Rebound In Revenues To Narrow Salvadoran Fiscal Deficit

• El Salvador’s economic recovery will boost government revenues, narrowing the country’s fiscal deficit, which widened to 10.1% of GDP in 2020, in the quarters ahead. 
• The country’s budget deficit in 2020 was the largest on record and one of the widest in Latin America, behind only Brazil and Bolivia. Public health spending pushed up government expenditures significantly, while a 7.9% contraction of real GDP severely undermined government receipts. 
• The deficit in 2020 was substantially larger than the average 3.0% shortfall from 2015 to 2019, and the primary balance flipped to -5.8%, the first deficit since 2016. 
• Revenue prints have surprised to the upside in the year through May and, as a result, Fitch Solutions has revised its 2021 and 2022 fiscal deficit forecasts to 6.3% of GDP and 3.9% respectively, from 7.2% and 4.9% previously. 
• The agency forecasts that as deficits persist total public debt will climb to 98.7% of GDP by end-2021, from 73.6% in 2019, though it has not factored a potential IMF programme into this forecast.

(Source: Fitch Solutions)