{
  "title": "El Salvador's Comeback Constrained by Increased Risks",
  "publication": "IMF News, February 16, 2022",
  "sourceUrl": "https://www.imf.org/en/news/articles/2022/02/15/cf-el-salvadors-comeback-constrained-by-increased-risks",
  "canonical": "https://www.imf.org/en/news/articles/2022/02/15/cf-el-salvadors-comeback-constrained-by-increased-risks",
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  "summary": "<p></p><p>El Salvador’s increase in public debt will constrain medium-term growth prospects given the risks associated with high and growing financing needs. <span style=\"font-size: 1.",
  "publishDate": "2022-02-16",
  "sections": [
    {
      "heading": "Economic rebound and near-term projections",
      "content": "- After a sharp decline in 2020, the IMF team expects the economy to grow by around 10 percent of GDP in 2021, and 3.2 percent in 2022.\n- The rebound reflects:\n  - A pick-up in external demand.\n  - El Salvador’s pandemic response: one of the lowest reported rates of COVID-19 infections and fatalities in the region and a relatively high vaccination rate.\n  - Strong remittance inflows: about one-fifth of the population is living in the US and remittances were more than 25 percent of GDP in 2021.\n- US real GDP growth is an important growth driver because of the large Salvadoran diaspora."
    },
    {
      "heading": "Medium-term outlook and constraints",
      "content": "- The IMF team expects medium-term growth rates in El Salvador to decline to around 2 percent as policy stimulus in the US wanes.\n- Key constraint: El Salvador’s increase in public debt will constrain medium-term growth prospects given the risks associated with high and growing financing needs.\n- Drivers of the constraint:\n  - Persistent budget deficits and continuous expansionary fiscal policies during a strong economy have resulted in a rapidly growing public debt-to-GDP ratio.\n  - Higher borrowing costs demand more budget resources to service debt, crowding out private investment and limiting resources for social and infrastructure spending.\n- Consequences if unchecked:\n  - Public debt will continue to grow.\n  - Reduced fiscal space for the authorities’ social and inclusive growth agenda.\n  - Increasingly difficult policy choices and elevated risks."
    },
    {
      "heading": "Fiscal policy recommendation",
      "content": "- The IMF recommends a permanent reduction in the fiscal deficit (the difference between government revenue and spending), to be implemented over a 3-year period.\n- Expected effect: put the debt-to-GDP ratio on a firm downward trend and create fiscal space to finance development needs and support higher long-term private investment.\n- Additional recommended actions: measures to support the vulnerable, improvements to governance frameworks, and efforts to minimize risks from Bitcoin to ensure higher growth and macroeconomic stability."
    },
    {
      "heading": "Risks and policy options related to Bitcoin and digital payments",
      "content": "- IMF view: Digital means of payment such as Chivo (government e-wallet) can promote financial inclusion, especially if used in US dollars. However, using Bitcoin as legal tender entails large risks; the IMF does not recommend it. In the short-term, the costs and risks largely outweigh the benefits.\n- Identified risk categories and concerns:\n  - Financial stability:\n    - Banks and other financial institutions could be exposed to massive fluctuations in crypto-asset prices.\n    - Banks will need new prudential rules, such as capital and liquidity requirements, to fully hedge Bitcoin exposures or ban deposits in Bitcoins.\n    - Because the payments ecosystem is highly concentrated in Chivo, strengthening its regulation and supervision is recommended.\n  - Financial integrity:\n    - Crypto assets could facilitate illicit money, terrorism financing, and tax evasion due to anonymity.\n    - Theft or cybercriminal activity could jeopardize system stability and relationships with foreign countries and correspondent banks.\n    - Anti-money laundering and combating the financing of terrorism requirements are not uniformly implemented; much is left to the discretion of Bitcoin-service providers.\n    - International standards for virtual asset providers are needed; IMF recommends more intense and uniform regulation for all entities.\n  - Consumer protection:\n    - Households and businesses holding Bitcoin balances could lose wealth through large swings in value; cybercrime and theft are additional risks.\n    - With a quarter of the population already living in poverty, Chivo’s use should not lead to further destitution.\n    - Recommended measures:\n      - (i) Strengthen legal requirements for e-wallets, particularly Chivo, to fully safeguard users' funds (in both Bitcoins and US dollars).\n      - (ii) Set legal limits on Bitcoin transactions and holdings.\n      - (iii) Boost the consumer protection framework with stricter transparency requirements, higher institutional involvement, and clearer disclosure of Bitcoin use and the risks it carries due to price volatility.\n  - Contingent fiscal liabilities:\n    - Adoption of Bitcoin as legal tender is fully funded by public money through a trust fund.\n    - If the price of Bitcoin were to plummet, the trust could be rapidly depleted.\n    - To guarantee convertibility between Bitcoin and the US dollar, the government would need to fund the trust through additional resources or the issuance of debt."
