The International Monetary Fund (IMF) Executive Board has concluded its 2023 Article IV consultation with El Salvador. Despite facing adverse external shocks, the Salvadoran economy showed resilience, growing by an estimated 2.8% in 2022. Inflation reached 7.25%, largely driven by high global food prices, although fuel price inflation was moderated through subsidies. The country's international reserves have fallen below two months of imports, indicating mounting vulnerabilities.
The fiscal deficit narrowed to 2.5% of GDP due to limited financing options but is expected to widen again in 2023 as fiscal policy turns expansionary. Under current policies, public debt remains on an unsustainable path. Economic growth is projected at 2.4% for 2023; however, this outlook is considered fragile due to existing macroeconomic imbalances and a challenging international environment.
More than a year after Bitcoin was adopted as legal tender in El Salvador, its use remains minimal while risks to financial and market integrity persist.
The IMF's Executive Directors acknowledged the post-pandemic recovery supported by timely responses from authorities and improved security conditions. They highlighted the need for a comprehensive plan addressing macroeconomic imbalances such as unsustainable public debt and limited reserve coverage, along with structural reforms for stronger growth.
"Directors welcomed recent fiscal efforts but underscored the urgent need for an ambitious fiscal consolidation plan," they stated, emphasizing revenue mobilization and efficient spending.
They also noted that "the banking system remains healthy but cautioned against rising exposures to the sovereign and erosion of liquidity buffers."
Regarding Bitcoin, Directors recommended narrowing its legal scope: "Directors underscored the importance of narrowing the scope of the Bitcoin law and removing Bitcoin’s legal tender status."
Additionally, they stressed structural reforms to improve governance and productivity: "Directors stressed the importance of structural reforms to strengthen governance, investment climate and productivity."