El Salvador’s Debt Constraints

El Salvador’s Debt Constraints

After the issue took a back seat amid security concerns, it should be the focus of reports in the coming days as the date for the delivery of these bonds approaches, which bodes well for the country’s position.

However, it must be taken into account that El Salvador will be forced to resort to new loans to pay part of the budget for 2023, which is not yet fully funded.

Debt now due was $800 million, but two buyback processes have drawn $195.84 million.

According to Ricardo Castaneda, an economist at the Central American Institute for Tax Studies, quoted by the newspaper El Mundo, the country will be able to pay its obligation this year, but warned that difficulties in accessing these resources are to be expected .

“El Salvador will continue to face serious funding difficulties, particularly on the external issue,” he said, where lenders’ doors are still closed and there is persistent distrust within credit agencies and banks.

This is appreciated by Rommel Rodríguez, an economist at the National Development Foundation, who opined that while there is no doubt about the debt being repaid, the way the funding was obtained will make investors cautious.

According to the expert, the country’s risk perspective for international investors has not improved significantly.

Rodríguez pointed out that the challenge for the country will be the behavior of the international market and how the finances will be managed in order to call the bonds maturing in the coming years.

The bond buyback also included the 2025 debt, another $800 million, of which the government was able to purchase $451.9 million, meaning El Salvador will have to pay another $348.1 million this year.

According to economist Cesar Villalona, ​​these processes result in one debt being paid off by acquiring another, which, while providing an immediate solution, becomes a vicious cycle.