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LatinNews Daily - 17 November 2020

In brief: Moody’s warns on El Salvador liquidity risk

* International credit ratings agency Moody’s Investors Service has placed the Salvadorean government’s 'B3' issuer and senior unsecured ratings on review for possible downgrade. It cites as the key driver behind the decision, “the government's high liquidity risk due to a large increase in gross financing needs, tight external financing conditions, and limited ability to increase reliance on the domestic market”. Moody's expects El Salvador's fiscal deficit to reach 11% of GDP in 2020, exceeding the rating agency's previous estimate of 8.5% back in May. It notes that the government has already implemented a series of spending measures in response to the coronavirus (Covid-19) pandemic, and has not announced any significant cuts. Moody's currently estimates the government's gross financing requirements at 18% of GDP in 2020, up from the 7.9% of GDP that it estimated in early March. It notes that the government is still in negotiations with the opposition-controlled legislature to approve several multilateral loans while El Salvador’s ability to rely on local financing has narrowed, “as a significant increase in short-term debt has driven the domestic market's absorption capacity to the limit”.

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