El Salvador fiscal improvement continues, but so do concerns -JPMorgan

Aug 15 (Reuters) - El Salvador will likely be able to finance itself through the next couple of years but its debt is on its way to becoming unsustainable past 2024, analysts at JPMorgan said on Monday.

“The country’s short-term fiscal outlook continues to improve, and supports our case that the country will be able to meet its short-term financing needs at least through 2024,” said JPMorgan economist Steven Palacio in a note.

“The correction in the country’s fiscal shortfall has been outstanding, and continued through June,” he added.

Market participants earlier this year worried that El Salvador would be unable to repay a bond maturing in January 2023, with prices for it plumbing to distress levels for a short-term maturity.

But El Salvador’s primary fiscal deficit, which had reached 6% of gross domestic product during the pandemic, rose 0.2% percentage point to a surplus of 0.8% of GDP, according to JPMorgan data and estimates.

However, the Wall Street bank said an increase of about 1.5 percentage points more is needed to keep the debt sustainable.

“Our base case is that there is a high probability of a credit event post-2024,” the note stated, adding that a step-up in fiscal consolidation could reduce chances of that outcome.

The government said late in July it had some $560 million available for a buyback of its 2023 and 2025 bonds planned for later this month. Those maturities total some $1.6 billion.

The 2023 bond has risen in price nearly 25 points since bottoming in mid-July under 64 cents on the dollar. Most of the gain came after President Nayib Bukele announced the buyback, which would be at market prices.

The 2025 went from 27 cents to as high at 47 cents after the announcement and was last trading at 44.4 cents, with a yield of nearly 50%.

Reporting by Rodrigo Campos; Editing by Richard Chang