The government of El Salvador receives the visit of the Executive Board of the IMF together with various sectors of the country with the objective of evaluating the economy of the region. The meeting is part of the traditional visit, according to article IV of its constitutive agreement, which it maintains every year with the countries that comprise it.
The meeting was held after the nation’s president, Nayid Bukele, broke the news through the networks of having completed the payment of 800 million dollars in bonds that expired on January 24.
The IMF mission was headed by Raphael Espinoza, and representatives of different government entities and other sectors of the region participated, such as the Central Reserve Bank (BCR), the Ministry of Finance; businessmen, academics, unions, among others.
After compiling the information on the economy and finances of the Central American region, The IMF interdisciplinary team will prepare a report that will later be presented to the country’s authorities.
Alexander Zelaya, The Minister of Finance of El Salvador, when asked about this issue, stated that one of the points in the conversation with the International Monetary Fund is “delete the current section on pensions from the accounts of the non-financial Public Sector (SPNF)”.
“According to the accounts manual currently used in the country, it should now be treated as a budget operation, and not as a debt operation; it still needs to be validated with the International Monetary Fund,” said Finance Minister Alejandro Zelaya.
The debt of the Pension Obligations Trust (FOP), according to the latest report from the Ministry of Finance, as of November 2022, was in access to some USD6,089.2 million with regard to series A of Certificates of Pension Investment (CIP), which is equivalent to 19.1% of GDP, while the SPNF debt was for USD 24,102.7 million, practically 75.8% in relation to GDP.
The national executive said that, “in theory” the CIP would need to be discounted as it happens in other countriessuch as Costa Rica “that do not count in their external debt the pension debt or many others (countries) at the world level”he explained, further adding that, “Many countries have this same account system, it should be the same for El Salvador.”
He also indicated that he particularly believes that this pension accounting should have been included from the beginning in the Public Financial Sector of the region.
A possible agreement
In this context, it should be noted that the previous IMF report for 2022 highlighted that the emergency caused by the pandemic interrupted ten years of economic growth in the country, however, he stressed that the region reflected a quick recovery. According to the agency, external demand, the sending of remittances and emergency management contributed to this result, they detailed.
Nevertheless, They warned that with the use of bitcoin (BTC) there would be great risks for the consumer and the financial stability of the country. In addition, he stated that “vulnerabilities related to public debt emerged“, since the deficits between income and expenses were very persistent, and more and more interest has to be paid on the acquired debt.
“With current policies, public debt would rise to around 96% of GDP in 2026, on an unsustainable trajectory,” said the International Monetary Fund.
It should be noted that El Salvador has been carrying out this discussion since 2019 of a possible agreement with the IMF that could credit the region with a loan of up to 1.3 billion dollars to “clean up” its finances. Although, this agreement has not yet materialized, because to opt for it, the government would have to carry out certain adjustments and one of them is to adjust the Bitcoin Law.
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