On 6 August 2024, the International Monetary Fund (IMF) issued a statement following discussions with Salvadoran authorities, led by Mr. Raphael Espinoza. These conversations, held both in person and virtually over the past months, centered on policies aimed at addressing macroeconomic imbalances and enhancing El Salvador’s medium-term growth prospects and resilience.
Significant progress has been made in negotiations for a Fund-supported program. The focus areas include strengthening public finances, boosting bank reserve buffers, improving governance and transparency, and mitigating risks associated with Bitcoin.
On the fiscal front, preliminary agreements aim to improve the primary balance by around 3.5% of GDP over three years, setting public debt on a sustainable path. This fiscal consolidation will be achieved through a balanced set of measures, initially focusing on rationalizing the public wage bill while ensuring critical social and infrastructure spending is maintained.
Financial system stability is another key focus, with plans to gradually strengthen reserve buffers in a way that supports continued private sector credit and growth. Efforts are also being made to reduce the government’s reliance on domestic financing through planned fiscal consolidation and potential support from the Fund and other multilateral development banks.
Structurally, preliminary agreements have been reached on a multi-year strategy to enhance governance, transparency, and the overall investment climate. The Salvadoran authorities are preparing legislative proposals to tackle corruption, address money-laundering vulnerabilities, and strengthen procurement frameworks. These initiatives are supported by development partners and aim to align with international best practices.
Regarding Bitcoin, while many anticipated risks have not yet materialized, both the IMF and Salvadoran authorities recognize the need for further efforts to enhance transparency and mitigate potential fiscal and financial stability risks associated with the cryptocurrency project. Additional discussions in this and other key areas are necessary to ensure comprehensive risk management.
The IMF team is committed to maintaining close engagement with Salvadoran authorities to finalize an agreement on policies that will ensure stability and prosperity for all Salvadoran people. The Fund’s stance is one of cautious optimism, acknowledging the progress made while emphasizing the need for continued efforts and cooperation to achieve sustainable economic stability.
In conclusion, the IMF’s ongoing discussions with El Salvador signify a collaborative approach to addressing economic challenges and seizing opportunities for growth and development. The mutual goal remains the achievement of long-term stability and prosperity for the nation.
(Source: https://www.imf.org/en/News/Articles/2024/08/06/pr-24302-el-salvador-imf-staff-statement)
