Thursday, November 08, 2012

El Salvador's economic woes

El Salvador's economy remains stuck in low gear.  As a result, Moody's Investors Service recently cut the country's credit rating.  The credit rating agency explained the problems of the country's stagnant economy:

El Salvador’s credit rating was cut by Moody’s Investors Service, which cited the Central American nation’s weak economic growth and debt ratios. 
Moody’s lowered the country’s rating one level to Ba3, three levels below investment grade and the same as Bolivia and Portugal, according to an e-mailed statement today. 
El Salvador’s economic growth has averaged 1 percent over the past five years, compared with 2.8 percent in the previous five years, on low and declining investment ratios, Moody’s said. The country’s debt-to-gross domestic product ratio was forecast by Moody’s to remain at about 53 percent of GDP this year. 
“Since growth prospects remain weak and the government has a challenging outlook in the years to come, it will be difficult to reduce debt ratios,” the report said.    
The economy will expand about 1.3 percent this year and 2.3 percent in 2013, Moody’s said.
El Salvador's growth rate does not compare favorably with the average for Latin America, where growth was 6.0% in 2010 and 4.3% in 2011.

The country has few sources of capital for investment in new job-creating businesses.  Foreign direct investment, the money coming into the country from foreign investors,  dropped by some 60% from the same period in 2011.   In particular, there was less investment going into the manufacturing sector.

The only economic force which is really growing are remittances from Salvadorans abroad.   Through the end of September this year, remittances were up 6.9% from the same period in 2011.


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