IMF with Good Outlook for the Banking Sector

For the international organization, El Salvador's banking sector is well capitalized and is optimistic about the recent progress made in the area of cross-border banking supervision.

Friday, May 24, 2019

In order to further enhance the resilience of the banking sector, the authorities were encouraged to pass the bank resolution law, strengthen the emergency liquidity assistance framework, and ensure full compliance with the risk-based supervisory framework, among others, of the International Monetary Fund (IMF) after concluding its last visit to the country.

See "Less Taxes, More Credits"

From the IMF statement:

On May 22, 2019, the Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation withEl Salvador.

During the past decade El Salvador has made considerable strides in social development: poverty, inequality and migration to the U.S declined, especially after 2015, due to sustained social spending and a growing economy.

Fueled by strong domestic consumption and investment, real GDP grew by 2½ percent in 2018. The primary fiscal surplus increased to about 1 percent of GDP, driven by strong import tax revenues and one-off tax measures. Nevertheless, the rising interest bill offset the improvement in the primary balance, leading to a slight deterioration of the overall fiscal deficit. Public debt (including pensions) remained at about 70 percent of GDP at end-2018. The banking sector continued to be solid and used the remittance-fueled increase in deposits to expand credit to the private sector.

Real GDP is projected to grow at 2½ percent in 2019 and converge to its potential of 2.2 percent over the medium-term, in line with the global growth outlook. Inflation is expected to remain anchored at 1 percent, and remittances growth will decline to its long-term rate. Public debt would drift upwards under the baseline, as the fiscal balance will deteriorate due the expected loss in temporary revenues and a rising interest bill.

Downside risks to the outlook stem from weaker-than-expected global growth, rising protectionism, and domestic policy slippages, especially if spending measures are adopted without identifying appropriate funding resources. On the upside, global financial conditions may tighten less than expected.

Executive Board Assessment

Executive Directors commended the authorities’ policies that contributed to the strong macroeconomic performance and a decline in poverty and inequality. Noting that risks remain tilted to the downside, Directors emphasized the need for prompt fiscal adjustment to reduce the high public debt, and structural reforms to raise potential growth, including measures to combat crime, improve governance, and reduce poverty.

Directors welcomed the authorities’ fiscal consolidation efforts and the fiscal laws recently passed by the Legislative Assembly, including the revised Fiscal Responsibility Law. In view of the high public debt and the large financing needs, Directors called for the authorities to adopt frontloaded fiscal measures to put debt on a firmly declining path, while noting, in line with staff recommendations, that the measures should be calibrated in a growth-friendly way without adversely affecting social outcomes. In that context, Directors also stressed the importance of improving revenue collection and tax administration.

Directors commended the authorities’ efforts to improve the business environment and competitiveness, including through the implementation of the El Salvador Seguro plan, regulatory improvements to complete the Northern Triangle customs union, and policies to help human capital formation. They noted that potential growth could be further raised by increasing investment in public infrastructure, including through public‑private partnerships, improving security, removing barriers to trade and investment, and reducing informality and the gender gap in labor force participation.

Directors noted that the banking sector is well capitalized and welcomed the recent progress in risk‑based and cross‑border banking supervision. To further improve the resilience of the banking sector, they encouraged the authorities to approve the bank resolution law, strengthen the emergency liquidity assistance framework, and ensure full compliance with the risk‑based supervision framework. Director also noted the importance of further promoting financial inclusion, including by expanding access to fintech services.

Directors supported the recently adopted measures to improve the governance, anticorruption and Anti-Money Laundering and Combating the Financing of Terrorism (AML/CFT) frameworks. Nevertheless, these frameworks should be strengthened further by enhancing fiscal transparency of the 2020 budget law, by improving the audit of fiscal operations, and establishing better spending controls. Directors recommended promptly implementing electronic invoicing, and also noted that changes to the anticorruption legal framework should be comprehensive, ensure harmonization of laws and consider the impact on the budget. 

Market Intelligence

Everything about exports and imports in El Salvador.

Top companies - Quantities, amounts and prices.

more info

More on this topic

Business Environment Improves in El Salvador

November 2019

For the IMF, the Salvadoran authorities are dealing firmly with crime and corruption and are beginning to improve the business environment in order to support economic growth.

In 2019, real GDP growth is expected to be 2.5% as a result of the solid confidence of the business sector, reported the International Monetary Fund (IMF) after its visit to El Salvador.

IMF: Panama will Grow 6% in 2019

January 2019

According to the international organization, the Panamanian economy will grow 6.3% this year, boosted by the recovery of the construction sector and the start-up of operations of a large mining project.

In the words of the International Monetary Fund (IMF), the Central American country's economy is projected to remain among the most dynamic on the continent, as the outlook remains positive.

El Salvador as seen by the IMF in May 2018

May 2018

The entity recognizes the continued economic recovery, but warns that potential growth is below the desirable level, debt remains high, and wide financing gaps are projected for 2019 and in the future.

From a statement issued by the IMF:

On May 11, 2018, the Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation with El Salvador.

IMF Warns El Salvador of Fiscal Crisis

July 2016

The IMF has insisted on the need for fiscal consolidation and warns that "if measures are not taken, the debt could rise to unsustainable levels."

From the press release by the IMF:

IMF Executive Board Concludes 2016 Article IV Consultation with El Salvador On June, 20, 2016, the Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation1 with El Salvador.

 close (x)

Receive more news about Banking

Suscribe FOR FREE to CentralAmericaDATA EXPRESS.
The most important news of Central America, every day.

Type in your e-mail address:

* Al suscribirse, estará aceptando los terminos y condiciones

Tailor made software for construction companies

O4Bi is a system that allows to control and manage what a company needs: the complete process of development of works, accounts receivable, treasury, banks, sales and accounting.
O4Bi is a very robust system that allows to control and...

Stock Indexes

(Apr 6)
Dow Jones
S&P 500


(Dec 13)
Brent Crude Oil
Coffee "C"