IMF Staff Statement on El Salvador

Washington, DC: An International Monetary Fund (IMF) mission led by Mr. Raphael Espinoza issued a statement following face-to-face and virtual discussions over the past few months with the Salvadoran authorities. These discussions focused on policies that could be supported by an IMF program to address macroeconomic imbalances and strengthen El Salvador’s medium-term growth prospects and resilience.

“Progress has been made in negotiations for a program that could be supported by the Fund, focused on policies to strengthen public finances, strengthen bank buffers, improve governance and transparency of and mitigate the risks of Bitcoin

On the fiscal side, a preliminary agreement has been reached to improve the primary balance to around 3.5% of GDP over a three-year period, with the aim of putting public debt on a sustainable path. Consolidation is expected to be achieved through a balanced set of measures, focusing initially on rationalizing the public wage bill, while leaving room for critical social and infrastructure spending.

Progress was also made in developing a plan to gradually strengthen the financial system’s reserves in a manner consistent with continued private sector lending and growth. This is also being supported by focused efforts to reduce domestic financing to the government through planned fiscal consolidation and the financial support that could be provided by the Fund and other multilateral development banks.

On the structural front, preliminary agreements have been reached on a multi-year, comprehensive strategy to improve governance, transparency, and the investment climate. The authorities have made progress in preparing legislative proposals to address corruption, money laundering vulnerabilities, and weaknesses in public procurement frameworks. This work is supported by external development partners and aims to ensure that the frameworks put in place are in line with international best practices.

As for Bitcoin, while many of the associated risks have not materialized, there is a joint recognition of the need to redouble efforts to improve transparency and mitigate the potential fiscal and financial stability risks of the Bitcoin project. Additional discussions will be needed on this and other key issues.

The Fund team looks forward to advancing these discussions with the Salvadoran authorities with the objective of reaching an agreement on policies that will ensure stability and prosperity for the benefit of the entire Salvadoran population.

Source: International Monetary Fund