Fitch Ratings has upgraded El Salvador’s Long-Term Foreign Currency Issuer Default Rating (IDR) from ‘CCC+’ to ‘B-’, with a Stable Outlook. The upgrade reflects improved financing conditions and access to markets, supported by a recent agreement with the International Monetary Fund (IMF).
The upgrade was determined by:
1. Improved Financing Environment: El Salvador’s financing needs have decreased due to liability management operations and an IMF program, which is expected to support fiscal consolidation. These efforts, along with reduced short-term domestic debt, have enhanced the country’s financial stability.
2. IMF Program: An agreement was reached with the IMF for a 40-month Extended Fund Facility (EFF) worth $1.4 billion, which includes fiscal adjustments and legal changes to make Bitcoin acceptance voluntary. The deal is anticipated to unlock additional funds and support fiscal reforms.
3. Fiscal Consolidation Efforts: The government targets a primary balance adjustment of 3.5% of GDP over the next three years. The 2025 budget plans to cut spending and improve tax administration, aiming to reduce the fiscal deficit and enhance debt sustainability.
4. Debt Management: Fitch estimates El Salvador’s non-financial public sector (NFPS) debt at 87.7% of GDP in 2024. While the debt level is expected to stabilize, the country faces challenges from rising borrowing costs and accrued interest payments due in 2027.
5. Economic Growth Prospects: Real GDP growth is forecasted to increase from 1.9% in 2024 to 2.3% in 2025, driven by infrastructural projects and tourism. However, risks include potential U.S. policy changes under Donald Trump’s administration, which could impact remittances and exports.
Reaction from President Bukele: President Nayib Bukele responded on X to the news of the improved rating with a simple yet enthusiastic “Hooah!” reflecting his approval of the country’s progress.
Outlook and Risks: Fitch’s Stable Outlook reflects balanced risks, with potential for further upgrades if fiscal consolidation continues and external liquidity improves. Conversely, setbacks in fiscal policy or financing constraints could lead to a downgrade.
El Salvador’s Country Ceiling remains at ‘B+’, indicating limited risks of capital controls affecting private sector debt payments.
The country’s governance and political stability are critical to its credit profile, as reflected in its ESG Relevance Scores.
Fitch’s upgrade highlights El Salvador’s progress in financial management and the positive impact of the IMF program, setting a foundation for sustained economic stability.