Small parties are key to averting El Salvador default

Subject

Fiscal crisis in El Salvador.

Significance

On October 13, ratings agency Standard & Poor's downgraded El Salvador's rating to B from B+, citing a "deterioration in our assessment of El Salvador's institutional and governance effectiveness". This followed international and domestic warnings about El Salvador's fiscal situation, which is raising fears of default. With the government and the opposition locked in a stand-off, a fiscal deal currently looks unlikely without international mediation.

Impacts

• El Salvador's financial struggles may weigh on security spending, particularly its 'El Salvador seguro' plan.
• Government debt is likely to trend upwards even following the eventual resolution of the fiscal crisis.
• Protests by healthcare and education workers demanding salary and benefit increases will add to state finance pressure.