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Fitch: El Salvador to limit risks in 2019 with budget passage, debt approval


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Fitch: El Salvador to limit risks in 2019 with budget passage, debt approval

Fitch Ratings expects El Salvador to temper financing and fiscal risks in 2019 following the passage of its yearly budget and the approval of an external issuance that will finance an $800 million Eurobond.

For Fitch, "the ability of the legislature and the government to come to agreement on these issues is a positive signal for policymaking capacity and political compromise," especially given El Salvador's recent history of political deadlock which had resulted in a debt default in 2017, the rating agency said in a report.

However, Fitch noted that the country's presidential elections, which are set for Feb. 3 with a second round to follow in March if necessary, could again "complicate policymaking dynamics." A victory by current frontrunner Nayib Bukele, who is not a member of the country's two main political parties, would likely renew the risk of increased polarization, Fitch said.

Lingering weak growth is also a risk factor, especially with the expected slowdown in remittances this year, Fitch said. The rating agency forecasts 2.4% growth in El Salvador's GDP, a slight improvement from 2018.

The rating agency expects the country's general government debt to rise, given a projected fiscal deficit of 3.2% of GDP in 2019, which is higher than 2018's estimated deficit of 2.7% of GDP.