Moody's puts El Salvador on review for downgrade

Moody's puts El Salvador on review for downgrade

Capital Markets Debt Corporate & Sovereign Strategy Funds El Salvador

Moody's late on Monday put El Salvador's issuer and senior unsecured sovereign credit rating of B3 on review for downgrade further into junk territory citing heightened liquidity risk.

"The key driver behind the decision is the government's high liquidity risk due to a large increase in gross financing needs, tight external financing conditions and limited ability to increase reliance on the domestic market," Moody's said in a statement.

Moody's said that the government's move to help shore up the economy impacted by the COVID-19 pandemic has let to increases in spending but there have been no "significant cuts" to spending announced in coordination.

"Moody's expects El Salvador's fiscal deficit to reach 11% of GDP in 2020, exceeding the rating agency's previous estimate of 8.5% back in May," the firm said.

"Even though Moody's currently expects the fiscal deficit to decline to 6.3% of GDP in 2021 and the primary deficit to also decline, the fiscal deficit will remain high, almost double the size of the deficits El Salvador typically posted pre-pandemic," Moody's said.