S&P Global Ratings on Dec. 14 revised its outlook on El Salvador to positive from stable on expectations that ongoing Congressional negotiations would allow the government to meet its financial commitments.
El Salvador is working to secure financing for its Eurobond payments due 2019-2024. S&P expects that the Congress will address at least the 2019 Eurobond repayment before the March 2018 elections, decreasing the likelihood of a sovereign default.
The rating agency said the positive outlook reflected gains from the pension reform that will ease the government's structural fiscal deficit and short-term financing needs.
Growth in gross domestic product is expected to remain at about 2.2% in 2017-2019 as crime and political challenges weigh on economic growth prospects.
The current account deficit is projected to stabilize around 3% of GDP in 2018-2020 given estimated moderate growth in remittances and an expected rise in commodity prices.
S&P could raise El Salvador's ratings within the next 12 months if political parties agree on measures that facilitate better debt management. Ratings, however, could be downgraded if political polarization weighs on the government's access to liquidity and trigger debt default risks.
S&P Global Ratings and S&P Global Market Intelligence are owned by S&P Global Inc.