Contact the Central American Group to discuss investment opportunities in El Salvador.
El Salvador is currently in bilateral talks with the International Monetary Fund (IMF) and seeks to secure funding of approximately US $1.3 billion. The country’s Finance Minister believes that the prospect of new IMF funding for El Salvador represents a “golden opportunity” to revitalize the national economy. Efforts to secure these resources have been strengthened by the ruling party’s resounding victory in legislative elections, a high-ranking official said.
In a recent interview, Salvadoran Finance Minister, Alejandro Zelaya, told Reuters News Service that El Salvador is requesting that the IMF approve a 36-month extended line of credit similar to the program announced this week for Costa Rica. Under the agreement negotiated by Costa Rica and the IMF, the former has secured a 36-month credit agreement for approximately US $1.778 billion. Of this total, the IMF immediately released US $269.5 million to stabilize the Costa Rican economy.
IMF Funding for El Salvador is needed to fill gaps in the country’s budget
According to Zelaya, this type of IMF funding for El Salvador will help the country bridge the budget gaps of 2021, 2022, and 2023″ and help reduce the high costs associated with El Salvador’s existing national debt.
Central American dollar sovereign bonds soared Tuesday after President Nayib Bukele declared a crushing victory for his party and allies in Sunday’s vote. “What was achieved by the New Ideas party and President Bukele in the recent national assembly election is a golden opportunity for the Salvadoran economy to take off,” Zelaya said.
Fitch Ratings expressed this past Tuesday that the legislative elections’ outcome puts an end to the political impasse that has hampered policy implementation and undermined El Salvador’s ability to obtain external funding. Bukele is the first president elected since the 1980s who does not represent one of the main political parties ARENA and FMLN. Thus far, his presidency has been marked by conflicts with opposition parties that had a legislative majority and had restricted initiatives that the President has put forth
The legislative impasse led to excessive reliance on domestic market borrowing to meet the government’s high financing needs, which raised borrowing costs, the rating agency said.
Negotiations with the IMF have a positive effect on bond values
The value of the country’s dollar sovereign bonds recently soared after Zelaya first reported publicly that El Salvador was engaged in negotiations with the IMF for funding. Bonds due in 2029, 2034, and 2041 rose at least a penny to be traded on par or above, and those in 2034 traded at 100 for the first time in a year.
Zelaya expressed that IMF funding for El Salvador should make the country’s outstanding debt and public spending sustainable. By 2021 “we need financing of about $2 billion, including the short-term (debt) management plan,” he added.
A comprehensive reform of El Salvador’s retirement system is also needed so that pensions do not put more pressure on the government’s finances, Zelaya said.
While no agreement has been reached as of yet, the IMF funding for El Salvador could potentially include disbursement of up to US $450 million this year, in addition to previous $250 million commitments that the Inter-American Development Bank has made, as well as $200 million from the World Bank and $600 million from the Central American Bank for Economic Integration, he detailed.
Asked when the agreement with the IMF could be final, Zelaya replied that it was still too early to say. “We’re working to come to an agreement; it’s a two-way thing,” he explained.
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