- Bitcoin Exposure Remains Fault Line in El Salvador’s US$1.4bn IMF Programme
The International Monetary Fund has approved an immediate US$138m disbursement to El Salvador after completing two reviews of the country’s economic programme, even as missed commitments on Bitcoin accumulation required waivers from the Fund’s Executive Board.
The decision brings El Salvador further into a US$1.4bn, 40-month Extended Fund Facility approved in February 2025 and reinforces the uneasy policy settlement between President Nayib Bukele’s administration and the IMF over the state’s involvement in cryptocurrency.
Economic activity has performed better than anticipated, supported by improved security, stronger investor confidence and progress in correcting fiscal and external imbalances. The IMF expects real gross domestic product to grow 4.5 per cent in 2026, up from an estimated 3.9 per cent in 2025, before moderating to 4 per cent in 2027.
But the Fund’s decision also underlines that El Salvador’s improving economic performance has not eliminated concerns about high public debt, weaknesses in financial oversight and the government’s exposure to Bitcoin.
“The state’s involvement in Bitcoin-related activities is being unwound while related regulations are enhanced,” Dan Katz, the IMF’s First Deputy Managing Director, said following the Executive Board meeting.
The transfer of majority ownership and control of Chivo, the government-backed cryptocurrency wallet, to a private operator was described by the IMF as a welcome step. The Fund said the remaining public-sector exposure should be fully eliminated and that no additional Bitcoin purchases were expected beyond documented donations.
That language is significant because the government failed to meet one of the programme’s performance criteria relating to Bitcoin accumulation. The IMF granted a waiver after what it described as “strong corrective measures and renewed commitments”.
The waiver allows the programme to continue, but it also makes Bitcoin policy a test of credibility. El Salvador became the first country to make the cryptocurrency legal tender in 2021, turning the asset into a prominent symbol of Mr Bukele’s economic agenda.
Under the IMF-supported programme, however, the government is moving towards a more limited role. The shift suggests that access to multilateral financing, lower sovereign borrowing costs and stronger external buffers are now taking precedence over direct state participation in the crypto market.
“Priority should be given to enhancing the transparency and disclosure of public-sector crypto-asset holdings,” Mr Katz said, adding that regulation, supervision and governance for crypto providers should be improved through amendments to the Digital Asset Issuance Law.
The IMF’s assessment presents an economy expanding faster than initially expected. Improved security has supported domestic commerce, tourism and investment, while sovereign spreads have fallen markedly.
Gross international reserves are projected to rise from US$4.81bn in 2025 to US$5.35bn in 2026 and US$6.17bn in 2027. Net foreign assets of the financial system are also expected to increase from US$4.47bn to US$5.59bn over the same period.
Private-sector credit is projected to reach 68 per cent of GDP in 2026, compared with 64.4 per cent in 2025, reflecting stronger financial activity. Private fixed investment is expected to remain above 24 per cent of GDP.
Yet the fiscal position remains fragile. Gross public debt is forecast to decline from 87.6 per cent of GDP in 2025 to 85 per cent in 2026, before rising to 89.2 per cent in 2027.
The projected increase in 2027 is partly linked to the recognition of US$2.3bn in accrued but unpaid interest owed to private pension funds. This accounting adjustment is expected to contribute to a widening of the overall fiscal deficit to 7.7 per cent of GDP in 2027, from a projected 2.3 per cent in 2026.
The figures illustrate the difference between achieving short-term fiscal improvement and placing public debt on a durable downward path.
“Sustained fiscal consolidation remains essential to place public debt firmly on a downward trajectory and safeguard the debt anchor,” Mr Katz said.
The IMF wants the government to generate higher primary surpluses through stronger revenue administration, continued spending restraint and delayed reforms to the pension system and civil service.
The primary balance is projected to improve from a surplus of 1.9 per cent of GDP in 2025 to 2.9 per cent in 2026 and 3.7 per cent in 2027. Tax revenue is expected to rise to 22.9 per cent of GDP by 2027, from 21.9 per cent in 2025.
Delivering those targets will require politically difficult reforms. Pension changes can affect retirement benefits and government liabilities, while civil-service reform may involve tighter payroll management and changes to public employment.
El Salvador’s external position is also improving, but not without vulnerabilities.
The current-account deficit is projected to widen from 3.5 per cent of GDP in 2025 to 4.8 per cent in 2026 before narrowing to 3 per cent in 2027. The trade deficit is forecast at 31.3 per cent of GDP this year, reflecting the country’s heavy dependence on imports.
Large inward transfers, projected at 26.1 per cent of GDP in 2026, continue to provide an important cushion. These flows, dominated by remittances, support household consumption and help finance the country’s substantial trade imbalance.
The IMF is urging the authorities to continue building reserves and maintaining adequate liquidity buffers in the banking system. It has also called for stronger supervision of financial institutions, including co-operatives and state-owned financial entities.
Reducing the connection between banks and government debt known as the sovereign-bank nexus is another priority. High bank exposure to sovereign liabilities can transmit fiscal stress directly into the financial system.
The Fund also wants El Salvador to modernise its central bank law, strengthen public financial management and improve the quality and timeliness of external-sector statistics.
The IMF said progress had been made in fiscal transparency, financial-sector resilience, anti-money laundering controls and governance. Nevertheless, implementation difficulties remain, particularly in delayed pension and civil-service reforms.
“El Salvador’s economic programme . . . has been delivering tangible benefits,” Mr Katz said. “Amid heightened external uncertainty, decisive programme implementation and strong contingency planning remain essential.”
The government must now demonstrate that stronger growth and improved security can be converted into lasting fiscal resilience.
The US$138mn disbursement confirms that the IMF considers the programme broadly on course. But the decision to grant waivers over Bitcoin also shows that confidence remains conditional.
El Salvador has won recognition for faster growth, rising reserves and narrowing sovereign spreads. Its harder task will be reducing debt without weakening social protection, rebuilding financial buffers while supporting credit and withdrawing the state from cryptocurrency without undermining the political narrative that made Bitcoin central to its international identity.
The next phase of the programme will therefore be judged less by another tranche of IMF financing than by whether El Salvador can convert a period of strong momentum into durable economic stability.
