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S&P Cuts El Salvador's Ratings Deeper Into
Junk Amid Recession
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S&P Cuts El
Salvador's Ratings Deeper Into Junk Amid
Recession
San Salvador - Standard & Poor's Ratings
Services lowered its credit ratings on El
Salvador deeper into junk territory,
reflecting the spillover of the global
economic crisis on the country's economic
and fiscal performance.
Before the credit crisis intensified last
year, El Salvador was once thought to be a
candidate to see its ratings boosted to
investment-grade territory following the
upgrades of several other Latin American
countries' ratings, which highlighted the
steps they had taken to boost their fiscal
discipline. But the global recession has all
but eliminated any ratings upgrades as
countries merely look to keep their
economies afloat.
The ratings firm, which lowered its
long-term sovereign credit ratings on the
country by one notch to BB, said its
economic and fiscal ratios had lagged those
of its similarly rated peers at the old
rating. BB is two levels below
investment-grade status.
S&P said it expects El Salvador's real gross
domestic product to fall 1.5% this year,
though economic activity will recover
gradually. Real GDP is projected to be
nearly flat in 2010 and then slowly increase
to 3% in 2011.
The credit rater added the weak performance
this year reflects falling consumption,
investments and exports tied to the global
recession, further noting remittances fell
by 8% in the first two months of the year
while exports are shrinking at a
double-digit pace.
Credit analyst Roberto Sifon-Arevalo said
that although El Salvador's commitment to
fiscal discipline remains, keeping the
general government deficit within the budget
of less than 3% of GDP doesn't seem
realistic.
Still, S&P said its stable outlook on the
ratings reflects the maneuvering room that
El Salvador has to withstand external
pressures in the coming year, pointing to
its financial support from the World Bank
and International Monetary Fund, among other
groups, that should alleviate potential
liquidity concerns.
S&P had revised its ratings outlook on El
Salvador to negative in September, warning
it expected the economy to weaken amid
rising inflation.
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