El Salvador gets emergency funds from IDB

El Salvador gets emergency funds from IDB

Loans Coronavirus Debt Economy & Policy Bonds El Salvador Central America US

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El Salvador has secured $250 million in emergency financing from the Inter-American Development Bank (IDB) to fund efforts to contain the COVID-19 health crisis.

The seven-year loan, granted through the IDB's special financing for development line, comes with a three-year grace period and carries a spread of 115 basis points over Libor, according to documents from the development bank in Washington DC.

As the coronavirus outbreak spread to Central America, El Salvador "adopted prompt and urgent measures to address the pandemic" by declaring a state of emergency, imposing travel restrictions and drafting an economic relief plan that includes cash payments to low-income families, according to the IDB.

El Salvador also formed a $2 billion fund, equal to 8% of GDP, to pay for the response to the pandemic. To raise money for the fund, the government plans to issue $841 million in cross-border bonds to go along with $1.16 billion from multilateral lenders, including $500 million from the IDB.

The country has already secured $389 million from the International Monetary Fund (IMF) and it is working on a $220 million loan from the World Bank, $50 million from the Central American Bank for Economic Integration (CABEI) and another $250 million facility from the IDB.

El Salvador issued $440 million in one-year treasury notes to yield 11% in the local market on March. In its last cross-border bond deal in July last year, the country printed $1.1 billion in 30-year notes to yield 7.12%, "illustrating the sudden deterioration in terms for access to finance," the IDB said.

El Salvador's economy is expected to shrink 5.4% in 2020 due to the pandemic, followed by a recovery of 4.5% in 2021, according to the IMF.