S&P says it could downgrade El Salvador in 6-18 months
/ Our Today
administratorStandard & Poors’ (S&P) Global Ratings could cut El Salvador’s credit rating within the next six to 18 months, if it does not make “adequate progress” on debt reduction.
This declaration from the international credit ratings agency comes days after the government announced plans to buy back sovereign bonds.
S&P maintained El Salvador’s ‘CCC+’ rating, seven notches into non-investment speculative grade territory, four days after its government said it would buy back up to $360 million of two sovereign bonds, at what S&P valued just marginally above market prices.
El Salvador launched the offer on September 12, for bonds maturing in 2023 and 2025.
“We consider the debt repurchase opportunistic and akin to a liability management operation, given we believe the government could have fulfilled its financial commitments in the near term absent this transaction,” S&P said in a statement.
The rating agency says there was at least a “one-in-three” chance of a downgrade if the government does not make significant progress on its debt or if any issues arise on its willingness to pay. Another international ratings agency, Fitch downgraded El Salvador’s sovereign debt to ‘CC’ from ‘CCC’ on Thursday, describing a debt default as probable.
S&P is of the belief that the government could meet its debt service payments over the next year, adding that delays in obtaining funding and corrective fiscal measures could hit investor confidence.
According to S&P, its latest ratings reflected longstanding difficulties in predicting policy responses, low economic output, persistently low investment and little flexibility due to the dollarisation of the economy, which has persisted since El Salvador introduced bitcoin as legal tender alongside the US dollar.
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