- The IMF Executive Board approved a new 40-month arrangement under the Extended Fund Facility (EFF) for El Salvador, with access equivalent to US$1.4 billion. The Board's decision allows the authorities an immediate disbursement equivalent to around US$113 million.
- The IMF-supported program aims to ensure conditions are in place to boost El Salvador's growth prospects and resilience by strengthening public finances, rebuilding external and financial buffers, and improving governance and transparency. Bitcoin risks are also being addressed.
Washington, DC: Today the Executive Board of the International Monetary Fund (IMF) approved a 40-month extended arrangement under the Extended Fund Facility (EFF) for El Salvador, with access of SDR 1033.92 million (around US$1.4 billion, or 360 percent of quota). The Board's approval allows the authorities an immediate disbursement of SDR 86.16 million, equivalent to around US$113 million. The arrangement is expected to catalyze additional multilateral financial support, for a combined overall financing package of over US$3.5 billion over the program period.
Building on recent progress, the authorities' IMF-supported program aims at addressing macroeconomic imbalances and strengthening governance and transparency, with the objective of boosting El Salvador's growth prospects and resilience. Under the program, the primary balance will improve by 3½ percent of GDP over three years, underpinned initially by a rationalization of the wage bill, while protecting priority social and infrastructure spending. This will be complemented by measures to rebuild reserve buffers and bolster financial stability, as well as actions to strengthen fiscal transparency and anti-corruption and Anti-Money Laundering and Countering the Financing of Terrorism (AML/CFT) frameworks. The program also addresses risks arising from the Bitcoin project, including by making acceptance of Bitcoin voluntary and by confining public sector engagement in Bitcoin-related activities and transactions in and purchases of Bitcoins.
Following the Executive Board's discussion on El Salvador, Mr. Nigel Clarke, Deputy Managing Director and Acting Chair, issued the following statement:
''The Salvadorean economy is steadily expanding on the back of robust remittances and tourism, and a greatly improved security situation. External deficits have narrowed, inflation has fallen, and recent liability management operations have reduced near-term financing needs. Nevertheless, El Salvador continues to face deep macroeconomic imbalances, stemming from high debt and weak external and financial buffers, as well as barriers to investment and productivity. The authorities' economic program, supported by an Extended Fund Facility arrangement, aims to strengthen fiscal and external sustainability while creating the conditions for stronger and more inclusive growth.
''The Fund-supported program is underpinned by an ambitious growth-friendly fiscal consolidation, aiming to put public debt on a firm downward path and building fiscal buffers. The consolidation is being supported by raising public spending efficiency and reforms of the civil service and the pension system over time, while providing sufficient space to protect priority social and infrastructure spending.
''The program will enhance El Salvador's resilience to shocks, through a gradual and determined strengthening of external and financial sector buffers. A plan to increase banks' liquidity buffers has already been approved, with Fund financing also supporting government buffers and central bank reserves. Improvements in regulation and supervision as well as a new financial stability legislation will also bolster financial stability and inclusion.
''Envisaged improvements in governance and transparency are expected to boost confidence and private investment. Early steps have been taken through the enactment of a new Anti-Corruption legislation, and publication by the Court of Accounts of audits of financial statements of government agencies and COVID audits. These will be followed by upgrades to procurement and accountability processes, as well as the strengthening of AML/CFT frameworks.
''The potential risks of the Bitcoin project are being addressed in line with Fund policies and with Fund advice to the authorities. Prior actions include legal reforms that have made acceptance of Bitcoin by the private sector voluntary and ensured that tax payments are made only in U.S. dollars. Transparency of the public crypto e-wallet has been strengthened, and the government plans to gradually unwind its participation in the e-wallet. Going forward, program commitments will confine government engagement in Bitcoin-related economic activities, as well as government transactions in and purchases of Bitcoin. Regulation and supervision of digital assets will be enhanced in line with evolving international best practices.
''Decisive ownership and implementation and broad political and public support will be critical to ensure the program's success. Agile policy making and contingency planning will be essential to manage downside risks in the context of dollarization. Continued financial and technical support from other official creditors will also be necessary to support program implementation.''
