In anticipation of the upcoming 2024 elections, El Salvador’s President Nayib Bukele has said he wants to run for a second term. However, the country has just been downgraded by Fitch Ratings for its financial situation, which is considered very fragile.
Nayib Bukele considers a second term as president
Nayib Bukele, the president of El Salvador who made Bitcoin (BTC) legal tender in September 2021, has announced that he will run for a second presidential term.
Until last year, El Salvador prohibited incumbent presidents from running for a second term as president. But in September 2021, the Central American country’s Supreme Court amended the constitution to make that possible.
The U.S. Embassy and other foreign powers expressed concern about the decision, calling it “unconstitutional. Nayib Bukele, on the other hand, welcomed the new possibility in his public statement yesterday, Thursday, September 15:
“Developed countries allow for re-election and, thanks to the new configuration of the democratic institution in our country, El Salvador will also do so.”
Although he is now primarily known for allowing El Salvador to become the first country in the world to adopt Bitcoin, Nayib Bukele had been elected with a majority in 2019 through conservative center-right politics and a program focused on crime and poverty.
According to the CID Gallup polling institute, the Salvadoran president seems to be meeting with some success among the country’s residents. Indeed, 85 per cent of those surveyed said they were satisfied with the policies pursued by the leader.
El Salvador singled out for financial instability
Coincidentally, on the day of Bukele’s statement, the international financial rating agency Fitch Ratings downgraded El Salvador from “CCC” to “CC”, considering the country to be in a “disastrous” liquidity situation.
According to the Fitch Ratings document, El Salvador will need $3.7 billion in financing by January 2023 and has an “unidentified financing gap” of about $900 million.
At the end of July, Nayib Bukele clarified the country’s financial position in a tweet, stating that the country could afford to repay its debt.
“Contrary to what the media has been saying all this time, El Salvador has the liquidity to not only pay all of its liabilities when due, but also to prepurchase all of its own debt (through 2025).”
However, Fitch Ratings pointed out that this decision could further weaken the country’s financial position:
“The government of El Salvador recently announced a voluntary USD 360 million cash buyback for its 2023-2025 external bonds at a price below par, which will likely further weaken its already strained liquidity position.”
According to the agency, El Salvador will need to settle all of its euro bonds by January 2023, or USD 800 million, to have any hope of coming out ahead financially in the long run.