The International Monetary Fund (IMF) has approved A new 40-month regulation under the extensive fund facility (EFF) for El Salvador, which offers access to around $ 1.4 billion to increase the growth prospects of the country and tackle macro-economic imbalances.
A new report published On 3 March, the company of El Salvador will follow from important policy reforms, including restrictions on its Bitcoin project.
The IMF of 111 pages report States ‘Bitcoin’ a total of 221 times, while Bukele is only mentioned eight times and the US dollar 82 times.
The approval of the board of directors allow immediate payment of around $ 113 million, with the scheme expected to catalyze extra financial support of more than $ 3.5 billion during the program period.
Bitcoin -restrictions central in accordance
The historical agreement marks a crucial compromise for the Bitcoin initiative of President Nayib Bukele. As was announced last month, the legislative reforms of El Salvador limit the scope of the Bitcoin Act of the country by removing the compulsory acceptance requirements of the digital assets for the private sector and prohibiting tax payments in Bitcoin.
However, the latest report further limits the involvement of the government in Bitcoin-related economic activities, including Bitcoin transactions and purchases. The agreement determines improved regulations and supervision of digital assets in coordination with developing international practices.
Furthermore, the report prohibits every Bitcoin accumulation of the government, including mining BTC,
“Voluntary accumulation of bitcoins includes the purchase and extraction of bitcoins and excludes the accumulation of bitcoins as a result of forfeiture, seizure, fear, guardianship or other form of ownership or possession by the government resulting from legislative enforcement measures adopted in accordance with the Salvadoran law.”
“The potential risks of the Bitcoin project are being tackled in accordance with the fund policy,” said the IMF. Legal reforms have voluntarily made Bitcoin acceptance and ensure that tax payments take place exclusively in US dollars. The transparency of the public crypto e-wallet has been strengthened, whereby the government gradually takes plans for participation.
Economic reform package
The IMF-supported program is intended to stabilize the economic landscape of El Salvador through extensive measures that tackle persistent macro-economic challenges. Building on recent improvements in safety and economic growth, the program focuses on structural reforms to tackle tax sustainability.
“Building on recent progress, the IMF-supported program of the authorities is aimed at tackling macro-economic imbalances and strengthening the board and transparency, with the aim of stimulating the growth prospects and resilience of El Salvador,” according to the IMF press release.
According to the program, the primary balance of El Salvador is expected to improve by 3.5 percent of GDP for three years, initially through rationalization of the wage account and at the same time protect the priority of social and infrastructure expenditure. This tax consolidation can facilitate market access on favorable conditions, which may reinforce the sustainability of the debt.
Growth and recovery context
The IMF states that the steady economic expansion of El Salvador is supported by robust transfers and tourism after significant improvements in safety conditions. External deficits have been reduced, inflation has fallen and recent liability management activities have reduced financing needs in the short term.
The economic transformation of the country is largely due to dramatic safety improvements, with murder figures that fall from the highest in the western hemisphere to the lowest. This security improvement has powered economic recovery due to increased tourism and investments.
Despite recent profits, the IMF claims that El Salvador will continue to be confronted with substantial macro -economic challenges. The government debt is approximately 87 percent of GDP, with high interest costs that exert pressure on tax accounts. External buffers remain low and create vulnerability in view of the dollarized economy of El Salvador.
Market implications and prospects
The spreads of the sovereign bond of El Salvador are already considerably limited from more than 700 basic points at the end of 2023 to around 350 basic points for the announcement of the program. This compression reflects the growing market confidence in the policy direction of the country.
Successful implementation of the new program depends strongly on political involvement and public support. The Bukele government, which re-election by approximately 85 percent of the votes in February 2024, possesses considerably political capital to implement reforms, whereby its party has 54 of the 60 seats in the legislative meeting.
“Decisive property and implementation and broad political and public support will be crucial to guarantee the success of the program,” according to the IMF statement. “Agile policy -making and emergency planning will be essential to manage downward risks in the context of dollarization.”
However less than 24 hours agoPresident Bukele posted a screenshot of the Bitcoin reserves of the country that points to another 19 BTC purchase, which brought the total to more than 6,100 BTC.
Will this be the last Bitcoin purchase by El Salvador in 2025? Will the Bitcoin volcano mining come to an end?
Or will the President Bitcoin continue to support and defy the IMF, possibly forfeited billions to support?
