IMF Executive Board Approves a US$389 Million Disbursement to El Salvador to Address the COVID-19 Pandemic
The Executive Board of the International Monetary Fund (IMF) approved El Salvador’s request for emergency financial assistance of about US$ 389 million (SDR 287.2 million, 100 percent of quota) under the Rapid Financing Instrument (RFI) to help the country meet the urgent balance of payments need stemming from the outbreak of the COVID-19 pandemic and direct funds swiftly to the country’s most affected sectors, including the healthcare system. This emergency financial assistance represents the first disbursement under an IMF lending arrangement to El Salvador in over three decades.
El Salvador has adopted strict measures to prevent and contain the pandemic since early February—even before the first case was diagnosed—including travel restrictions, mandatory quarantine for exposed citizens, suspension of non-essential public and private sector operations, and a nationwide shelter-in-place order. These containment measures coupled with the global economic downturn are expected to stall economic activity in the short term and cause a temporary deterioration in the country’s fiscal and external positions.
The authorities’ emergency response also comprises measures to mitigate the economic impact of the pandemic on the population, including through targeted cash transfers to vulnerable households and tax relief in the most affected economic sectors. IMF financing will help preserve fiscal space and catalyze significant funding from other multilateral institutions.
The IMF continues to closely monitor El Salvador’s situation and stands ready to provide policy advice and further support as needed.
Following the Executive Board’s discussion of El Salvador, Mr. Mitsuhiro Furusawa, Deputy Managing Director and Acting Chair, issued the following statement:
“The COVID-19 pandemic is severely impacting El Salvador, creating an urgent balance of payments need. The authorities have promptly adopted measures to mitigate the economic fallout from the pandemic, including by providing targeted cash transfers to vulnerable households and tax relief to affected firms. The IMF’s emergency financing under the Rapid Financing Instrument will provide much-needed liquidity to support the authorities’ response to the crisis, help finance increased health spending, and catalyze further assistance from other multilateral institutions needed to close the remaining financing gap and ease the adjustment burden. It is critical to ensure the timely deployment of the funds as well as their transparent accounting and reporting to guarantee their appropriate use.
“A temporary widening of the budget deficit is necessary to preserve public health and contain the economic impact of the pandemic. Macroeconomic stability should be preserved by allowing these temporary measures to lapse next year—once the pandemic is over—and by committing to a gradual fiscal adjustment starting in 2021. Such strategy should target a primary fiscal balance of 3½ percent of GDP by end-2024 and put public debt on a firmly declining path to reach 60 percent of GDP by 2030, ensuring compliance with the Fiscal Responsibility Law.”