Fitch Downgrades El Salvador's Foreign Currency Issuer Defau | Crypto_NFT
Fitch Downgrades El Salvador's Foreign Currency Issuer Default Rating
The international rating agency Fitch Ratings has downgraded El Salvador's long-term issuer default rating in foreign currency from "CCC" to "CC".
According to the document, one of the reasons for the country's limited market access and problems with bond redemption was the recognition of the first cryptocurrency as a legal means of payment.
“The policy controversy surrounding the government’s adoption of bitcoin reduced the likelihood of a timely deal with the IMF,” Fitch Ratings noted.
The organization has repeatedly criticized the decision of the country's authorities, and in January recommended depriving bitcoin of the status of legal tender. In 2021, El Salvador requested a $1.3 billion loan from the IMF.
According to Fitch Ratings, until January 2023, the state will need about $3.7 billion, with a "financing gap" of about $900 million. Experts noted that the current situation "makes a default more or less likely."
“The liquidity situation in El Salvador ahead of the Eurobond payment in January 2023 is dire,” the report said.
In July, Reuters reported that the country would use $560 million to buy back bonds maturing between 2023 and 2025. On September 12, President Nayib Bukele wrote that the amount was $360 million.
In Fitch's view, the external debt buyback plan "is likely to further ease an already tight liquidity position."
“The size and volume of the transaction do not significantly affect the probability of default,” the experts added.
The country’s authorities first started buying bitcoin in September 2021, creating a special fund in the amount of $150 million. Already at the end of the month, El Salvador purchased an additional 150 BTC, bringing the total reserves to 700 BTC.
In November, another 100 BTC were bought, in January 2021 - an additional 410 BTC on a market drawdown. In May 2022, Bukele announced the acquisition of 500 BTC.
At the time of writing, El Salvador holds 2,381 BTC worth $47.2 million in the government fund, according to Buy Bitcoin Worldwide.
In June, against the backdrop of a fall in the price of the first cryptocurrency below $23,000, the “paper” loss of the country from 2,301 BTC in reserves exceeded $46.1 million.
Earlier, Moody's downgraded El Salvador's long-term foreign currency credit rating to Caa1 with a negative outlook. In early 2022, the firm’s experts noted that Bitcoin purchases were putting further pressure on the level of credit confidence in the country.
Recall that the head of the Central Bank of El Salvador, Carlos Acevedo, said that the legalization of the first cryptocurrency "killed" relations with the IMF.
