Fitch further downgrades El Salvador IDR rating to ‘CC,’ citing ‘dire’ liquidity condition

El Salvador’s long-term foreign currency issuer default rating (IDR) was reduced by Fitch Ratings from “CCC” to “CC,” citing the country’s “dire” liquidity condition as its January bond maturity date gets closer.

The decision is in line with Fitch’s assessment that country’s “tight fiscal and external liquidity positions, extremely limited market access, high fiscal financing needs, and a large $800 million external bond maturity in January 2023″ make the default of some kind inevitable.

According to Fitch, El Salvador has an “unidentified financing gap” of around $900 million and will require about $3.7 billion in funds between now and January next year. The report stated that the Central American country’s cash condition is critical before the January 2023 Eurobond payment.

El Salvador is dealing with unrealized paper losses

El Salvador, which joined the U.S. dollar and made bitcoin legal tender in September 2021, has been battling with greater financing problems as it approaches its approaching debt repayment date. The nation is also dealing with substantial unrealized paper losses on its bitcoin acquisitions, which, according to publicly accessible data, amount to 2,381 so far.

Interestingly, the country’s president Nayib Bukele tweeted a press release on September 12 stating that the nation had successfully launched the offer with a buyback amount of $360 million, contrary to Reuters’ July report that El Salvador would use $560 million to pay for the voluntary bond repurchase offer for part of its debt due between 2023 and 2025.

Today we have officially launched the purchase offer for all our external debt due from 2023 to 2025 🇸🇻

All holders of bonds of the Republic of El Salvador can access this public and voluntary repurchase.

More information here: https://t.co/c6IidSSyRD

— Nayib Bukele (@nayibbukele) September 12, 2022

Fitch believes that the country’s buyback plan “will likely further weaken its already strained liquidity position.” It added:

“The size and scope of the transaction do not materially alter the probability of default in Fitch’s opinion.”

El Salvador’s IDR was previously downgraded by Fitch in February as TheCoinRise reported, at the time expressing concerns about the ambiguity of outside sources of funding including the country’s anticipated “bitcoin bonds,” which it has not yet launched.