El Salvador Downgraded by Moody’s as Government Debt Rises

  • El Salvador cut to B1 from Ba3 and may be cut further
  • El Salvador bonds have returned 20.9% YTD in JPMorgan Index

El Salvador’s sovereign debt rating was downgraded to B1 from Ba3 by Moody’s Investors Service on Thursday and my be cut further as the government struggles to control a rising debt burden.

The country’s debt-to-GDP-ratio will surpass 60 percent by the end of the year, Moody’s said, and economic growth of 2 percent means the government must "implement aggressive fiscal consolidation measures involving both revenues and expenditures" to stabilize debt levels.

In July El Salvador’s Supreme Court froze a $900 million bond sale approved by congress last year. The government requested congressional approval in February to issue $1.2 billion in global bonds and has been in talks with the International Monetary Fund on a potential stand-by agreement.

The country’s bonds have returned 20.9 percent on the year, according to JPMorgan’s Emerging Market Bond Index. The yield on the country’s dollar bonds coming due in 2025 was unchanged at 6.11% as of 4:40 pm New York time.

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