    },
    {
      "heading": "Policy options to restore market confidence",
      "content": "- The IMF has proposed policy options aimed to:\n  - Restore confidence of the market.\n  - Ensure sufficient resources to service the country’s debt.\n  - Finance large development needs.\n- Urgent and decisive policy action is emphasized to avoid compounding future policy difficulties and risks."
    },
    {
      "heading": "El Salvador Country Team",
      "content": "- Alina Carare — Deputy Division Chief in the Western Hemisphere Department\n- Jaime Ponce — Senior Financial Expert in the Monetary and Capital Markets Department\n- Javier Kapsoli — Senior Economist in the Western Hemisphere Department\n- Juan Francisco Yépez — Economist in the Western Hemisphere Department\n- Justin Lesniak — Research Assistant in the Western Hemisphere Department\n- Laura Doherty — Senior Economist in the Fiscal Affairs Department\n- Lorena Rivero del Paso — Technical Assistance Advisor in the Fiscal Affairs Department\n- Yorbol Yakhshilikov — Economist in the Western Hemisphere Department\n\nBy the El Salvador country team, IMF Western Hemisphere Department; February 16, 2022.\n\n---\n\n\n References\n\n- https://www.imf.org/en/News/country-focus\n- PRESS CENTER\n- https://www.imf.org/en/publications/weo\n- Global Economy in Crosscurrents of War and Technology\n- https://www.imf.org/en/publications/gfsr\n- Global Financial Markets Confront the War in the Middle East and Amplification Risks\n- https://www.imf.org/en/publications/fm\n- Fiscal Policy under Pressure: High Debt, Rising Risks\n- https://www.imf.org/en/publications/reo\n- Asia and Pacific\n- Europe\n- Middle East and Central Asia\n- Sub-Saharan Africa\n- Western Hemisphere\n- https://www.imf.org/en/publications/areb\n- Getting to Growth in an Age of Uncertainty\n- More Publications\n- Read the Article IV\n- The IMF and El Salvador\n- Crypto-assets as National Currency? A Step Too Far\n- anti-money laundering and combating the financing of terrorism\n- https://www.imf.org/en/home\n\nSource: https://www.imf.org/en/news/articles/2022/02/15/cf-el-salvadors-comeback-constrained-by-increased-risks"
    }
  ],
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    "[Markdown version](/en/news/articles/2022/02/15/cf-el-salvadors-comeback-constrained-by-increased-risks/index.md)",
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    "Published: February 16, 2022",
    "After a sharp decline in 2020, the IMF team expects the economy to grow by around 10 percent of GDP in 2021, and 3.2 percent in 2022.",
    "The rebound reflects:",
    "US real GDP growth is an important growth driver because of the large Salvadoran diaspora.",
    "The IMF team expects medium-term growth rates in El Salvador to decline to around 2 percent as policy stimulus in the US wanes.",
    "Key constraint: El Salvador’s increase in public debt will constrain medium-term growth prospects given the risks associated with high and growing financing needs.",
    "Drivers of the constraint:",
    "Consequences if unchecked:",
    "The IMF recommends a permanent reduction in the fiscal deficit (the difference between government revenue and spending), to be implemented over a 3-year period.",
    "Expected effect: put the debt-to-GDP ratio on a firm downward trend and create fiscal space to finance development needs and support higher long-term private investment.",
    "Additional recommended actions: measures to support the vulnerable, improvements to governance frameworks, and efforts to minimize risks from Bitcoin to ensure higher growth and macroeconomic stability.",
