“Policy unpredictability” and “adoption of Bitcoin as legal tender” are part of the reasons why the country has received a downgrade from Fitch.
El Salvador faces another whipping from a traditional finance firm for its “forbidden” love for Bitcoin (BTC).
Close up photo of bitcoin crypto currency in dark
American credit rating agency Fitch Ratings has lowered El Salvador’s long-term Issuer Default Rating from B- to CCC, mentioning “policy unpredictability” and the “adoption of Bitcoin as legal tender” as some of the factors that led to the downgrade.
Apart from these, the statistical rating organization explained that reliance on short-term debt, an $800-million Eurobond payment due in January 2023, and a high fiscal deficit get in the way of a better rating for the country.
Additionally, El Salvador’s increased short-term debt is perceived by Fitch to cripple the government’s ability to pay its overall debts, which expands the risks of a roll-over. With nearly $1.3 billion due in August, September and October, Fitch mentions that financial constraints will be more difficult for the country to deal with.
According to Fitch, the country also faces increased risks from “high and growing financing needs” in the coming years. The firm mentions that the country using BTC as legal tender contributes to uncertainty on a potential program from the International Monetary Fund that could provide the financing that the country needs in 2022–2023.
The country’s rating can still go up in time if it meets Fitch’s criteria, including consistency in settling debts by “unlocking predictable sources of financing” and a fiscal adjustment focusing on debt sustainability.
Meanwhile, Salvadoran President Nayib Bukele recently predicted that a BTC price increase might come very soon. Citing the number of millionaires globally, the president said that if they decide to own at least 1 BTC, there won’t be enough Bitcoin for all of them.
Back in January, Fitch Ratings issued a warning to energy suppliers across the United States regarding crypto miners. According to the firm, few states are capable of supplying the energy needs for mining. The company added that mining operations are price sensitive and may be shut down when profits decline.