LatinNews Daily - 04 March 2021

In brief: Fitch highlights ongoing uncertainty over fiscal policy in El Salvador

* International credit ratings agency Fitch Ratings has issued a statement highlighting that while the victory of President Nayib Bukele’s Nuevas Ideas party in the 28 February legislative election will end El Salvador’s political gridlock, “it is not clear that this will lead to timely implementation of policies to bolster public finances”. The statement notes that the gridlock – stemming from the fact that the opposition Frente Farabundo Martí para la Liberación Nacional (FMLN) and Alianza Republicana Nacionalista (Arena) parties have had a majority in the 84-member unicameral national legislature – “reduced the government’s ability to tap external funding from either private or official sector creditors”. However, Bukele “has yet to set out a medium-term fiscal strategy and his administration’s plans for a supplementary 2020 budget would have reduced consolidation commitments even before the pandemic”. It adds that securing external funding via an International Monetary Fund (IMF) programme would be contingent on commitments to fiscal adjustments, estimated at 3% of GDP before the coronavirus (Covid-19) pandemic. In January, Fitch forecast El Salvador’s fiscal deficit would come in at 8.2% of GDP in 2021, and that the debt to GDP ratio would rise to 94.8% this year, up from nearly 89.4% in 2020 and 70% in 2019.

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