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JPMorgan On El Salvador - No IMF Deal, But 2023 Bond Payment Likely

LATAM
  • Over the past year, El Salvador’s Eurobonds have entered distressed territory as IMF negotiations stalled and as Bitcoin adoption became a key sticking point. Repayment capacity has been in focus as the country reels from the pandemic scar, with economic outperformance having come with fiscal deterioration.
  • President Bukele has remained steadfast with his cryptocurrency aspirations and vision for the country, which leads JPM to now expect no deal with IMF to be reached this year.
  • That said, JPM view remains that El Salvador will be able to meet its short-term financing needs, including the upcoming January 2023 US$800mn Eurobond payment. While this should provide some relief, their analysis shows that debt is on an unsustainable path, in line with the latest assessment from the IMF’s Article IV, with gross financing needs expected to exceed 15% of GDP from 2022 onwards.
  • Against this backdrop, restructuring risks look to be substantially higher from mid-2024—once presidential elections are past—with the outcome of such restructuring depending on whether El Salvador chooses to re-engage with the IMF at a later time, and if so, if the IMF is keen to engage them back.
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