LatinNews Daily - 11 March 2021

In brief: Think-tank warns of El Salvador’s rising debt

* The Central American institute for fiscal studies (Icefi), a Guatemala-based think tank, has released a new report warning that the situation of public debt in El Salvador has been “particularly concerning” for various years, a situation exacerbated by the impact of the coronavirus (Covid-19) pandemic. The Icefi adds that unless there is “some change in public finances in the short term”, debt could reach 100% of GDP in the next few years. However, Icefi highlights that credit ratings agencies have been “conservative” with regard to El Salvador due to the likely change in political panorama stemming from the 28 February legislative elections which, as expected, delivered a major victory for President Nayib Bukele’s Nuevas Ideas (NI) party. This means that while the legislature was previously dominated by the opposition, as of May NI and its allies will have a clear majority, which could facilitate external borrowing and fiscal adjustment. A 2 March statement by international credit ratings agency Fitch Ratings notes that “over-reliance on domestic market borrowing to meet high government funding needs has pushed up borrowing costs”. An earlier January Fitch statement forecast that the debt to GDP ratio would rise to 94.8% this year, up from nearly 89.4% in 2020 and 70% in 2019.