LatinNews Daily - 16 September 2022

In brief: Fitch downgrades El Salvador

*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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