Press Release No. 25/223

Washington, DC: The Executive Board of the International Monetary Fund (IMF) concluded El Salvador’s 2025 Article IV consultation^[1] and completed the first review of the Extended Fund Facility (EFF) arrangement. Completion of this review allows immediate disbursement of SDR 86.16 million (about US$118 million), bringing total disbursements under this arrangement to SDR 172.32 million (about US$231 million). The authorities have consented to the publication of this Staff Report.[2]

El Salvador’s 40-month EFF arrangement was approved by the Executive Board on February 26, 2025, with total access of SDR 1,033.92 million (about US$1.4 billion or 360 percent of quota). The program remains focused on strengthening public finances, rebuilding external and financial buffers, and enhancing governance and transparency frameworks to create the conditions for stronger and more resilient growth.

Program performance has been solid, with the economy continuing to expand as macroeconomic imbalances are being addressed. Key fiscal and international reserve targets were met with margins and progress continues with the ambitious reform agenda in the areas of governance, transparency, and financial resilience. Specifically, in the context of the first review, (i) a new Fiscal Sustainability Law has been enacted; (ii) a presidential decree limiting exceptions to the Procurement Law has been issued; (iii) financial information on the largest state-owned enterprises has been published; and (iv) information on public contracts has been made more accessible. Steps continue to be taken to mitigate Bitcoin associated risks and unwind the public sector’s participation in Chivo.

The 2025 Article IV consultation focused on policies to boost medium-term growth and resilience. Special attention was given to policies to support foreign direct investment, employment and exports, while considering the implications of a more challenging external backdrop.

Following the Executive Board discussion on El Salvador, Mr. Nigel Clarke, Deputy Managing Director and Acting Chair, issued the following statement:

“El Salvador’s economic program, supported by the Extended Fund Facility arrangement, had an auspicious start. Notably, the economy continues to expand, inflation has further moderated, and the current account deficit has narrowed amid efforts to address macroeconomic imbalances. Fiscal consolidation remains on track, external and financial buffers are being rebuilt, and governance and transparency reforms are proceeding in line with program commitments. In light of rising external risks, agile policy making and contingency planning remain essential to protect program objectives, including in the context of the dollarization regime.

“Efforts to strengthen public finances must continue, especially through a further rationalization of the wage bill and other current spending. Beyond this year, comprehensive reforms to the civil service and pension reforms are needed to safeguard fiscal consolidation and protect priority social and infrastructure spending. Meanwhile, continued efforts to mobilize official support will help further reduce reliance on bank and pension fund financing and support private sector credit.

“Sustained efforts are needed to rebuild financial sector buffers and enhance oversight and regulation. The steady implementation of the planned increases in banks’ reserve requirements and liquidity buffers is critical to enhancing resilience and preserving financial stability. These efforts should be complemented by enhancements in the oversight of banks as well as nonbank financial institutions.

“Steps to strengthen governance and transparency must continue. A consistent and evenhanded application of the new Anti-Corruption Law remains critical, alongside efforts to reinforce the AML/CFT framework in line with international best practices. Boosting confidence and investment requires elevating standards of fiscal reporting and transparency about public contracts, and improved access to public information. Focused efforts should be considered to support foreign direct investment and address infrastructure gaps, including through well-designed public-private partnerships and investor protection schemes.

“Bitcoin risks should continue to be mitigated. An early unwinding of the public sector’s participation in the government’s e-wallet (Chivo) remains critical, and efforts should continue to keep the public sector’s holdings of Bitcoin unchanged, and to improve the oversight of crypto assets to enhance consumer and investor protection.”

Executive Board Assessment[3]

Executive Directors agreed with the thrust of the staff appraisal. They commended the Salvadoran authorities for the strong ownership and satisfactory performance under the Fund‑supported program and welcomed the continued efforts to address macroeconomic imbalances. Directors noted, however, downside risks related to escalating global trade tensions and tighter immigration policies elsewhere, which could negatively impact remittances and growth. Against this backdrop, Directors emphasized the importance of sustaining the reform momentum to safeguard macroeconomic stability and durably address El Salvador’s longstanding structural challenges and encouraged the authorities to stand ready to activate contingency plans as needed.

Directors underscored the need to sustain fiscal consolidation by further rationalizing the wage bill and containing current expenditures to secure space for priority social and infrastructure spending and put debt firmly on a downward trajectory. They concurred that contingency measures to broaden tax revenues and streamline tax expenditures could also be considered. Directors welcomed the new Fiscal Responsibility Law and agreed that developing and implementing civil service and pension reforms and further strengthening public financial management are essential to underpin the fiscal adjustment over the medium term. Continuing to mobilize official external support would help reduce reliance on bank and pension fund financing and support private sector credit.

