El Salvador has completed its Certificates for Pension Investments (CIPs) restructuring.


  • El Salvador has completed its Certificates for Pension Investments (CIPs) restructuring.
  • We are raising our long-term foreign- and local-currency sovereign credit ratings on El Salvador to 'CCC+' from 'SD' (selective default). We are also raising the short-term rating to 'C' from 'SD'.
  • In addition, we are raising our issue-level rating on the foreign-currency senior unsecured debt to 'CCC+' from 'CCC'.
  • The stable outlook reflects our expectation that El Salvador will maintain effective mechanisms to guarantee its access to liquidity, offset by the absence of broader fiscal agreement, a high debt burden, and limited economic growth.

According to the amendments, the restructured CIPs:
  • Have a term of 30 years (instead of 25 years);
  • Include a grace period of three or five years for capital payments; and
  • Modify the interest rates to 2.5%-4.0% (and, beginning in 2022, to 4.5%) from 3.5%-5.5%.
The restructured CIPs will generate about 0.6% of GDP in savings.
 
Besides the CIPs changes, El Salvador's Congress approved a pension reform 
that signals an important political breakthrough after many previously failed 
negotiations. Nonetheless, the ability of the government and opposition 
parties to reach further agreements on fiscal policy remains a challenge and, 
in our opinion, will be harder to achieve due to the upcoming congressional 
elections in March 2018.
 
The annual shortfall of the pension system is about 1.5% of GDP (2% prior to 
the CIPs restructuring), and pension-related debt constitutes about 25% of 
total general government debt. Pension-related financial obligations are 
issued through a pension trust established in 2006 and managed by the National 
Development Bank (BANDESAL). The pension trust makes debt payments to holders 
of CIPs through transfers from El Salvador's Ministry of Finance.