The Salvadoran financial system "is solid"

Thursday, May 17, 2018

From Central Bank of El Salvador

May 17, 2018

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The Board of the International Monetary Fund (IMF) confirms in its revision of Article IV corresponding to 2018, that the Salvadoran economy continues on a path of recovery and sustained economic growth. Likewise, it increases the potential growth of El Salvador by 2 tenths, placing it at 2.2%, showing that the economy in the short term has improved its capacity to produce goods and services.

The IMF details that the Salvadoran economy will remain in 2018 and 2019 with growth rates above its potential, in an environment of macroeconomic stability with low inflation, a moderate current account deficit and a solid financial system. Additionally, it identifies opportunities to continue strengthening growth and investment through the Productive Transformation Policy and structural reforms that increase competitiveness and the business climate.

The Board of Directors recognizes that the Salvadoran financial system is sound, with a good asset quality (low delinquency and that widely provisions its past due portfolio) and with high levels of liquidity, for which the role of the Central Bank as regulator of the Financial System has been fundamental. In this context of ample liquidity, the IMF indicates that there are opportunities to expand the granting of loans to productive sectors.

The agency highlights the efforts made by the country in terms of financial inclusion, risk-based and cross-border supervision, and recommends accelerating the process of adopting the Banking Resolution Law, strengthening the financing of the lender of last resort of the Central Bank and creating a bank liquidity fund to improve the resilience of the banking system.

In its report, the IMF values ​​in a very positive way the political consensus in the economic sphere, such as the pension reform that reduces fiscal pressures in the medium term and the efforts made in fiscal matters that have been reflected in the improvement of the fiscal deficit .

Although the IMF considers it necessary to continue with fiscal consolidation measures due to medium-term financing needs, a part of the members of the Board of Directors consider it advisable to make an adjustment with greater graduality, due to its possible (negative) impact on economic growth. , which is in line with the analysis that the Central Bank has reiterated in different opportunities.

The Monetary Fund recognizes the positive impact of the "El Salvador Seguro" plan to reduce crime, as well as the Customs Union process with Guatemala and Honduras. Likewise, it appreciates the positive progress made by the Government of El Salvador in improving the business climate and competitiveness, which is reflected in the substantial improvement of 22 positions in the "Doing Business" classification in 2018.

The IMF Directors conclude by praising the substantial improvement in the quality and transparency of national accounts statistics with the disclosure of the new system that the BCR conducted in March 2018.

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