El Salvador Secures $1.4 Billion IMF Loan Agreement

TLDR

• IMF approves $1.4 billion loan for El Salvador’s economic reforms.
• Compliance deadline set for end of 2025 regarding Bitcoin activities.
• Government to gradually reduce its role in Bitcoin transactions.

El Salvador and the International Monetary Fund (IMF) have reached a significant point in their negotiations with a staff-level agreement on a $1.4 billion Extended Fund Facility (EFF) loan. Discussions have focused on mitigating risks associated with Bitcoin, selling the government e-wallet Chivo, and establishing a compliance deadline by the end of 2025. President Nayib Bukele of El Salvador, who declared Bitcoin as legal tender in 2021, spearheads the country’s Bitcoin initiatives.

The IMF’s engagement with Salvadoran authorities has revolved around fiscal consolidation and reforms related to Bitcoin. This deal is significant as it involves a substantial financial package over 40 months to bolster El Salvador’s reserves and support ongoing economic reforms, including efforts to reduce fiscal deficits.

Key Negotiations and Sale of Chivo Wallet

A major aspect of the agreement involves advanced negotiations for the sale of Chivo, the government e-wallet. The discussions also focus on enhancing transparency, safeguarding public resources, and mitigating potential risks associated with Bitcoin. The IMF has emphasized the need for El Salvador to align with Fund policies, particularly in reducing Bitcoin-related risks.

Other stipulations include voluntary acceptance of Bitcoin by the private sector and confining the public sector’s participation in Bitcoin-related activities. Importantly, taxes will be paid exclusively in U.S. dollars, and the government’s involvement in the Chivo wallet will be gradually reduced.

Fundamental Changes in Bitcoin Reforms

The confirmed changes mark a shift in El Salvador’s Bitcoin policy approach. A previous IMF demand in August 2024 called for scaling back these policies, mentioning that the risks had not yet materialized. In December 2024, El Salvador agreed to halt Bitcoin purchases and to end the mandatory acceptance of Bitcoin by merchants, in exchange for the loan approval.

The government’s role in Bitcoin activities will be fortified by newly passed legal reforms as of February 2025, which are expected to increase regulation. This decision comes as part of efforts to revise the Bitcoin law’s scope and limit public sector exposure. The changes aim to maintain Bitcoin as part of the financial framework while adhering to broader fiscal consolidation goals.

Compliance Deadlines and Future Developments

As part of the agreement with the IMF, El Salvador has been given until the end of 2025 to meet the compliance requirements related to Bitcoin-related activities. This includes all regulatory, transparency, and fiscal reforms outlined in the negotiations.

The involvement of the IMF represents a structured approach to handling macroeconomic challenges while integrating Bitcoin into El Salvador’s financial system. The focus remains on fiscal consolidation, with a 2026 budget targeting deficit reduction. This outlines El Salvador’s commitment to aligning with IMF’s framework and ensuring sustainable economic growth.

For more information on El Salvador’s engagement with the IMF, see the full report on the Extended Fund Facility agreement.

El Salvador’s groundbreaking move in 2021 to declare Bitcoin as legal tender was spearheaded by President Nayib Bukele. This was part of a wider vision to advance the country’s digital economy through cryptocurrency initiatives, encapsulating both opportunities and regulatory challenges. More details can be found on the Bitcoin adoption in El Salvador.