The International Monetary Fund (IMF) is in discussions with El Salvador to address the macroeconomic and financial risks associated with Bitcoin. (BTC)

These talks aim to devise a comprehensive risk management strategy that will ensure the stability and growth of El Salvador’s economy while integrating Bitcoin as a legal tender.

Fiscal Stability Focus: IMF’s Plan with El Salvador

On August 6, the IMF released a statement highlighting the progress made in the ongoing negotiations. An IMF mission, led by Raphael Espinoza, engaged in both in-person and virtual discussions with Salvadoran authorities.

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The talks emphasized strengthening public finances, improving bank reserve buffers, enhancing governance, and increasing transparency. The IMF highlighted the need for El Salvador to strengthen its primary balance by approximately 3.5% of GDP over three years. This fiscal consolidation would involve rationalizing the public wage bill while allowing for essential social and infrastructure spending.

“Progress was also made on developing a plan to gradually strengthen financial system reserve buffers in a manner consistent with continued private sector credit and growth. This is also being supported by efforts to reduce the government’s reliance on domestic financing through the planned consolidation and potential support from the Fund and other multilateral development banks,” the IMF added.

The IMF and El Salvador acknowledged the potential fiscal and financial stability risks from the Bitcoin project. While many risks have not yet materialized, both parties agree that further efforts are necessary to enhance transparency and mitigate potential issues. These efforts include preparing legislative proposals to address corruption, money laundering vulnerabilities, and procurement weaknesses.

El Salvador adopted Bitcoin as its legal tender in September 2021 under President Nayib Bukele’s leadership. The IMF had previously warned that this move could raise significant macroeconomic, financial, and legal issues. Despite these concerns, the Salvadoran government has remained committed to its Bitcoin strategy.

Earlier this year, President Bukele announced a plan to implement the Dollar Cost Averaging (DCA) strategy, buying one Bitcoin daily. This approach aims to accumulate Bitcoin steadily, regardless of market conditions.

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Despite market volatility, El Salvador continues its Bitcoin purchases. The Bitcoin Office Mempool shows that the country maintains a significant Bitcoin reserve. As of August 8, El Salvador holds approximately 5,835 BTC, valued at around $334.04 million at current market prices.