El-Salvador Loses 56% on Crypto Bets, Fitch Sees Bonds Default
El-Salvador is 56% down on the country’s crypto bet, according to Nayib Tracker, a website that tracks President Nayib Bukele’s bitcoin buys amidst deal discussion with International Monetary Fund (IMF)
However, due to the heightened risks of the Central American country’s crypto assets, Fitch downgraded its ratings to CC from CCC on an expectation that it will default on foreign bonds due for payments in 2023.
Rating agencies and IMF are not impressed with the country’s decision to adopt cryptocurrency as legal tender, the first country to make the move despite a lack of regulatory measures in the market.
Since Sept. 2021, when Bukele started his bitcoin purchases, the country has acquired 2,381 BTC, at an average price of $45,004.32. That’s a total of $107.155 million, but the portfolio is currently worth just $47.318 million.
The purchases have not yet justified the decision by Nayib Bukele to go against warnings by the International Monetary Fund (IMF).
In January, the IMF wrote that “there are large risks associated with the use of bitcoin on financial stability, financial integrity, and consumer protection, as well as the associated fiscal contingent liabilities.”
Despite the warnings, Bukele insisted that he is taking his country on the right path. In other respects, like tourism, he has not fared as badly.
El Salvador`s tourism receipts are among the best in the post-pandemic era. According to the country’s Tourism Ministry, tourism spending has increased by 81% since the decline of the coronavirus.
World Bank statistics show that international tourist arrivals grew from 707,000 in 2020 to more than 1.2 million this year.
Despite the growth, rating agencies are convinced the country`s risk profile will deteriorate further if it continues down the cryptocurrency path.
On Sept. 15, Fitch Ratings downgraded El Salvador to CC from CCC, saying the country will likely default on foreign bond payments due early next year.
According to Be(IN)Crypto, the latest rating is nine times below BBB, which is the minimum rating needed to be able to qualify for investment-grade ratings.
“El Salvador’s tight fiscal and external liquidity positions and extremely constrained market access amid high fiscal financing needs and a large $800 million external bond maturity in January 2023 make the default of some sort probable,” the rating company said in a report.
Moody’s also blamed the potential default on bitcoin adoption. It said in January “policy differences related to the government’s embrace of bitcoin had lowered the probability” of the IMF extending a $1.3 billion loan to El Salvador. President Bukele hoped to use that money to pay the upcoming bond maturity. El Salvador has been negotiating a deal with the IMF since March 2021.
Despite the global misgivings over his leadership style and economic decisions, 40-year-old Bukele remains highly popular in the Central American country. READ: More Countries to Adopt Bitcoin as Legal Tender in 2022
Ever since taking office on Jun. 1, 2019, Bukele`s popularity has not gone below 75%. A recent public rating survey done by Cid Gallup showed that his ratings are going up and they currently stand at 86%, making him the most popular president in Latin America.
Bukele has expressed the intention of running for a second term as the country`s president, after his current term, which runs out in 2024.
He hopes that public sentiment remains on his side and that at some point, the bitcoin market stops the downward spiral and picks up. #El-Salvador Loses 56% on Crypto Bets, Fitch Sees Bonds Default