New York-based credit rating agency Fitch lowered the long-term Foreign Currency Issuer Default Rating (IDR) of El Salvador from B- to CCC.
Related: El Salvador Adds 410 Bitcoins to Its Holdings
According to Fitch, El Salvador's rating was lowered as a result of several factors, including the weakening of institutions, concentration of power in the presidency, and the adoption of BTC as a legal tender. In a report, Fitch said the factors have increased policy unpredictability and uncertainty about the potential of an International Monetary Fund (IMF) program for 2022-2023.
The report states that the change of position is connected with the financial risks that the country faces. This includes short-term debt, an $800 M Eurobond repayment due in January 2023, and uncertain access to external market financing.
Fitch expressed doubts on El Salvador's external funding options as well as the issuance of "bitcoin-backed bonds" through new distribution channels.
Previously, the IMF published a paper, recommending El Salvador to strengthen its fiscal framework, carry out certain improvements, and remove bitcoin as legal tender along with improving regulation and oversight of the digital assets.
The president of El Salvador, on the other hand, finds that the Bitcoin price will continue to increase and the country will be the start of the global financial revolution. Currently, Bitcoin trades at around $44.600. In the last 7 days, the Bitcoin price increased by over 22%.