## El Salvador's Comeback Constrained by Increased Risks

_IMF News, February 16, 2022_

## Source details

**Canonical URL:** [El Salvador's Comeback Constrained by Increased Risks](https://www.imf.org/en/news/articles/2022/02/15/cf-el-salvadors-comeback-constrained-by-increased-risks)

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## Bibliographic details
- Published: February 16, 2022

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### Economic rebound and near-term projections
- 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:
  - A pick-up in external demand.
  - 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.
  - 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.
- US real GDP growth is an important growth driver because of the large Salvadoran diaspora.

### Medium-term outlook and constraints
- 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:
  - Persistent budget deficits and continuous expansionary fiscal policies during a strong economy have resulted in a rapidly growing public debt-to-GDP ratio.
  - Higher borrowing costs demand more budget resources to service debt, crowding out private investment and limiting resources for social and infrastructure spending.
- Consequences if unchecked:
  - Public debt will continue to grow.
  - Reduced fiscal space for the authorities’ social and inclusive growth agenda.
  - Increasingly difficult policy choices and elevated risks.

### Fiscal policy recommendation
- 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.

### Risks and policy options related to Bitcoin and digital payments
- 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:
  - Financial stability:
    - Banks and other financial institutions could be exposed to massive fluctuations in crypto-asset prices.
    - Banks will need new prudential rules, such as capital and liquidity requirements, to fully hedge Bitcoin exposures or ban deposits in Bitcoins.
    - Because the payments ecosystem is highly concentrated in Chivo, strengthening its regulation and supervision is recommended.
  - Financial integrity:
    - Crypto assets could facilitate illicit money, terrorism financing, and tax evasion due to anonymity.
    - Theft or cybercriminal activity could jeopardize system stability and relationships with foreign countries and correspondent banks.
    - Anti-money laundering and combating the financing of terrorism requirements are not uniformly implemented; much is left to the discretion of Bitcoin-service providers.
    - International standards for virtual asset providers are needed; IMF recommends more intense and uniform regulation for all entities.
  - Consumer protection:
    - Households and businesses holding Bitcoin balances could lose wealth through large swings in value; cybercrime and theft are additional risks.
    - With a quarter of the population already living in poverty, Chivo’s use should not lead to further destitution.
    - Recommended measures:
      - (i) Strengthen legal requirements for e-wallets, particularly Chivo, to fully safeguard users' funds (in both Bitcoins and US dollars).
      - (ii) Set legal limits on Bitcoin transactions and holdings.
      - (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.
  - Contingent fiscal liabilities:
    - Adoption of Bitcoin as legal tender is fully funded by public money through a trust fund.
    - If the price of Bitcoin were to plummet, the trust could be rapidly depleted.
    - 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.

### Policy options to restore market confidence
- The IMF has proposed policy options aimed to:
  - Restore confidence of the market.
  - Ensure sufficient resources to service the country’s debt.
  - Finance large development needs.
- Urgent and decisive policy action is emphasized to avoid compounding future policy difficulties and risks.

### El Salvador Country Team
- 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

*By the El Salvador country team, IMF Western Hemisphere Department; February 16, 2022.*

---


## References

- [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)

_Source: https://www.imf.org/en/news/articles/2022/02/15/cf-el-salvadors-comeback-constrained-by-increased-risks_