New Delhi

The International Monetary Fund announced on Tuesday that it has reached "preliminary understandings" with El Salvador to make economic growth and fiscal stability more forceful. This step will set up a Fund-supported program to strengthen public finances, beef up bank reserve buffers, enhance governance and transparency, and address the risks associated with bitcoin.

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It also highlighted the progress of the negotiations, referring to a set of policies that will strengthen El Salvador's primary balance by about 3.5 per cent of GDP within three years. According to them, fiscal consolidation will be achieved through measures like the rationalisation of the public wage bill. This has therefore oriented it toward being fiscally sustainable.

While the IMF has repeatedly expressed reservations about El Salvador’s use of Bitcoin as legal tender, discussions acknowledge that there are grounds for improved transparency and measures to mitigate potential fiscal and financial stability risks. “While many of the risks have not yet materialised, 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 Fund said.

Work on the program for strengthening reserve buffers in the financial system was furthered. This plan should make it possible to maintain more resilience against economic shocks and support the overall stability of the financial sector. Moreover, the parties have agreed on measures aimed at strengthening governance and transparency, which are meaningful to retain investor confidence and foster sustainable development.

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This IMF preliminary agreement with El Salvador reflects cooperation in finding solutions to the economic issues of the country. El Salvador will work on fiscal policies with a robust and sound financial system, resisting governance practices in pursuit of sustainable economic growth and stability in a financial world filled with looming risks.