El Salvador is being whipped by a traditional finance company for its “forbidden love” for Bitcoin (BTC).
Fitch Ratings, an American credit rating agency, has downgraded El Salvador’s long term Issuer Default Rating to B- from CCC. They cited “policy uncertainty” and “adoption Bitcoin as legal tender” among the factors that contributed to the downgrade.
These and other factors are not the only reasons why the country’s rating was lower than it should be. The statistical rating agency explained that the country’s dependence on short-term debt, a $800-million Eurobond payment due January 2023, as well as a high fiscal deficit, prevents the country from receiving a higher rating.
Fitch also believes that El Salvador’s short-term debt may be threatening the government’s ability pay its total debts. This increases the risk of a rollover. Fitch notes that the country will face more financial challenges with nearly $1.3 billion in upcoming August, September, and October.
Fitch also stated that the country faces increasing risks due to “high and growing financing requirements” over the next few years. Fitch mentions that BTC being used as legal tender in the country increases uncertainty about a possible program from the International Monetary Fund, which could provide the financing the country requires in 2022-2023.
If the country meets Fitch’s criteria (e.g., consistency in settling debts through “unlocking predictable sources financing” and a fiscal adjustment that focuses on debt sustainability), then its rating could still be raised in the future.
Related: IMF urges El Salvador not to recognize Bitcoin as a tender
Nayib Bukele, the Salvadoran President, recently predicted that there might be a rapid rise in BTC prices. The president cited the global number of millionaires and said that if they decide on owning at least one BTC, there won’t be enough Bitcoin to go around.
Fitch Ratings warned energy suppliers in the United States about crypto miners back in January. According to Fitch Ratings, only a few states can supply the energy required for mining. According to the company, mining operations are sensitive to price and could be closed if profits drop.
Eileen Wilson –Technology and Energy
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