Event

On 8 January the Trump administration announced that approximately 200,000 Salvadorians will lose their Temporary Protected Status (TPS) in September 2019. As a consequence, they could be deported if they don’t leave the United States by 9 September, next year. The revocation of the Salvadorian TPS is the latest move of President Trump to tighten immigration enforcement. Indeed, the Salvadorians are the third and largest group for which TPS is being cancelled, after Haitians and Nicaraguans. The humanitarian TPS programme was created in 1990 and covers around 300,000 immigrants who have fled from natural disasters and other tumult in their home countries. The Salvadorians were granted temporary permits to live and work in the US after a series of devastating earthquakes that killed 1,000 people in 2001.

Impact on country risk

There are roughly 1.35 million Salvadorians of any status living in the US; about 15% of them have a TPS. Given their importance, their deportation is likely to have negative economic consequences on El Salvador. Indeed, it could worsen the current account deficit as from 2020 (forecasted at about 2.2% of GDP in 2018, compared to an estimated deficit of 1% in 2017) as private transfers account for about 40% of the country’s current account receipts. As a result, the moderate external debt could rise. Furthermore, weaker remittance inflows could affect private consumption and therefore GDP growth (expected at 2.1% in 2018-2019). Also fiscal balances (projected at -3.4% of GDP in 2018, compared to -2.9% in 2017) are likely to be affected as remittances are an important source of public revenue. Hence, the relatively high public debt (around 62% of GDP at the end of 2017) could further increase while investors are already wary of the public finances after El Salvador defaulted on pension-related local debt due to political gridlock in April 2017.

Though the government has made all its necessary payments in the months since, investors are cautious as political polarisation is set to intensify in the run-up to the legislative and municipal elections scheduled in March 2018 and the presidential elections in 2019. Lastly, the prospect of a wave of deportations from the United States threatens to worsen insecurity in El Salvador. The country is struggling with one of the world’s highest murder rates, perpetrated by gangs over the last decade. The return of 200,000 individuals could lead to a ratcheting-up of violence due to the government’s limited capacity to reincorporate large numbers of returning migrants. However, it is still possible that a deportation be averted. By delaying the effective end date until 2019, the Trump administration is giving the American Congress time to come up with a permanent legislative solution for the TPS recipients. In this context, the outlook for political risk and systemic commercial risk classifications of the dollarised economy remain stable.

Analyst: Jolyn Debuysscher – j.debuysscher@credendo.com