While noting that the financial system remains sound, Directors emphasized the importance of further rebuilding financial sector buffers and strengthening oversight and regulation. They agreed that implementing the new Financial Stability Law and improving the supervision and governance of nonbank financial institutions in line with best practices are also key. Directors encouraged mitigating risks from the use of Bitcoin and boosting the oversight of crypto assets. They stressed the need to unwind the public sector’s participation in the government e‑wallet (Chivo) and to not increase overall Bitcoin holdings by the public sector and underscored the importance of clear and consistent communication in this regard. Directors also emphasized the need to enhance the autonomy of the central bank and strengthen its capital position and boost international reserves.

Directors underscored the importance of advancing structural reforms to unlock El Salvador’s growth potential. They recommended further strengthening governance and transparency and, in this regard, encouraged enhancing the AML/CFT framework in line with FATF recommendations, securing the consistent and evenhanded application of the new anti‑corruption framework, and strengthening the transparency of public information, including in the procurement process. Noting that the improvements in domestic security offer a unique opportunity to further boost growth, Directors welcomed the authorities’ Long‑term Growth Strategy and encouraged reforms to raise productivity, improve the investment climate, and enhance financial inclusion. They welcomed ongoing efforts to reduce red tape and logistics costs, as well as plans to address large infrastructure and human capital gaps, with support of the private sector. Directors also encouraged strengthening resilience to climate‑related shocks.

It is expected that the next Article IV consultation with El Salvador will be held in accordance with the Executive Board decision on consultation cycles for members with Fund arrangements.

 

Table 1. El Salvador: Selected Economic Indicators

I. Social Indicators Rank in UNDP Development Index 2021 (of 189) 125   Population (million, 2022) 6.3 Per capita income (U.S. dollars, 2022) 5,366   Life expectancy at birth in years (2021) 71 Percent of pop. below poverty line (2021) 24.6   Gini index (2019)   39                 II. Economic Indicators (percent of GDP, unless otherwise indicated)   2020 2021 2022 2023 2024 (Est.) 2025 (Proj.) 2026 (Proj.) Income and Prices               Real GDP growth (percent) -7.9 11.9 2.9 3.5 2.6 2.5 2.5 Consumer price inflation (average, percent) -0.4 3.5 7.2 4.0 0.9 1.0 1.8 GDP Deflator (percent) 0.7 4.1 6.6 2.6 1.8 0.8 2.2                                 Money and Credit               Credit to the private sector 65.3 61.1 62.6 61.9 62.5 66.1 69.1 Broad money 69.4 60.9 58.0 59.5 58.8 59.1 58.1 Interest rate (time deposits, percent) 4.2 4.1 4.5 5.3 5.6 … …                 External Sector               Current account balance  1.1 -4.3 -6.7 -1.1 -1.8 -0.8 -2.1 Trade balance -20.2 -27.3 -30.0 -26.2 -26.9 -27.0 -26.0 Transfers (net) 24.0 26.1 24.5 24.2 23.7 25.2 23.0 Foreign direct investment (net) 0.0 -1.3 -0.4 -2.0 -1.8 -2.1 -2.3 Gross international reserves (mill. of US$) 3,083 3,426 2,696 3,081 3,706 4,252 4,762                 Nonfinancial Public Sector               Overall balance -8.2 -5.5 -2.7 -4.7 -4.5 -3.0 -2.1 Primary balance -3.8 -1.0 2.0 -0.1 0.0 1.9 2.9 Of which: tax revenue 18.3 19.9 20.1 19.8 20.6 21.2 21.2 Gross debt 1/ 95.4 88.0 83.7 85.1 87.5 88.0 86.6                 National Savings and Investment               Gross capital formation 17.2 23.4 24.5 20.7 20.3 22.0 21.6 Private fixed investment 2/ 14.7 21.0 19.3 18.8 19.4 19.7 19.7 National savings 18.3 19.0 17.7 19.6 18.6 21.1 19.5 Private sector 23.9 21.4 18.3 20.4 19.4 20.9 18.4                 Net Foreign Assets of the Financial System               Millions of U.S. dollars 3,618 3,022 1,488 1,565 2,298 2,442 2,730                 Memorandum Items               Nominal GDP (billions of US$) 24.9 29.0 31.9 33.9 35.4 36.5 38.3                 Sources: Central Reserve Bank of El Salvador, Ministry of Finance, and IMF staff estimates. 1/ Nonfinancial public sector, including CIP-A pension bonds. 2/ Excludes changes in inventories.

[1] Under Article IV of the IMF's Articles of Agreement, the IMF holds bilateral discussions with members, usually every year. A staff team visits the country, collects economic and financial information, and discusses with officials the country's economic developments and policies. On return to headquarters, the staff prepares a report, which forms the basis for discussion by the Executive Board.

[2] Under the IMF's Articles of Agreement, publication of documents that pertain to member countries is voluntary and requires the member consent. The staff report will be shortly published on https://www.imf.org/en/Countries/SLV.

[3] At the conclusion of the discussion, the Managing Director, as Chairman of the Board, summarizes the views of Executive Directors, and this summary is transmitted to the country's authorities. An explanation of any qualifiers used in summings up can be found here: http://www.IMF.org/external/np/sec/misc/qualifiers.htm.