El Salvador gets $389 mln in emergency aid from IMF

El Salvador gets $389 mln in emergency aid from IMF

Corporate & Sovereign Strategy Economy & Policy El Salvador Latin America Central America Coronavirus

Editor's note: LatinFinance's Daily Brief newsletter is making some of its most important coronavirus-related material freely available to all readers. Visit our coronavirus section for all our coverage and sign up to receive the Daily Brief email in your inbox every morning.

The International Monetary Fund (IMF) on Tuesday granted El Salvador's request for $389 million in emergency financial assistance under its Rapid Financing Instrument (RFI) program in order to underpin its health care system as it fights the coronavirus pandemic.

This is the first time in over three decades that the IMF has disbursed money to El Salvador under a lending arrangement, the multilateral lending institution said in a 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," Mitsuhiro Furusawa, deputy managing director and acting chair said.

Furusawa said the spending would result in a temporary widening of the Central American nation's budget deficit, but that it was necessary to preserve public health and contain the economic impact of the pandemic.

By allowing El Salvador the flexibility to preserve macroeconomic stability now, the extraordinary measures will likely lapse next year if the pandemic ends and there will be a commitment to gradual fiscal adjustment starting in 2021.

"Such strategy should target a primary fiscal balance of 3.5% of GDP by end-2024 and put public debt on a firmly declining path to reach 60% of GDP by 2030, ensuring compliance with the Fiscal Responsibility Law,” he said.