Moodys improves El Salvador’s rating 

Photo of author

By LatAm Reports Staff Writers

The agency Moodys improved El Salvador’s risk rating by climbing two positions, moving from Caa3 to Caa1, while maintaining the stable perspective after the repurchase of bonds made by the Government of El Salvador a few weeks ago.

This improvement is driven by a significant decrease in credit risks, from very high risk levels, for the sovereign, given a lower probability of episodes of liquidity stress, the agency said in a statement published Thursday.

He stressed that “the liabilities management operations, which include a debt repurchase carried out in April 2024, have significantly reduced foreign debt write-offs until 2027.”

“The government has been able to extend the maturity profile of its domestic debt by reducing its dependence on short-term instruments by issuing longer-term notes to local banks,” Moodys said.

He also stressed that “debt-reprofile” operations along with moderate and relatively stable fiscal deficits have reduced the overall funding needs of the Government.

However, he emphasized that the Central American country maintains “weak institutions and governance, as well as a relatively high susceptibility to the risk of events that reflects the government’s limited access to cross-border financing.”

In mid-April, the Government of El Salvador accepted the advance purchase of its bonds due in 2025, 2007 and 2029 for $469.9 million – including interest. By January 2025, the Government of El Salvador will only have to pay $99 million.

Moodys also points out that the extension of the medium- and long-term domestic debt deadlines has reduced the country’s financial needs.

El Salvador’s initial offer to repurchase its bonds amounted to about $1.749 million. This is not the first time El Salvador has made an advance purchase of its bonds, since in 2022 it launched two similar operations and bought bonds for $647 million.

According to the Salvadoran government in September 2022, these operations would have generated “more than $288 million in savings” from the Salvadoran state.

At the end of 2023, the total public debt of the Central American country reached $20.097 million, of which $12.088 million correspond to external debt. These accounts do not include pension debt that reached $9.916 million.

Last week, Moody’s analyst for El Salvador, Jaime Reusche told LA PRENSA GRANIFFICA that from our perspective the state reduced the risk of repayment in the short term in exchange for financing itself at a high rate, but that it opens the door to future emissions in the future, especially if global interest rates are reduced in the coming months.

This is the second rise in the risk rating for the country, the first agency to do so was Standard & Poor’s.

Despite the improvement in risk rating, Moodys stresses that the rating of Caa1 in El Salvador continues to incorporate weak institutions and governance, as well as a relatively high susceptibility to the risk of events that reflects the government’s limited access to cross-border financing.

This article has been translated after first appearing in La Prensa Grafica