IMF Engages With El Salvador on Bitcoin and Economic Policies

An International Monetary Fund (IMF) mission issued a statement on Tuesday after months of discussions with Salvadoran authorities regarding policies

El Salvador has made progress in its negotiations with the International Monetary Fund (IMF) on policies to strengthen public finances, boost bank reserves, improve governance, and address bitcoin risks, an IMF mission said on Tuesday.

The Central American nation adopted bitcoin as legal tender in September 2021, becoming the first country to do so. The move has been part of a broader strategy to attract foreign investment and stimulate economic growth.

However, the IMF has raised concerns about the risks posed by bitcoin, particularly its volatility and potential impact on fiscal and financial stability.

“Progress has been made in the negotiations toward a Fund-supported program, focused on policies to strengthen public finances, boost bank reserve buffers, improve governance and transparency, and mitigate the risks from bitcoin,” the IMF said in a statement following the mission to El Salvador.

“On bitcoin, while many of the risks have not yet materialized, there is joint recognition that further efforts are needed to enhance transparency and mitigate potential fiscal and financial stability risks from the bitcoin project,” the IMF added.

The IMF said that agreements were reached on improving the primary fiscal balance by 3.5% of gross domestic product (GDP) over three years through fiscal consolidation, mainly by rationalizing the public wage bill.

The government will also maintain social and infrastructure spending, while plans to strengthen financial system reserve buffers will support private sector credit and growth, the IMF said, adding that the aim is to reduce reliance on domestic financing.

The IMF said that the El Salvadoran authorities and the Fund also agreed on the need for a multi-year strategy to enhance governance, transparency, and the investment climate.

“Legislative proposals to address corruption, money laundering, and procurement weaknesses are being prepared with international support,” the IMF said.

The IMF said that additional discussions on bitcoin and other key areas are needed.

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