In the last report from the credit rating company, El Salvador was downgraded for multiple reasons ranging from its financial position to bitcoin adoption.
The country has been far ahead with its policies regarding cryptocurrencies and its drawbacks are now being observed by others.
El Salvador obtains a “CCC”
Although the factors driving the rating are beyond general understanding, a lower rating essentially indicates increased funding risk stemming from increased reliance on short-term debt, upcoming Euro redemption – $800 million obligation due in January 2023 as well as a high budget deficit.
Fitch also said El Salvador’s debt to GDP ratio is expected to reach 86.9% in 2022.
The reason for this downgrade was given as ranging from “weakened institutions and the concentration of power within the presidency has increased the unpredictability of policies and the adoption of bitcoin as legal tender.”
In the same report, FitchRating also said:
“The government has been in protracted talks with the IMF for almost a year for a possible three-year program of $1.3 billion; however, there are significant differences between the two sides in many key areas. A deal would help cover the government’s funding gap and likely unlock further multilateral lending. This would also help clarify the government’s medium-term fiscal strategy.
El Salvador is currently facing a 6-8 month delay in maturing $1.3 billion of short-term debt.
The Growth of Bitcoin in El Salvador
About a week ago, FXEmpire reported on El Salvador’s decision to revamp its Bitcoin Chivo wallet, which over 61% of the country’s population subscribed to.
The country hired AplhaPoint to provide backend and frontend support for the entire wallet ecosystem as well as deploy 1,500 BTC ATMs across the country to facilitate the use of Bitcoin for citizens.
This shows that the country is only leaning more towards the digital asset to include its citizens in the financial institutions of the country. While these efforts are yet to bear fruit, given the underlying market conditions, these decisions do not bode well for the country globally.
When it comes to Bitcoin’s price action, the country’s president certainly thinks it won’t be long before the king’s coin sees a “gigantic price increase” due to lack of supply and demand. a potential increase in demand.
However, when that would happen remains a mystery as even though Bitcoin has managed to recover almost 28% in the past 18 days, it is still 33.54% off its all-time high.