked for the Rio Lempa Conservation and Restoration Program. Furthermore, sovereign bond prices have nearly converged with par value, reducing spreads to approximately 500 basis points—a strong indicator of improved market confidence.
With these positive developments, Moody’s maintained a foreign-currency ceiling of B1, reflecting moderate capital account openness and improved credit conditions despite ongoing structural challenges.
This rating signals progress for El Salvador, balancing reduced financing needs and strengthened fiscal management against remaining fiscal constraints, marking a step forward for the nation’s economic stability and growth prospects.