## IMF Staff Concludes Visit to El Salvador

_IMF News, November 8, 2019_

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## Bibliographic details
- Published: November 8, 2019

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### Mission overview
- End-of-Mission press release dated November 8, 2019.
- Mission led by Ms. Alina Carare visited San Salvador during November 4-8, 2019.
- Purpose: discuss the outlook, the 2020 budget and the government’s growth agenda, including structural reforms to promote investment.
- Meetings held with: President Nayib Bukele; Chief of Cabinet Carolina Recinos; Finance Minister Nelson Fuentes; Central Bank President Carlos Federico Paredes; Superintendent of the Financial System Mirna Arevalo de Patiño; Minister of the Economy Maria Luisa de Hayem; Secretary of Commerce and Investment Miguel Kattan; Minister of Defense Rene Francis Merino Monroy; other senior government officials; members of the Legislative Assembly; and representatives of the private sector.

### Economic outlook and risks
- Recent performance and near-term projection:
  - “The economy grew 2.2 percent in the first half of the year, and inflation hovered around zero.”
  - “After dipping in the second quarter, remittances growth returned to its long-term rate of 4 percent.”
  - “In 2019 real GDP growth is expected to be 2½ percent on the back of improving business confidence.”
  - Over the medium-term and under current policies, economic growth will converge to the estimated potential.
- Downside risks:
  - Weaker-than-expected global growth.
  - Domestic policy slippages, notably if spending measures are adopted without identifying appropriate non-borrowing funding resources.
- Upside possibility:
  - Global financial conditions may prove more supportive than presently expected.

### Structural reforms, governance, and business climate
- Positive actions and support:
  - Authorities are aggressively tackling crime and corruption and are starting to improve the business environment to support growth.
  - Mission welcomes implementation of the “Plan of Control Territorial” to improve security.
  - Mission welcomes elimination of the so-called “gastos reservados” for the office of the presidency to reduce corruption.
  - Mission supports efforts to expedite processing of business permits, including by creating a red tape committee and improving information sharing among public agencies to streamline business registration.
- 2020 budget orientation:
  - Higher spending on security, human capital, and infrastructure in the 2020 budget is welcomed as provision of public goods needed for economic growth.

### Fiscal position, projections, and policy recommendations
- Recent fiscal performance:
  - “The primary fiscal balance has improved by 2¾ percent of GDP since 2013 but remains broadly unchanged over 2018-2019 at 0.9 percent of GDP.”
- 2020 draft budget:
  - Envisages a further consolidation of 0.2 percent of GDP owing to better revenue administration.
- Debt dynamics and recommended adjustment:
  - Envisaged primary surpluses “of 1.2 percent of GDP on average during 2020-2021” would not be enough to offset the rising interest bill associated with the high stock of debt, absent sizeable frontloaded adjustment.
  - Interest-growth differential remains considerable—about 4 percent—prompting continued recommendation for prudent fiscal adjustment.
  - Further fiscal consolidation of about 2 percent of GDP by 2021 is recommended to ensure commitment to the fiscal responsibility law and put debt on a firmly declining path.
  - Consolidation measures should be carefully calibrated, growth-friendly, and protect the poor and vulnerable.
- Financing and market conditions:
  - Market conditions currently remain favorable, but sizeable financing gaps are looming over the medium-term.
  - Approving a strong budget and its financing on time will contribute to macroeconomic stability and enhance the investment climate.

### Financial sector stability and policy support
- Banking sector soundness:
  - “Banks are solid with low NPLs, high capital buffers, and abundant liquidity.”
- Staff support for authorities’ efforts to preserve financial stability through:
  - (i) Adopting the bank resolution legislation in line with best practices.
  - (ii) Ensuring that the reactivated interbank market functions smoothly to increase banks’ efficiency in managing liquidity.
  - (iii) Ensuring that measures supporting credit growth fully comply with the risk-based supervision framework.
  - (iv) Continuing to promote financial inclusion, including the recently adopted amendments to the financial inclusion law.

### Mission closing statement
- “The IMF greatly appreciates the frank and productive discussions and the warm hospitality of our Salvadoran counterparts.”

*IMF Staff Concludes Visit to El Salvador — Press Release No. 19/404 (November 8, 2019).*

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## References

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_Source: https://www.imf.org/en/news/articles/2019/11/08/pr19404-el-salvador-imf-staff-concludes-visit_