El Salvador’s credit rating could take hit amid Bitcoin adoption warns S&P Global

S&P Global believes El Salvador’s recognition of Bitcoin as legal tender has brought “immediate negative implications” for its credit rating.

Credit rating agency Standard and Poor (S&P) Global believes the country of El Salvador has severely harmed its credit rating after enacting its Bitcoin Law recognizing BTC as legal tender nationwide on Sept. 7.

According to a Sept. 16 report from Reuters, El Salvador’s Bitcoin embrace exposes its economy to significant financial risks and could pose challenges for the country’s lending industry.

The credit agency also believes the move could also dampen El Salvador’s chances of securing a $1 billion loan agreement it is seeking from the International Monetary Fund (IMF).

“The risks associated with the adoption of bitcoin as legal tender in El Salvador seem to outweigh its potential benefits,” S&P said, emphasizing the “immediate negative implications” of the Bitcoin Law for the country’s credit rating.

International credit rating agencies offer a grim outlook for El Salvador’s ranking amid the lead-up to the BTC adoption. 

Prior to 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 — assessing the country as high risk with a negative outlook.

S&P’s last assessed El Salvador’s credit score as being a B- as of Dec. 28, 2018, suggesting it may be due for an update given the dramatic shift in the nation’s monetary policy.

While president Nayib Bukele maintains high approval ratings among the Salvadoran populace, his leadership and government have faced backlash enacting the Bitcoin Law despite the country’s low rates of crypto-literacy.

To my English-speaking Twitter friends: This 15/9/21, El Salvador did not celebrate 200 years of independence. Instead, we filled the streets to protest the breaking of our democracy, rule of law, and an incipient dictatorship. THIS is why we marched. #El15Marchamos pic.twitter.com/wyf1B4QzgZ

— cg (@NorteSur7) September 16, 2021

Related: Protesters burn Bitcoin ATM as part of demonstration against El Salvador president

There also appears to be push back abroad from financial agencies such as the World Bank and IMF, who have both reiterated cautious sentiments this month regarding the adoption of BTC as legal tender.

IMF spokesman Gerry Rice stated in a press briefing on Sept. 16 that while the fund is still in discussions with El Salvador over a potential support program, it hasn’t changed its stance that the consequences of BTC adoption could be “dire.”

“The potential of an IMF program for El Salvador is under discussion. Again the objectives of that are clear: growth, financial stability and so on. On the specific Bitcoin issue, I think we’ve been fairly clear in our public statements,” Rice said.

On Sept. 7 a World Bank spokesperson told Reuters that “while the government did approach us for assistance on Bitcoin, this is not something the World Bank can support given the environmental and transparency shortcomings.”