El Salvador tops risk index in CentAm

El Salvador continues to be perceived as the riskiest emerging market in Central America, while others have shown marked improvements in the last year from lockdown-driven surges in risk profiles, according to the latest update to JP Morgan’s emerging markets index (EMBI).

The indicator, a widely used reference, indicates how the risk of various emerging markets are viewed, using as a baseline the risk associated with US 10-year treasury bonds – considered the safest worldwide. 

El Salvador, as of December 24, held the highest risk in the subregion with 7.37 points, that is to say that any debt issued that day would, according to the index, have paid interest of 8.30%, since the yield on US treasuries was 0.93%. 

Honduras with 2.77 points as of December 24, Guatemala with 2.35 points and Panama with 1.5 points lead the region and have all managed to reverse surges earlier in the year, most notably that of Honduras in April.

Source: JP Morgan

Honduras’ finance ministry cited the EMBI in its latest public finances situation report as an indication of marked improvement, noting that by the end of the third quarter bond issuances from the country carried 398 points in associated risk, compared to the 431 points average of Latin American nations.

Regarding El Salvador, Luis Membreño, president of Membreño Consulting, credits high risk levels to the heavy upsurge in indebtedness related to the country’s extended lockdown due to the pandemic, with the public debt to GDP ratio likely jumping 20 percentage points this year. 

“That implies that if El Salvador wanted to issue a bond in the near future, if this were to continue, it would be issuing at a rate above probably 8%," said Membreño, according to news outlet El Economista.

With El Salvador facing the biggest economic contraction in Central America in the last year, Waldo Jiménez, head of economic studies at private sector business association ANEP, said, "We are more risky. El Salvador has increased its risk by 88%. The other countries have been able to manage their risk at reasonable levels.”