May 31, 2020

The IMF warns El Salvador of "significant financial gaps" in the medium term

The International Monetary Fund (IMF) warned on Friday that there are "considerable" financial gaps that are approaching in the medium term in El Salvador, despite the fact that market conditions remain favorable.

A team from the financial institution, headed by Alina Carare, from the IMF's Western Hemisphere Department, culminated today a visit to San Salvador, started last November 4, to analyze the country's economic outlook, the 2020 budget and the agenda Government growth.

In a statement, the IMF said that "the approval of a solid budget and its timely financing will contribute to macroeconomic stability and strengthen the investment climate," in the face of medium-term financial gap projections.

During his trip, members of the Fund's mission met with Salvadoran President Nayib Bukele; Finance Minister Nelson Fuentes; the president of the Central Bank, Carlos Federico Paredes; the superintendent of the Financial System, Mirna Arévalo de Patiño, and the head of Economy, María Luisa Hayem, among others.

According to the note, at the end of the mission, Carare stressed that the country's economy grew 2.2% in the first half of the year and inflation was around zero.

"After falling in the second quarter, remittance growth returned to its 4% long-term rate," he added. "In 2019, real GDP growth is expected to be two and a half percent as a result of the strong confidence of the business sector. "

"In the medium term and under current policies, economic growth will converge to the estimated potential. The downside risks to the outlook are derived from weaker than expected global growth and deviations in national policy," he said.

Carare said these deviations could occur if spending measures are taken without previously identifying appropriate financing resources that do not involve borrowing.

"As for the rise, global financial conditions could prove to be more favorable than currently expected," he said.

The IMF added in the statement that the authorities in El Salvador are facing corruption and crime in a "firm" manner and that they are beginning to improve the business environment with a view to supporting growth.

On the other hand, the Fund recommended "a prudent fiscal adjustment", given that the interest growth differential remains considerable, at around 4% of GDP.

The Central Reserve Bank (BCR) of El Salvador expects GDP growth to be 2.3% at the end of 2019, despite the slowdown in the world economy and a lower dynamism of the local.

The economy of the Central American country registered a growth of 2.5% in 2018, compared to 2.3% in 2017, mainly due to the "dynamism" of construction, the exploitation of mines and quarries, and of administrative services activities, according to the BCR.

. (tagsToTranslate) IMF (t) Salvador (t) considerable financial (t) gaps (t)

Source link