(Bloomberg) -- El Salvador has a high chance of striking a staff-level agreement with the International Monetary Fund next month for about $1.4 billion, people familiar with the negotiations said.
President Nayib Bukele is seeking to finalize terms for the three-year program after staff from the Washington-based lender visits the country in December, according to the people, who spoke on the condition of anonymity because the agreement has not been finalized.
The nation’s dollar bonds edged higher on the news, with notes due in 2041 rising 0.2 cents to 89.8 cents on the dollar, the highest since 2021, according to indicative pricing compiled by Bloomberg.
A deal, which wouldn’t be final until the IMF’s board signs off, would likely require El Salvador to cut spending and increase revenue in a fiscal adjustment equivalent to about 3.5 percentage points of gross domestic product, one of the people, a senior official in the El Salvador government, said. An adjustment of about 1.5% of GDP would come in the first year of the program.
Separate to the IMF funds, El Salvador would be eligible for additional loans of about $1 billion from the World Bank and about $800 million from the Inter-American Development Bank, the person said.
Bukele’s government has repeatedly talked up the likelihood of a deal in the three years since negotiations started. But negotiations have stalled as the IMF objected to El Salvador’s use of Bitcoin as legal tender in 2021.
Last week, Bloomberg reported the two sides were inching closer to an agreement and that the Fund was set to send a mission to the country early next month.
An IMF spokesperson said in a written response to questions that a staff mission is planned for December as “part of our ongoing engagement with the Salvadoran authorities with the objective of reaching an agreement on a potential new Fund-supported program.”
Representatives for the World Bank and the Inter-American Development Bank declined to comment.
Last month, the IMF’s director of communications Julie Kozack said the lender had recommended “a narrowing of the scope of the Bitcoin law,” stricter regulations and less public sector exposure to the coin.
While the government has accumulated the cryptocurrency as reserves — it says it owns 5,940 Bitcoin, worth more than half a billion dollars at current price — nearly all Salvadorans have stuck to using the US dollar in their daily lives. This year, the Fund said that “many of the risks have not yet materialized.”
The country sold $1 billion in 30-year bonds last week. The nation’s debt has outperformed on the expectation of an IMF loan, returning 20% to investors in the last three months, according to data compiled by Bloomberg.
Donald Trump’s election victory also lifted the notes as traders wager Bukele will leverage his relationship with the next US president to close an IMF deal.
(Updates with bond move in third paragraph and response from IADB in ninth paragraph.)
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