The International Monetary Fund (IMF) announced that it has reached “initial agreements” with El Salvador.
Although both parties are working towards a deal that will enhance growth and improve the country’s fiscal situation, Bitcoin remains a sticking point for the IMF.
IMF Reaches Initial Agreement with El Salvador on Financial Program
The IMF has reportedly made significant progress in talks for a new fund-supported program with El Salvador.
This initiative aims to strengthen the country’s public finances, boost safeguards for bank reserves, and promote better governance and transparency.
Additionally, the IMF would also tackle concerns surrounding El Salvador’s use of Bitcoin, aiming to strike a balance between innovation and financial stability.
According to the official notice, the two parties have reached preliminary understandings on increasing the nation’s primary balance by around 3.5% of GDP over three years through measures such as optimizing public sector salaries.
The two parties also agreed on enhancing transparency and mitigating potential fiscal and financial instability associated with the Bitcoin initiative
The IMF has been a vocal critic of Nayib Bukele’s decision to adopt Bitcoin as a legal tender, frequently expressing concerns about the move. However, recent talks suggest that the fund might be softening its stance, hinting at a possible warming up to the idea.
The Salvadoran government did not respond to a request for comment.
El Salvador’s Economic Strategy and IMF Engagement: An Overview
El Salvador and the IMF’s latest discussions were part of the regular Article IV consultations that the fund conducts with its member countries. The two parties have been actively in talks for a long time.
Throughout these consultations, the focus is often on implementing policies to boost medium-term growth through various reforms.
These frequently include measures to diversify the economy, such as promoting tourism and improving security and administrative efficiency. The IMF saw such efforts as crucial for sustaining the positive impact of these reforms.
Prior to recent developments, the IMF reviewed the Salvadoran economic outlook, which showed a robust performance in the previous year despite significant adversities.
The growth was primarily driven by strong domestic demand, aided by a substantial decrease in crime rates and strong remittances and tourism revenues.
However, the country faced mounting vulnerabilities, such as a rising current account deficit and a notable reduction in international reserves, which highlighted ongoing economic challenges.
