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El Salvador: IMF Completes Second Review Under Stand-By Arrangement

The Executive Board of the International Monetary Fund (IMF) has completed its second review of El Salvador’s economic performance under a program supported by a three-year Stand-By Arrangement. The decision was taken on a lapse of time basis (a process where the Board agrees that a proposal can be approved without convening formal discussions). The arrangement was approved on March 17, 2010 in the amount of SDR 513.9 million, equivalent to 300 percent of the country’s quota in the IMF (see Press Release No. 10/95). The Salvadoran authorities are treating the arrangement as precautionary.

The Salvadoran economy has begun to recover from the impact of the global slowdown, albeit at a moderate pace; inflation remains low; and financial stability has been maintained. Fiscal policy has helped mitigate the effects of the economic downturn by protecting social priorities, and all performance criteria were met. For 2011, improved prospects for external and domestic demand are expected to lift output growth, although high global fuel and food prices will increase inflation and the external current account deficit.

The economic program for 2011 aims at achieving further progress in fiscal consolidation. The decline in the overall fiscal deficit envisaged for 2011 will continue to support the economic recovery and stabilize the public debt. At the same time, efforts to upgrade revenue administration and maintain expenditure control, along with projected savings from an improved targeting of subsidies, will enhance space for priority social spending. In the financial sector, the program envisages the integration of the supervisory agencies, shifting to risk-based supervision, and broadening the central bank’s capacity to provide liquidity. The government also plans to foster long-term financing to productive sectors through several new initiatives.