The rating agency detailed that, if the safer environment proves sustainable, more cautious foreign investors could join, although they may be sensitive to "governance" issues.
El Salvador used to be among the most violent countries in the world, and widespread gang extortion was a major drag on economic activity. Retail, tourism and banking are sectors that would benefit from a sustained decrease in violence.
In addition to crime, the lack of access to credit and financial tools is one of the "biggest impediments to potential growth" in the country.
Also, Moody's projects that El Salvador's economic growth rate will be 1.7% this year 2023, before accelerating toward its full potential rate of about 2.5%.
With more than 2 million salvadorans living in the United States, the country's economy relies heavily on remittances, which account for more than a quarter of Gross Domestic Product (GDP).
El Salvador's remittance flows are more strongly correlated with the U.S. housing sector than with the overall U.S. economy. Moody's has cut El Salvador's rating by three notches since President Nayib Bukele took office in 2019, to Caa3, meaning the country has "very high credit risk, poor reputation".
Translated by: A.M