Fitch further downgraded El Salvador's sovereign debt rating from "B-" to "CCC" from "B-" on Wednesday, citing the huge risks posed by the country's adoption of bitcoin as legal tender, Zhitong Finance has learned.
Fitch also said El Salvador's "increased reliance on short-term debt increases funding risks" ahead of its $800 million global bond due in January, which was one of the reasons for the downgrade.
The unorthodox policies of El Salvador's President Nayib Boukli have increased the country's risk in the eyes of investors and rating agencies. Actions ranging from ousting Supreme Court justices to using public funds to trade bitcoin on mobile phones have raised the stakes in the country in the eyes of investors and rating agencies.
"Weakening institutions and centralization of presidential power increase policy unpredictability, while the adoption of bitcoin as legal tender adds to the uncertainty of an IMF program that will open financing in 2022-2023," Fitch said in a statement. Certainty."
Moody's similarly downgraded El Salvador last year, expressing concern over the country's use of bitcoin.
El Salvador's $800 million bond due in January 2023 rose 3.4 cents to 85.40 cents on Wednesday, the biggest gain in two years, after Finance Minister Alejandro Zelaya said the chance of default on the country's debt was "zero" .
The country’s bonds are the worst performers among emerging markets in 2021, according to the Bloomberg Emerging Markets U.S. Dollar Sovereign Index. El Salvador's economic growth will slow to 3.5 percent this year from 10.5 percent last year, Fitch said.
As of press time, Bitcoin rose 2.2% to $44,329.
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