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American credit rating agency and one of the ‘Big Three’, Fitch Ratings just downgraded El Salvador’s Long Term Foreign Currency Issuer Default Rating (IDR) from “B-” to “CCC” on Wednesday.
To Fitch, bonds rated AAA, AA, A, or BBB are considered investment grade, while those rated BB, B, CCC, CC, C, or D are considered speculative, junk grade, bonds. The firm explained that CCC ratings mean “Substantial credit risk” with “Very low margin for safety,” and that “Default is a real possibility.”
Fitch explained:
“In Fitch’s view, weakening of institutions and concentration of power in the presidency have increased policy unpredictability, and the adoption of Bitcoin as legal tender has added uncertainty about the potential for an IMF program that would unlock financing for 2022-2023.”
The rating agency elaborated that “heightened financing risks stemming from increased reliance on short-term debt” influenced its decision to cut El Salvador’s rating.
El Salvador made Bitcoin legal tender alongside the U.S. dollar in September, 2020. Since then, the International Monetary Fund (IMF) urged El Salvador to abandon Bitcoin as legal tender, however their request got snubbed.