American credit rating agency Fitch Ratings lowered El Salvador’s long-term Issuer Default Rating (IDR) from B- to CCC, citing “policy unpredictability” and the “adoption of Bitcoin as a 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 gets in the way of a better rating for the country.
El Salvador faces increased risks from “high and growing financing needs” in the coming years.
Additionally, El Salvador’s increased short-term debt is perceived by Fitch to cripple the government’s ability to pay its overall debts, and this 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 country’s rating can still go up in time if it meets Fitch’s criteria.
According to Fitch, El Salvador also faces increased risks from “high and growing financing needs” in the coming years. The firm mentions that the country using bitcoin as legal tender contributes to uncertainty on a potential program from the International Monetary Fund (IMF) that could provide the financing that the Central American country needs in 2022-2023. El Salvador’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.
