El Salvador's international bonds experienced a significant surge, becoming top performers in emerging markets, after the International Monetary Fund (IMF) announced a staff-level agreement covering the country's second and third program reviews. Prices for Salvadoran sovereign bonds rose by as much as 1.42%, with bonds maturing in 2050 and 2052 gaining over one cent per dollar. This positive market reaction reflects increased investor confidence in El Salvador's financial outlook.
The agreement, reached on September 3, is expected to unlock approximately $140 million for El Salvador, pending approval from the IMF Executive Board and the completion of agreed prior actions. This $140 million is part of a larger $1.4 billion Extended Fund Facility (EFF) arrangement approved in early 2025. The initial disbursement from the EFF was around $113 million. The broader EFF program is designed to catalyze over $3.5 billion in additional multilateral support for El Salvador.
The IMF also provided an optimistic economic outlook for El Salvador, projecting 4.5% real GDP growth for 2026, building on a stronger-than-expected 3.9% growth in 2025. This growth is attributed to increased private consumption, investment, strong remittance flows, and a booming tourism sector. The IMF noted progress in addressing fiscal and external imbalances, strengthening reserves, and advancing structural reforms, while also being satisfied that El Salvador's continued Bitcoin purchases are financed by private donations rather than public funds.
While the improved security situation and increased investor confidence are credited for the economic upturn, the IMF program also necessitates austerity measures. Economists estimate around 15,000 state workers have been laid off since 2024, with labor unions putting the figure at 47,000 since President Nayib Bukele took office in 2019. Despite this, the IMF views the program as delivering positive results, enhancing resilience to shocks, and putting public debt on a firm downward path.
The next crucial step is the formal vote by the IMF Executive Board on the staff-level agreement. If approved, El Salvador will have successfully navigated three reviews of its EFF program. The market's positive response underscores the importance of IMF program compliance as a signal of country risk assessment for international creditors and investors.
