Wednesday, 10 November 2021 00:58

FUSADES indicates that 2021 would be closing with a deficit of more than US$2 million

Written by Evelyn Alas

The Fundación Salvadoreña para el Desarrollo Económico y Social (FUSADES), indicates in a study that in 2021 the evolution of financing, according to the Ministry of Finance, would be closing with a deficit of more than US$2,000 million.

The indebtedness required in the 2022 budget, with the exception that, in 2020, the executed financing significantly exceeded what was required by the voted budget, mainly due to the pandemic, but also due to deficiencies in the voted budget and its execution.

FUSADES notes that external loan disbursements come from: a) 12 loans approved in may to august 2021 for US$496.8 million; b) three loans approved in 2020 for US$30.9 million; and 13 loans approved in 2018 or earlier, for US$183 million.

It also indicates that the Non-Financial Public Sector (SPNF) fiscal deficit calculated from PP2022 data is equal to US$1,196.5 million or 4.2% of Gross Domestic Product (GDP); but the official projection of the gap for 2022 is higher (4.5%) which shows a discrepancy with what the project establishes. Furthermore, when corrected for budget flaws, the projected deficit for 2022 rises to US$1,730.8 million (6.0% of GDP), which is too high.

FUSADES expresses that he is unaware of a fiscal adjustment program, and what has been observed in recent years is the creation of new expenses that have no financing. The situation of public finances is critical and in the face of liquidity problems, the country has resorted to non-payment of suppliers and the Fondo para el Desarrollo Económico y Social de los Municipios de El Salvador (FODES); without a fiscal adjustment program, the probability of a fiscal crisis increases, so it is urgent to reach a sustainability agreement with the International Monetary Fund (IMF).

In addition, it indicates that the evolution of financing incorporated in the voted budgets. Financing incorporated in the approved budgets has increased substantially since 2018, when budget reinforcements began to be included despite having the authorization of a significant amount for operating expenses in the voted budgets since that year, the issuance of Treasury Bills (LETES) has continued to be used intensively.

For FUSADES it must be taken into account that the financing of the voted budgets does not include the resources obtained through the issuance of LETES or Treasury Certificates (CETES).

It also indicates that as of 2020, CETES are being "rolled over" in a manner similar to what is happening with LETES, despite the fact that in that year an unprecedented amount of debt was authorized to address the pandemic. This mechanism of LETES, CETES and budgetary reinforcement has facilitated indebtedness for current spending. For example, in 2020 there was a current deficit of US$1,477.4 million, more than double that of the 2009 crisis; and in 2021 a high current deficit is also anticipated, since by august 2021 it was US$235.9 million.

PP2022 Financing

It states that the indebtedness required to comply with what is contemplated in PP2022 amounts to US$1,209 million, which reflects a reduction of 14.4% (US$203.9 million) with respect to the financing of the General State Budget 2021 voted (P2021) (US$1,412.9 million). However, note that, in 2021, the debt requested in the voted budget was abnormally high, and the amount being requested in PP2022 continues to be very high.

It also ensures that the composition of the financing of the 2022 budget changes, relative to that of P2021. There is a reduction of 52.8% (US$622.8 million) in disbursements for budget reinforcement, and an increase in external borrowing of 179.6% (US$418.9 million).

And for the institution the issuance of bonds has been complicated and not advisable in recent years; but in 2022, the context is much more adverse: sustained fall in the price of El Salvador's bonds; an increase in country risk -the third highest in Latin America-; in July 2021 Moody's downgraded the credit rating from B3 to Caa1; in October 2021, Standard & Poor's changed the outlook of the country's credit rating from stable to negative.

As for the composition of the loans included in PP2022, authorization is requested to place securities for US$498.4 million and US$710.6 million of external loans that have already been ratified. Of this amount, approximately US$556.9 million is for budget reinforcement and US$652.1 million is for specific projects.