IMF Approves $1.4 Billion Extended Arrangement for El Salvador

The International Monetary Fund (IMF) has approved a $1.4 billion extended arrangement for El Salvador under its Extended Fund Facility. An immediate disbursement of $113 million is available to the country.

Program Overview

The 40-month program aims to attract additional multilateral financial support, creating a combined financing package of over $3.5 billion during its period. The initiative seeks to address macroeconomic imbalances and strengthen governance while enhancing El Salvador’s growth prospects.

Economic Measures

Key measures include improving the primary balance by 3.5% of GDP over three years, primarily through wage bill rationalization, ensuring the maintenance of priority social and infrastructure spending.

> “The Salvadorean economy is steadily expanding on the back of robust remittances and tourism, and a greatly improved security situation,” said Nigel Clarke, IMF Deputy Managing Director and Acting Chair. “Nevertheless, El Salvador continues to face deep macroeconomic imbalances, stemming from high debt and weak external and financial buffers.”

Bitcoin Risks Addressed

The arrangement also addresses Bitcoin-related risks. Prior actions include legal reforms to make Bitcoin acceptance voluntary in the private sector and ensure tax payments are made only in US dollars. The government will gradually withdraw from its crypto e-wallet participation while enhancing regulations and supervision of digital assets in line with international practices.

> “The potential risks of the Bitcoin project are being addressed in line with Fund policies and with Fund advice to the authorities,” Clarke noted. “Going forward, program commitments will confine government engagement in Bitcoin-related economic activities, as well as government transactions in and purchases of Bitcoin.”

Governance Improvements

The program also includes efforts to improve governance and transparency through new anti-corruption legislation and enhanced procurement processes. A plan to increase banks’ liquidity buffers has been approved, with IMF financing supporting government buffers and central bank reserves.