Moody's cuts El Salvador to Ba1; outlook negative

NEW YORK, Nov 16 (Reuters) - Moody's Investors Service downgraded El Salvador's sovereign rating to "Ba1" on Sunday, taking away the investment grade rating and placing the country on a negative outlook, reflecting a deterioration of its credit profile.

The weakness in the country's debt profile will likely continue into next year as government debt metrics are projected to increasingly diverge from those corresponding to "Baa"-rated governments, a Moody's statement said.

"Since last year, El Salvador has been subject to severe shocks that have exposed underlying vulnerabilities associated with its condition as a small open economy with a high dependence on the U.S. and a relatively limited degree of diversification," said Moody's analyst Mauro Leos.

"Throughout the global crisis we have been unwilling to take rating actions on cyclical developments -- however severe -- basing instead our judgment on what we perceived as structural trends," said Leos.

On this principle, deterioration in the country's debt profile -- in a context of relatively low growth -- creates conditions in El Salvador for a durable divergence from former "Baa" peers, Leos said.

He added the negative outlook on the "Ba1" rating takes into consideration the current balance of risks, including near-term difficulties that the authorities are likely to encounter as they move to improve public finances.

El Salvador's country ceiling for foreign-currency bank deposits was also downgraded to "Ba1" with a negative outlook from Baa3. The Baa3 country ceiling for foreign-currency bonds was not affected by this review. (Reporting by Manuela Badawy; Editing by James Dalgleish)