Monday, July 14, 2014

Economists judge El Salvador's economy


Fitch Ratings, an agency which issues ratings to the investment community regarding the quality of bonds issued by national governments, recently published its current rating of "BB-" for El Salvador.   Fitch reviewed El Salvador's economy in support of its rating:
  • El Salvador's ratings are supported by its macroeconomic stability underpinned by dollarization, its adequately capitalized financial system, and solid repayment record. The government has a strong track record in implementing tax reforms despite the low economic growth environment.
  • A dialogue between the new FMLN government and main private-sector organizations has the potential to define a national strategy for sustainable development and social inclusion. This comes after five years of confrontation during the previous administration. However, it is too early to predict that such dialogue could result in improved investment and growth prospects over the forecast period. Risks for a break-down in this discussion process remain due to the high levels of mutual distrust and alternative views on fundamental issues, including public sector participation in the economy and public finances.
  • Economic growth in El Salvador remains low relative to its peers in the 'BB' category. Key structural weaknesses, including low competitiveness, relatively high energy costs, low investment ratios, weak human capital and high crime rates preclude El Salvador's economy from growing faster. In Fitch's baseline scenario GDP growth could average 1.6% in 2014-2016.
This low forecast for economic growth suggests the economy will continue failing to provide sufficient jobs to raise the incomes of many households in El Salvador.  

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