Country Report El Salvador 1st Quarter 2015

Update Country Report El Salvador 08 Oct 2014

Debt stock rises modestly in first half

Event

The external debt rose by 6.3% year on year in the second quarter of 2014 to reach US$14.5bn. This represents a modest 2.8% accumulation since the end of 2013, but does not yet incorporate the latest US$800m Eurobond issue.

Analysis

There continues to be a slow but steady pace to the rise in El Salvador's foreign debt. In the first quarter of this year, the country added US$200m to its total foreign debt stock, mainly in the form of extra long-term borrowing taken on by both the Banco Central de Reserva de El Salvador (BCR, the Central Bank) and the mostly foreign-owned commercial banks. In contrast, central government and corporate borrowing fell in the three months to March.

The second quarter of the year saw another US$200m added in borrowing. However, the spread was slightly different. The BCR's borrowing actually dropped by 1.7% year on year, largely owing to a sharp fall in new short-term debt. Meanwhile, its long-term debts, which make up the majority share of its overall stock, rose by a modest 8.3%. Central government borrowing reached US$7.3bn by June, an annual rise of 1.4%-all of it in long-term credit. In contrast, the commercial banks almost doubled their debt stock from US$826.3m in June 2013 to US$1.5bn by June 2014, with their short-term loan portfolios growing from US$383.4m to US$837.4m in the same period. Less dramatic was the rise in the corporate debt stock, by 2.2% by the end of June, following a 0.4% year-on-year fall in the first quarter. Although this appears to reflect some improvement in business confidence after the uncertainty of the electoral period, long-term borrowing by private firms (the major slice of the overall debt stock) was up by just 0.2%, and intra-company lending was down by 1.6%

In September, as expected, the incoming government of Salvador Sánchez Cerén moved to reduce its servicing liabilities, with the issue of US$800m in 12-year Eurobonds, part of which will go towards paying off onerous domestic bonds. Following the same strategy as previous administrations, we expect Mr Sánchez Cerén to return to the international markets again early next year, having secured legislative approval for up to US$1.16bn in bond issuance.

Impact on the forecast

Our forecast for the total foreign debt stock, currently at US$14.7bn for 2014, will be adjusted upwards in the light of the most recent bond issues.

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