The second in command, Vice President Ulloa, claims that China may help El Salvador refinance its sovereign debt.
The Vice President of El Salvador claims that China offered to buy the foreign debt of the badly suffering country. Felix Ulloa reiterated that China would like to step in and help the Central American Country refinance its debt.
However, Chinese Foreign Ministry Spokesperson, Zhao Lijian claimed that he was unaware of such an issue. Apparently, the Vice President never clarified the terms offered and refused to elaborate on the subject.
Refinancing the El Salvador debt
In September 2021, El Salvador became the first country to adopt bitcoin as a legal tender. The country traversed global expectations by spearheading crypto adoption across the globe.
Surprisingly, El Salvador now faces tough financial problems with respect to debt challenges. The Vice President cited the need to use special drawing rights or reserve assets to finance the debt. The International Monetary Fund (IMF) houses the country’s reserve assets.
Currently, the country already repurchased some of its bonds and committed to doing it again. Ulloa cited that the next bond purchase will occur in January 2023. This will come before the maturity of some $667 million bonds in that month.
The country continues to seek ways to alleviate pressure within its bond market. El Salvador aims to avoid defaulting on its dollar-denominated debt. S&P Global Ratings gave El Salvador a debt rating of CCC+.
This rating is seven levels below the investment grade.
The debt ceiling
El Salvador’s debt due in January pared losses to about 91 cents on the dollar. However, most of the country’s notes remain in distress.
On average, investors demand a yield premium of 18.77% points. This represents an average above the US Treasuries to hold El Salvador’s sovereign debt.
The buyback plan represents an effort to avoid a potential loan default on its dollar debt. This will require external financing to prevent it from happening.
