El Salvador’s President Nayib Bukele claimed that Bitcoin has helped his country dodge default. El Salvador has performed very well in 2022, leading Citi’s emerging market sovereign bond index with returns of 22.2%.
The country’s improved economic fortunes are partly due to the repayment of an $800mn bond in January, which was set to mature a week later, with the help of the Central American Bank for Economic Integration and the Development Bank of Latin America. I
In 2021, the country’s bond prices began to tumble due to Bukele’s controversial actions. After embracing Bitcoin and buying up a lot of it, the cryptocurrency collapsed, causing rating agencies Fitch and Moody’s to downgrade the country’s debt into junk territory.
However, things have changed, and Moody’s outlook changed from negative to stable in February. Bukele has linked the country’s Bitcoin adoption to its economic improvement, claiming that it gave El Salvador an “advantage in the new economic system” and spurred private investment from “people escaping censorship”.
However, the truth may be more mundane. El Salvador regained investor confidence in July 2022 after announcing a $1.6bn bond buyback using special drawing rights from the IMF and a $200mn loan from the Central American Bank for Economic Integration. The buybacks, along with the country’s financial prudence, helped to reduce the principal of the 2025 bond to $348mn from $800mn.
Public debt has also decreased to 78% of GDP, down from 82.4% in 2021. The IMF predicts moderate real GDP growth of 1.7% in 2023, after expanding by 2.8% in 2022.
