Bitcoin Adoption Causes El Salvador’s Rating To Fall to CCC – FitchRatings
El Salvador Gets a ‘CCC’
While the factors behind the rating go deeper than general understanding, a lower rating is basically indicating an increased financing risk originating from increased reliance on short-term debt, upcoming Eurobond repayment of $800 million due in January 2023 as well as a high fiscal deficit.
Fitch also stated that the debt to GDP for El Salvador is expected to rise to 86.9% in 2022.
The reason behind this downgrade of rating was given to be ranging from ‘weakening of institutions and concentration of power in the presidency have increased policy unpredictability and the adoption of bitcoin as legal tender’.
In the same report, FitchRating also stated:
“The government has been in extended discussions with the IMF for nearly a year for a possible USD1.3 billion three-year program; however, there are important differences between the two sides in many key areas. A deal would help cover the government’s financing gap and likely unlock other multilateral loans. It would also help provide more clarity on the government’s medium-term fiscal strategy.”
El Salvador is currently facing a deadline of 6-8 months before $1.3 billion worth of short-term debts mature.
The Growth of Bitcoin in El Salvador
About a week ago, FXEmpire had reported on El Salvador’s decision of revamping their Bitcoin wallet Chivo which was signed up for by more than 61% of the country’s population.
The country hired AplhaPoint to provide backend and frontend support for the entire wallet ecosystem as well as deploy 1500 BTC ATMs across the country to facilitate the use of Bitcoin for the citizens.
This shows that the country is only leaning further into the digital asset to include its citizens in the financial institutions of the country. While these efforts are yet to pay off, given the underlying market conditions these decisions are not boding well for the country on a global scale.
As for Bitcoin’s price action, the president of the country certainly believes that it will not be long before the king coin witnesses a ‘gigantic price increase’ owing to the lack of supply and a potential rise in demand.
However, when that would happen continues to remain a mystery because even though Bitcoin has managed to recover by almost 28% in the last 18 days, it still remains 33.54% away from its all-time high.