Fitch Ratings lowered El Salvador’s long-term foreign currency issuer (IDR) default rating to ‘CC’ from ‘CCC’, saying the country faces a ‘catastrophic’ liquidity situation as the date approaches January bond maturity limit.
This decision reflects Fitch’s view that “El Salvador’s tight fiscal and external liquidity positions and extremely limited market access in a context of high fiscal financing needs and a large external bond maturity of $800 million in January 2023 makes default of some kind likely.”
Fitch estimates El Salvador will need about $3.7 billion in financing by January 2023, and has an “unidentified financing gap” of almost $900 million.
“El Salvador’s liquidity situation is dire ahead of the January 2023 Eurobond payment,” he wrote.
El Salvador, which made bitcoin legal tender in September 2021 alongside the U.S. dollar, has faced wider funding issues as it nears its next debt repayment date. The country is also facing significant unrealized paper losses on its bitcoin purchases, which to date total 2,381 based on publicly available information.
Reuters reported in July that the Central American country would use $560 million to fund a voluntary bond buyback offer for part of its debt due between 2023 and 2025, but Salvadoran President Nayib Bukele tweeted a statement. press on September 12 indicating that the country had officially launched the offer with a redemption amount of $360 million.
According to Fitch, El Salvador’s buyback plan “will likely further weaken its already stretched liquidity position.”
“The size and scope of the transaction does not materially change the probability of default in Fitch’s view,” Fitch wrote.
Fitch previously downgraded El Salvador’s IDR in February, citing concerns at the time about the uncertainty of external sources of funding such as the country’s planned “bitcoin bonds” that it has not yet announced. launched.
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About the Author
Kristin Majcher is senior correspondent at The Block, based in Colombia. It covers the Latin American market. Prior to joining, she worked as a freelance writer with bylines in Fortune, Condé Nast Traveler, and MIT Technology Review, among other publications.