*International credit ratings agency Fitch has downgraded El Salvador’s Long-Term Foreign Currency Issuer Default Rating (IDR) to ‘CC’ from ‘CCC’. This reflects Fitch’s view that El Salvador’s “
tight fiscal and external liquidity positions and extremely constrained market access amid high fiscal financing needs and a large US$800m external bond maturity in January 2023 make default of some sort probable”. El Salvador’s government led by President
Nayib Bukele, who confirmed yesterday that he would seek re-election in 2024, recently announced a voluntary cash buyback of US$360m for its 2023 and 2025 external bonds at below par, which will likely further weaken its already strained liquidity position. In July 2022, the government had proposed a US$560m transaction. The size and scope of the transaction does not materially alter the probability of default in Fitch’s opinion. Warning that El Salvador’s liquidity situation “
is dire ahead of the January 2023 Eurobond payment”, Fitch estimates financing needs of US$3.7bn from September 2022 through January 2023 and unidentified financing gap of nearly US$900m, not including any amount to buy back some of the US$800m 2025 bond as per the announced transaction. Fitch forecasts a current account deficit of US$4bn in 2022 (7.8% of GDP).
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