IMF backs El Salvador reform drive as growth outperforms expectations

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IMF backs El Salvador reforms

Highlights

IMF First Deputy Managing Director Dan Katz states El Salvador's economic growth is outperforming expectations, supported by improved macroeconomic stability and private investment conditions.
President Nayib Bukele commits to prudent macroeconomic policies, ongoing reforms, and leveraging technologies like AI in public services to promote innovation and job creation.
IMF emphasizes the necessity of fiscal discipline and advancing pension and civil service reforms to safeguard fiscal sustainability and place public debt on a downward trajectory.

IMF assessment after San Salvador visit

As reported by the International Monetary Fund, First Deputy Managing Director Dan Katz says El Salvador is making notable progress in strengthening macroeconomic stability and improving conditions for private investment and job creation.

In a statement issued in San Salvador at the end of his visit, Katz says growth continues to outperform expectations and remains resilient despite recent shocks. He adds that sustained security improvements and continued implementation of the authorities' Fund-supported program are boosting confidence and helping to raise living standards.

Katz says President Nayib Bukele reiterates his commitment to prudent macroeconomic policies and to deepening reforms under the program. He says Bukele outlines a long-term vision focused on improving the business climate, promoting innovation and unlocking private investment and job creation.

The statement also points to the possible role of new technologies in public services, including AI initiatives in education and healthcare. Katz says such innovations could support stronger and broader growth if the reform effort continues.

Fiscal discipline and reform momentum remain central

Katz says maintaining fiscal discipline and reform momentum is essential to preserve the gains achieved so far. He adds that staying the course with fiscal consolidation and advancing reforms, particularly on pensions and the civil service, should help safeguard fiscal sustainability, rebuild buffers and place public debt firmly on a downward path.

He also says continued efforts to strengthen governance, improve transparency and enhance the business environment can further bolster confidence, investment and growth. The IMF says it remains committed to supporting El Salvador as the country works to turn recent progress into lasting improvements in living standards.

Our earlier article on Mario Draghi’s warning about the debt–inflation trade-off explained how keeping interest rates above growth for too long can worsen debt dynamics and fuel pressure for “fiscal dominance.” We also noted his call for central banks to fight inflation while avoiding unnecessary damage to productive investment, alongside complementary policies—such as market integration and targeted funding—to support innovation and AI-driven growth.

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