Fitch Ratings downgrades El Salvador rating to CCC, citing Bitcoin adoption as a reason

El Salvador is about to get another slap on the wrist from a traditional financial institution for its “forbidden” love for Bitcoin (BTC).

El Salvador’s long-term Issuer Default Rating has been lowered by the American credit rating agency Fitch Ratings from B- to CCC, citing “policy unpredictability” and the “adoption of Bitcoin as legal tender” as some of the reasons for the downgrade.

Apart from these factors, the statistical rating organization said that the country’s reliance on short-term debt, an $800 million Eurobond payment due in January 2023, and a huge fiscal deficit prevented it from achieving a good rating.

Fitch believes that El Salvador could lose IMF funding

Moreover, Fitch believes that El Salvador’s increased short-term debt has damaged the government’s ability to pay its total debts, increasing the risk of a roll-over. Financial limitations would be more challenging for the nation to deal with, according to Fitch, with about $1.3 billion due in August, September, and October.

Fitch went on to add that the country could face higher risks in the coming years due to “high and growing financial needs.” 

According to the organization, the country’s use of Bitcoin as legal tender adds to the uncertainties surrounding a potential IMF program that could provide the country with the funding it requires in 2022–2023. However, The central bank of El Salvador has assured that BTC adoption would not affect IMF talks.

If the country achieves Fitch’s criteria, which include consistency in debt settlement by unlocking dependable sources of finance and a fiscal adjustment focusing on debt sustainability, the nation’s rating could improve over time.

This is not the first time that the country has faced criticism for its intensive BTC adoption. In October last year, as TheCoinRise reported, Ethereum founder Vitalik Buterin also criticized El Salvador on Reddit.

Meanwhile, the country’s president and pro-Bitcoin Nayib Bukele stated that a Bitcoin price increase would be imminent.