LatinNews Daily - 10 February 2022

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In brief: Fitch downgrades El Salvador

*International credit ratings agency Fitch Ratings has downgraded El Salvador's Long-Term Foreign Currency Issuer Default Rating (IDR) to 'CCC' from 'B-'. It cites as reasons heightened financing risks stemming from increased reliance on short-term debt, an US$800m eurobond repayment due in January 2023, a still-high fiscal deficit (which Fitch expects to narrow marginally to 5.5% of GDP in 2022 from 5.7% in 2021), limited scope for additional local market financing, uncertain access to additional multilateral funding and external market financing given high borrowing costs. It also notes that debt to GDP is expected to rise to 86.9% in 2022 after modest improvement in 2021, increasing concerns around debt sustainability over the medium term. The credit ratings agency adds that in its view, a “weakening of institutions and concentration of power in the presidency have increased policy unpredictability”, while the adoption of cryptocurrency bitcoin as legal tender in September 2021 has “added uncertainty” about the potential for an International Monetary Fund (IMF) programme that would unlock financing for 2022-2023. Last month the IMF urged El Salvador’s government to remove bitcoin’s legal tender status.

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