Fitch Lowers El Salvador’s Ratings Citing Bitcoin (BTC) Risks

Fitch Lowers El Salvador’s Ratings Citing Bitcoin (BTC) Risks

On Feb. 9, 2022, Fitch Ratings downgraded El Salvador’s credit ratings, citing BTC risks. It noted that its decisions are based on El Salvador’s heightened reliance on short-term debts. Last month, the organization also downgraded the LATM country for its BTC legal tender status.

Fitch Cites BTC Risks and Cuts El Salvador’s Credit Ratings

On Wednesday, Fitch Ratings further lowered El Salvador’s credit ratings, citing its BTC legal tender status. The Rating organization noted that BTC has its risks, and it’s not favoring El Salvador. It also explained that El Salvador is losing its credit ratings due to its tendency to over-rely on frequent short-term debts. El Salvador also received a similar downgrade on its credit ratings last month as it dropped from a CCC rating to a B-. According to the organization, President Nayib Bukele’s unorthodox strategies affect the Country’s welfare. It cited his policies to oust Top Court judges and even trade BTC for his Country on his phone. Fitch said that these policies are discouraging Salvador’s potential investors and creditors. It added that the weakening of institutions and overconcentration of power on the Presidency is to blame for poor policies. It also noted that the BTC legal tender status reduces chances for an IMF program to finance El Salvador for 2022-2023.

El Salvador Remains Firm on BTC Policies Despite Continuous Backlashes

Last year, Moody’s Investors Service also cut El Salvador’s credit rating, citing the BTC status as a legal tender. Fitch has also described the Country’s deteriorating performance in its $800 M bond and 2022’s projected growth rate as discouraging. Last year, Bloomberg Emerging Market USD Sovereign Index ranked El Salvador’s bonds as the poorest performers in the emerging markets category. This year, the Country’s economic growth is also projected to slow down by 3.5% from last year. These statistics are among the main cause for the continuous backlash on El Salvador by organizations and financial advisors. However, the Country has remained firm on its decisions. Last Month, IMF asked the country to drop BTC as their legal tender, but the Finance Minister hit back at the organization. He said that El Salvador is a sovereign nation and will not bow to the influence of any external organization in policymaking. The Country’s President Nayib Bukele is also bullish on BTC and has projected that the coin will propel their economy to greater heights. The Country remains firm on its decision to keep BTC as its legal tender, but it’s not yet certain how it will influence its economy in the short term.

Major Financial Organizations Continue Criticizing Cryptocurrency.

Cryptocurrency is largely disrupting the traditional finance sector. Due to its decentralized model, it is taking financial control power from countries that accept to legalize it. It also has promising developments that may see countries that ban it lose their global financial power. As a result, international financial organizations like the IMF, the World Bank, and rating organizations continuously undermine cryptocurrency. Today, Reuters reported that the IMF has hit on the structure of CBDCs. The organization claims that CBDCs may affect the world’s financial structure as people rush for ‘better’ coins from other countries. Despite the criticism from these organizations, crypto adoption is increasing, and the market is already back to the $2T market cap. However, the technology is still young, and all enthusiasts should keep researching to prevent potential losses. Follow Us on Google News
Samuel Mbaki Wanjiku

Samuel is an adventurous person who likes to explore topics in-depth and learn new things each day. His passion lies in gaining knowledge to help transform the world through his writing skills. He also believes in blockchain technology and its potential to usher in a cashless society. Currently, he is pursuing a Computer Science Bachelor’s degree driven by his fascination with emerging technologies. He has writing experience of about three years in different fields and two in blockchain technology.