Key Takeaways:
- The Executive Board of IMF concluded Article IV consultation with El Salvador.
- Covid interrupted the growth of the country.
- Adoption of digital currency as legal tender may arise complications.
On January 24, The Executive Board of the International Monetary Fund (IMF) closed the Article IV consultation with El Salvador.
Due to the pandemic, the country’s growth has been stagnant, but El Salvador is now picking up the pace. External solid demand, resilient remittances, and a sound administration of the pandemic, along with the help of payment under the Rapid Financing Instrument (SDR287.2 million or US$389 million) approved in April 2020, are the factors helping the country to get back on track.
As a result, the economy collapsed in 2020 by 7.9 per cent, which is predicted to grow by about 10 per cent in 2021 and by 3.2 per cent in 2022.
In this situation, a public obligation arises. Continous fiscal deficiency and high debt service are also causing expanding and enormous financing needs. The fiscal deficiency is predicted at 5¾ per cent of GDP in 2021 and almost about 5 per cent of GDP in 2022. The public debt is expected to increase under persisting policies to about 96% per cent of GDP in 2026 on an unbalanced path.
The government has adopted Bitcoin as a legal tender since September 2021. The adoption poses considerable risks for financial and market integrity, financial stability, and consumer protection. It can also create additional liabilities.