    "IMF view: Digital means of payment such as Chivo (government e-wallet) can promote financial inclusion, especially if used in US dollars. However, using Bitcoin as legal tender entails large risks; the IMF does not recommend it. In the short-term, the costs and risks largely outweigh the benefits.",
    "Identified risk categories and concerns:",
    "The IMF has proposed policy options aimed to:",
    "Urgent and decisive policy action is emphasized to avoid compounding future policy difficulties and risks.",
    "Alina Carare — Deputy Division Chief in the Western Hemisphere Department",
    "Jaime Ponce — Senior Financial Expert in the Monetary and Capital Markets Department",
    "Javier Kapsoli — Senior Economist in the Western Hemisphere Department",
    "Juan Francisco Yépez — Economist in the Western Hemisphere Department",
    "Justin Lesniak — Research Assistant in the Western Hemisphere Department",
    "Laura Doherty — Senior Economist in the Fiscal Affairs Department",
    "Lorena Rivero del Paso — Technical Assistance Advisor in the Fiscal Affairs Department",
    "Yorbol Yakhshilikov — Economist in the Western Hemisphere Department",
    "[https://www.imf.org/en/News/country-focus](https://www.imf.org/en/News/country-focus)",
    "[PRESS CENTER](http://presscenter.imf.org/)",
    "[https://www.imf.org/en/publications/weo](https://www.imf.org/en/publications/weo)",
    "[Global Economy in Crosscurrents of War and Technology](https://www.imf.org/en/publications/weo/issues/2026/07/08/world-economic-outlook-update-july-2026)",
    "[https://www.imf.org/en/publications/gfsr](https://www.imf.org/en/publications/gfsr)",
    "[Global Financial Markets Confront the War in the Middle East and Amplification Risks](https://www.imf.org/en/publications/gfsr/issues/2026/04/14/global-financial-stability-report-april-2026)",
    "[https://www.imf.org/en/publications/fm](https://www.imf.org/en/publications/fm)",
    "[Fiscal Policy under Pressure: High Debt, Rising Risks](https://www.imf.org/en/publications/fm/issues/2026/04/15/fiscal-monitor-april-2026)",
    "[https://www.imf.org/en/publications/reo](https://www.imf.org/en/publications/reo)",
    "[Asia and Pacific](https://www.imf.org/en/publications/reo/apac)",
    "[Europe](https://www.imf.org/en/publications/reo/eu)",
    "[Middle East and Central Asia](https://www.imf.org/en/publications/reo/meca)",
    "[Sub-Saharan Africa](https://www.imf.org/en/publications/reo/ssa)",
    "[Western Hemisphere](https://www.imf.org/en/publications/reo/wh)",
    "[https://www.imf.org/en/publications/areb](https://www.imf.org/en/publications/areb)",
    "[Getting to Growth in an Age of Uncertainty](https://www.imf.org/en/publications/areb/issues/2025/09/24/annual-report-2025)",
    "[More Publications](https://www.imf.org/en/publications)",
    "[Read the Article IV](https://www.imf.org/en/Publications/CR/Issues/2022/01/26/El-Salvador-2021-Article-IV-Consultation-Press-Release-Staff-Report-and-Statement-by-the-512245)",
    "[The IMF and El Salvador](https://www.imf.org/en/Countries/SLV)",
    "[Crypto-assets as National Currency? A Step Too Far](https://blogs.imf.org/2021/07/26/cryptoassets-as-national-currency-a-step-too-far/)",
    "[anti-money laundering and combating the financing of terrorism](https://www.imf.org/en/About/Factsheets/Sheets/2016/08/01/16/31/Fight-Against-Money-Laundering-the-Financing-of-Terrorism)",
    "[https://www.imf.org/en/home](https://www.imf.org/en/home)"
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