Caribbean & Central America - September 2016 (ISSN 1741-4458)

Moody’s downgrade. On 11 August, international credit ratings agency Moody's downgraded El Salvador's issuer and debt ratings to B1 from Ba3 and placed the ratings on review for further downgrade.

A Moody’s press release cites the key driver as the continued inability of the authorities to arrest the upward trend in government debt amid persistently high fiscal deficits and low economic growth. The latest (July 2016) figures from the United Nations (UN) Economic Commission for Latin America & the Caribbean (Eclac) put El Salvador’s GDP growth for 2015 at 2.5%, the lowest in Central America and is forecasting 2.3% growth for 2016.

The same Moody’s press release notes that El Salvador's government debt ratios have reported an upward trend since 2009, driven by fiscal deficits of around 3.6% of GDP, which, in addition to pension-related expenditures, have been due to an expanding wage bill and untargeted subsidies. Moody's expects debt-to-GDP to surpass 60% by year-end 2016.

Highlighting that if current fiscal and economic trends continue, without a fiscal or pension reform, Moody’s projects the gradual rise in the debt-to-GDP ratio to continue and to approach 70% by 2020.

Remittances. On 22 August, El Salvador’s central bank (BCR) issued its latest report on remittances which showed that remittances inflows reached US$2.59bn in the first six months of the year, up 6.2% on the same period the previous year. The BCR press release notes that in July alone, remittances reached US$373.4m, up 5.2% on the same month in 2015.