Moody’s downgrades the debt of El Salvador, the first country to adopt Bitcoin

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Financial services firm Moody’s Corporation (NYSE:MCO) downgraded El Salvador’s debt rating by two notches, from “Caa3” to “Caa1”, due to a higher probability of default. El Salvador has become the first country in the world to adopt bitcoin (BTC) as legal tender.

Downgrade

As Bloomberg reported, Moody’s Investors Service downgraded El Salvador’s debt and said, “This is largely due to the lack of a credible financing plan, a factor that increases credit risks arising from restricted market access due to El Salvador’s troubled external debt. yields.

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According to the media, the rating agency fears significant material losses for investors, given the upcoming bond repayments, since El Salvador currently has a debt or non-payment of $800 million, which expires in 2023. .

With the adoption of BTC as legal tender, El Salvador announced the construction of Bitcoin City, as well as the issuance of BTC bonds as an alternative to obtain resources. However, in mid-March, President Nayib Bukele announced a postponement of the bond issuance without a specific date.

Nayib Bukele’s government has not commented on the issue, nor specified how it will pay the next installments. A few weeks ago, he mentioned that BTC-related projects are separate and will not affect the country’s finances.

BTC Bonds

In addition, El Salvador’s dollar bonds have widened to 2,200 points – even more than those of the United States – which would reflect the country’s government dependence on short-term debt, which which increases the risks, according to Moody’s.

According to the Salvadoran newspaper Contrapunto, Moody’s also pointed out that it does not see a financing plan, which commits the country to acquiring additional credit risks, which increases the “risk of default”.

However, he pointed out that the government had eased liquidity pressures with a 26.8% increase in tax revenue in 2021.

Nayib Bukele said on March 24 that the government had delayed issuing “Bitcoin Bonds” of what could be the world’s first bitcoin-backed bond to address reform that must first be sent to Congress.

“The brief release delay is only because we prioritize internal pension reform and need to get it to Congress first (sic),” Bukele tweeted.

Updated