Fitch cites Bitcoin risk as it cuts El Salvador deeper into junk
Fitch Ratings downgraded El Salvador deeper into junk on Wednesday, citing risks from its adoption of Bitcoin as legal tender last year.
Fitch Ratings downgraded El Salvador deeper into junk on Wednesday, citing risks from its adoption of Bitcoin as legal tender last year. Fitch also said that “heightened financing risks stemming from increased reliance on short-term debt” ahead of an $800 million global bond payment due next January also influenced its decision to cut the nation's rating to CCC from B-.
President Nayib Bukele's unorthodox policies -- from ousting top court judges to trading Bitcoin on his phone with public money -- have heightened the nation's perceived riskiness for investors and ratings agencies.
“The weakening of institutions and concentration of power in the presidency have increased policy unpredictability, and the adoption of Bitcoin as legal tender has added uncertainty about the potential for an IMF program that would unlock financing for 2022-2023,” Fitch said in its statement.
Moody's Investors Service downgraded the country last year, and has also expressed concerns about the use of Bitcoin.
El Salvador's $800 million bond due in January 2023 rallied 3.4 cents on Wednesday, the most in two years, to 85.40 cents on the dollar, after Finance Minister Alejandro Zelaya said there is a “zero percent” chance the government will default on it. The country's bonds were the worst performers in emerging markets in 2021, according to the Bloomberg Emerging Market USD Sovereign Index.
Economic growth will to slow to 3.5% this year from 10.5% last year, Fitch said.
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