El Salvador’s credit rating could be affected by Bitcoin adoption, S&P Global warns
The Standard and Poor (S&P) Global rating agency believes that the country of El Salvador seriously damaged its credit rating after it enacted its Bitcoin law recognizing BTC as legal tender nationwide on September 7.
El Salvador’s adoption of Bitcoin exposes its economy to significant financial risks and could pose problems for the country’s lending sector, according to a September 16 Reuters report.
The credit agency also believes the move could also reduce El Salvador’s chances of securing a billion-dollar loan deal it is seeking from the International Monetary Fund (IMF).
“The risks associated with adopting bitcoin as legal tender in El Salvador seem to outweigh its potential benefits,” S&P said, highlighting the “immediate negative implications” of the Bitcoin law for the country’s credit rating.
International credit rating agencies offer grim prospects for El Salvador’s ranking as the adoption of BTC approaches.
Before Salvadoran President Nayib Bukele announced his intention for the country to recognize BTC as legal tender in June of this year, Fitch had stamped El Salvador with a B- in April 2020 – rating the country as high risk with a negative outlook.
S&P last assessed El Salvador’s credit rating as a B- as of December 28, 2018, suggesting that an update may be needed given the drastic change in the country’s monetary policy.
While President Nayib Bukele maintains high approval rates among the Salvadoran population, its leaders and government have faced backlash in enacting the Bitcoin Law despite the country’s low crypto-literacy rates.
To my English speaking friends on Twitter: This 9/15/21, El Salvador did not celebrate its 200 years of independence. Instead, we took to the streets to protest against the breakdown of our democracy, the rule of law and a burgeoning dictatorship. That’s why we walked. # El15Marchamos pic.twitter.com/wyf1B4QzgZ
– cg (@ NorteSur7) September 16, 2021
Related: Protesters burn Bitcoin ATM as part of protest against President of El Salvador
Financial agencies such as the World Bank and the IMF also appear to be pushing back abroad, both of which reiterated their cautious feelings this month about adopting BTC as legal tender.
IMF spokesman Gerry Rice said at a September 16 press briefing that although the fund is still in talks with El Salvador on a potential support program, it has not changed its position according to which the consequences of adopting BTC could be “catastrophic”.
“The potential of an IMF program for El Salvador is under discussion. Here again, the objectives are clear: growth, financial stability, etc. On the specific issue of Bitcoin, I think we’ve been pretty clear in our public statements, ”Rice said.
On September 7, a World Bank spokesperson told Reuters that “although the government has approached us for help on Bitcoin, this is not something the World Bank can support given the environmental and transparency gaps “.