Business

Moody’s downgrade met with expletive by El Salvador’s President

President of El Salvador Nayib Bukele appears to be demonstrating a harsher version of the stance adopted by the Central Bank of Sri Lanka (CBSL) to rating agencies’ downgrades when the country’s President Nayib Bukele Tweeted “IDGAF” (an acronym with an expletive at the end) on his official Twitter handle in response to a post highlighting the July downgrading of the sovereign debt of El Salvador by Moody’s Ratings

In July 2021, Moody’s downgraded the Government of El Salvador’s long-term foreign-currency issuer and senior unsecured ratings to “Caa1” from “B3”. The outlook remains Negative.

The key reasons for the downgrade according to Moody’s was that market access is likely to remain constrained ahead of a challenging debt amortisation schedule beginning in 2023 and also due to the deterioration in the quality of policymaking.

Speaking to Bloomberg, Moody’s analyst Jaime Reusche claimed that El Salvador’s decision to trade in Bitcoin adding 1,391 bitcoins to its coffers was very risky and “if it gets much higher, then that represents an even greater risk to repayment capacity and the fiscal profile of the issuer”.

Similar to Bukele, the CBSL has also over the past two years responded dismissively whenever the country’s sovereign debt was downgraded by rating agencies

Standard and Poor’s (S&P) Global Ratings recently downgraded Sri Lanka to “CCC” from “CCC+”, keeping the outlook at the lower level, triggered by lower foreign reserves and upcoming debt obligations.

The CBSL responded, claiming that the Government of Sri Lanka is perturbed over the announcement by S&P Global Ratings, at a time when the Government of Sri Lanka has diligently lined up adequate funds to repay its maturing foreign debt liabilities and its repeated assurances over the strong commitment to oblige its debt service payments, including the International Sovereign Bond (ISB) which matured yesterday (18).

Similarly when Fitch downgraded Sri Lanka’s long-term foreign currency Issuer Default Rating (IDR) to “CC” from “CCC” on 17 December 2021, the CBSL issued a response, stating that Fitch’s downgrade is a “hasty move” and that it failed to recognise the positive developments taking place in Sri Lanka, in an environment in which the entire world is grappling with multiple waves of the Covid-19 pandemic.