Fitch Ratings downgraded El Salvador’s long-term foreign currency issuer default rating (IDR) to “CC” from “CCC,” noting the country’s poor cash situation as a January bond maturity date approaches.
The move reflects Fitch’s view:
“El Salvador’s tight fiscal and external liquidity positions and extremely constrained market access amid high fiscal financing needs and a large $800 million external bond maturity in January 2023 make the default of some sort probable.”
Fitch predicts that El Salvador will require around $3.7 billion in financing between now and January 2023, with an unidentified funding gap of approximately $900 million.
El Salvador, which designated Bitcoin legal money alongside the US dollar in September 2021, has been struggling with larger funding issues as it approaches its next debt due date.
According to publicly accessible statistics, the nation is also facing huge unrealized paper losses on its Bitcoin acquisitions, which number 2,381 so far.
Three days ago, this Central American country officially offered to spend $360 million, instead of $560 million previously proposed, to buy back voluntary bonds representing debt due in 2023-2025.
According to Fitch, El Salvador’s buyback plan will likely further weaken its already strained liquidity position. The size and scope of the transaction do not significantly change the probability of default.
This is the second time Fitch has downgraded El Salvador’s IDR. After a wave of protests and criticism around the globe, President Nayib Bukele’s Bitcoin plan has faced criticism from the world’s top credit agencies.
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