El Salvador is facing yet another flogging by a traditional financial firm for its “forbidden” love for Bitcoin (BTC).
US credit rating agency Fitch Ratings has lowered El Salvador’s long-term issuer default rating from B to CCC, citing “political unpredictability” and “acceptance of bitcoin as legal tender” as some of the factors that led to the credit rating downgrade.
In addition, the Statistical Rating Organization explained that reliance on short-term debt, repayment of $800 million in Eurobonds due in January 2023, and high fiscal deficits hampered the country’s better rating.
In addition, Fitch believes that the increase in El Salvador’s short-term debt will cripple the government’s ability to repay its total debt, raising the risk of an extension. Fitch notes that August, September and October, with maturities of nearly $1.3 billion, will make it difficult for the country to deal with economic restrictions.
The country will also face increased risks in the coming years due to “high and growing financing needs,” according to Fitch. The company notes that any country using bitcoin as a legal currency contributes to uncertainty about a potential IMF program that could provide the funding the country needs in 2022-23.
A country’s rating could continue to improve over time if it met Fitch’s criteria, including consistency in debt repayment through “liberating predictable sources of financing” and fiscal adjustment with an emphasis on debt sustainability.
Related Topics: IMF Urges El Salvador to Strip Bitcoin as Legal
Meanwhile, El Salvador President Neb Bukele recently predicted that Bitcoin price growth could happen very soon. Speaking about the number of millionaires around the world, the president said that if they decide to own 1 BTC, there will not be enough bitcoins for all of them.
Last January, Fitch Ratings issued a warning to US energy providers about crypto miners. According to the company, only a few countries are able to cover the energy needs of mining. The company added that mining is price sensitive and may be closed down when profits decline.