El Salvador’s Bitcoin Plans in Limbo

El Salvador’s bitcoin ambitions will now be limited under an Extended Fund Facility (EFF) arrangement, approved on February 26 by the International Monetary Fund (IMF).

EFF Arrangement Details

The 40-month, $1.4 billion EFF arrangement aims to correct macroeconomic imbalances and enhance growth prospects. The IMF has authorized an immediate disbursement of US$113 million, but it also seeks to restrict the country’s bitcoin endeavors.

As of February 24, El Salvador held over 6,081 BTC, valued at approximately $600 million, in a wallet managed by its Bitcoin Management Agency. The IMF prohibits the autonomous accumulation of bitcoin by the public sector during this program.

Recent Bitcoin Activity

In a surprising move, El Salvador President Nayib Bukele hinted at a bitcoin purchase, adding 19 BTC to the country’s reserves as its value dipped below $90,000.
Twitter Post

Usage of Bitcoin

The IMF noted that the use of bitcoin in El Salvador remains limited, with little circulation as a payment method due to its price volatility and the public’s lack of trust. The financial sector has negligible exposure to bitcoin, and tax payments made in bitcoin, which will soon be prohibited, have been minimal.

Changes to Bitcoin Law

A prerequisite for the EFF approval was an amendment to the Bitcoin Law, making its acceptance voluntary for private entities and revoking its legal tender status.

Economic Goals

The EFF aims for a 3.5% improvement in the GDP primary balance over the next three years, starting with wage bill cuts while preserving social spending. Economic growth is expected to be between 2.5% and 3% in the medium term, supported by security improvements and reforms. Debt is projected to decline to 81% of GDP by 2029, with reduced gross financing needs.

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