Nearshore Americas

El Salvador’s President-Elect Faces Daunting Economic Challenges

El Salvador’s newly elected president, Salvador Sanchez Ceren, should focus on restoring business confidence and attracting private investment to reverse his nation’s economic fortunes, says Fitch Ratings.

“Economic growth averaged just 1.7% in 2010-2013, and we expect it to improve only marginally to 1.9% in 2014-2015,” said the U.S. ratings agency in a release published last week.

Given the existing political polarization, tension between the government and business organizations is likely to remain high for months to come, analysts say.

The growing burden of debt and pension has long been a drag on El Salvador’s economy, which led the ratings agency to downgrade the Central American country’s credit rating to ‘BB-‘ in July 2013,  putting it three steps below investment grade.

The business community is concerned by the new government’s promise to increase spending on welfare programs. Such socialist priorities could further destabilize the economy spooked by fiscal deficit and high debt, analysts say.

Economists do not expect the new administration to reverse recent economic policies, as Sanchez served as vice president in the previous administration. Although he considers himself a moderate, Fitch says Sanchez may choose to implement a policy program closer to the principles of his political party, the left-wing FMLN.

Sanchezwas elected president of El Salvador in a run-off vote on 9 March and the electoral authority ratified the result a week later. The losing Arena party has continued to complain of the electoral fraud.

Currently, El Salvador stands a improved chance of stoking economic activity because  the United States — its main trading partner and originator of migrant workers’ remittances — is now recovering from the 2008 recession. But business organizations in El Salvador are waiting to see how the new president will steer the country clear of hurdles holding back the growth.

“Continued economic underperformance, fiscal slippage and a significant deterioration in government debt dynamics, and evidence of financing constraints could undermine creditworthiness,” Fitch warned.

Smaller firms have a history of generating a lot of jobs in El Salvador, but analysts say business growth has been stifled by the present security situation.

Narayan Ammachchi

News Editor for Nearshore Americas, Narayan Ammachchi is a career journalist with a decade of experience in politics and international business. He works out of his base in the Indian Silicon City of Bangalore.

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