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San Salvador (AFP)

US ratings agency Standard & Poor's has downgraded El Salvador's credit standing to "selective default" (SD) after the country's parliament approved a reform to restructure sovereign debt racked up over pensions.

The restructuring means El Salvador has effectively "selectively defaulted on a specific issue or class of obligations but it will continue to meet its payment obligations on other issues or classes of obligations in a timely manner," according to the agency.

S&P said in a statement it had as a consequence downgraded the country's long-term credit rating and short-term rating in local currency from, respectively, CC and C, to SD.

The restructuring approved by lawmakers last Thursday allows the government more time to repay $91 million owed to private pension funds, extending the terms of sovereign coupons from 25 years to 30 years, along with a grace period and modified interest rates.

S&P said that once the restructuring was completed it would lift the SD rating and apply another, likely higher, rating.

El Salvador's public deficit last year was 2.6 percent of GDP, and its public debt was 61 percent of GDP, according to S&P. A third of its population of 6.3 million live under the poverty line, the World Bank estimates.

© 2017 AFP