El Salvador’s international bonds are no longer classified as “junk bonds” following a series of rating upgrades by the world’s leading credit rating agencies. Fitch Ratings, in its latest update in January 2025, upgraded the country’s international debt rating from ‘CCC+’ to ‘B-’. This marks a critical shift in the perception of El Salvador’s financial stability on the global stage.
High-yield bonds, often termed as “junk bonds,” are fixed-income securities with lower credit ratings, indicating higher risk of default on capital and interest payments. These bonds traditionally offer higher returns to compensate for their elevated risk. Ratings below BBB (by Fitch Ratings and S&P Global Ratings) or Baa (by Moody’s) are typically considered speculative-grade or “junk.”
El Salvador’s financial landscape has been strained by high public debt—87.7% of GDP in 2024—and a fiscal deficit of 4.7% of GDP. This led to the country’s previous classification in the high-risk category. However, comprehensive fiscal measures have improved its credit outlook. These measures include external debt buybacks, short-term domestic debt refinancing, increased tax revenue, public sector wage freezes, elimination of vacant positions, reduced spending on goods and services, and a 40-month Extended Fund Facility agreement with the IMF amounting to $1.4 billion.
In April 2024, S&P Global affirmed El Salvador’s sovereign rating at ‘B’ with a stable outlook, hinting at potential upgrades contingent on robust economic reforms and fiscal clarity. By November 2024, Moody’s also upgraded El Salvador’s rating to B3 from Caa1, citing improved economic prospects and government liquidity, alongside a more stable security environment.
Fitch Ratings projects that El Salvador’s financing needs will be manageable through 2025 and 2026, with pension-related deficits expected to remain at 2.0% of GDP. Funding sources include IMF disbursements, multilateral funds, and domestic markets. The government does not plan to issue new external bonds in 2025, but Fitch warns of potential medium-term pressures as borrowing costs and accrued interest payments rise, particularly with significant payments due in 2027.
These positive adjustments in El Salvador’s credit ratings reflect growing confidence in the country’s economic management and its ability to meet financial obligations, signaling a more stable investment environment moving forward.