El Salvador Credit Rating Cut to BB- by Fitch on Fiscal Deficit

El Salvador’s credit rating was lowered one level by Fitch Ratings, citing a debt ratio that is higher than that for peers.

Fitch cut El Salvador’s long-term foreign and local currency sovereign credit ratings to BB-, three steps below investment grade, from BB. The outlook is still negative. The new ranking matches Serbia, Nigeria and Bolivia.

“Government indebtedness has continuously deteriorated due to large primary deficits and pension cost,” Santiago Mosquera, New York-based Fitch analyst, said in a statement. “The reliance on short-term debt is expected to increase given the government’s growing difficulty to obtain legislative authorization to issue long-term debt, thereby increasing roll-over risks.”

El Salvador’s debt as a percentage of gross domestic product reached 56.7 percent in 2012, compared with 39 percent for the BB median, according to Fitch.

The extra yield investors demand to hold El Salvador’s dollar bonds instead of U.S. Treasuries was unchanged at 404 basis points, or 4.04 percentage points, at 11:13 a.m. New York time. The gap reached 436 points on June 28, a 10-month high.

To contact the reporter on this story: Veronica Navarro Espinosa in New York at vespinosa@bloomberg.net

To contact the editor responsible for this story: David Papadopoulos at papadopoulos@bloomberg.net

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