El Salvador Defy IMF Deal, Buys More Bitcoin To Boost Holdings

The El Salvador government faces restrictions under a new deal with the International Monetary Fund (IMF). The country that made Bitcoin a legal tender must limit its crypto activities as part of a financial aid program. However, President Nayib Bukele remains committed to the Bitcoin strategy, continuing to add BTC to the nation’s holdings.

IMF Approves $1.4 Billion Deal but With Conditions

The IMF approved a $1.4 billion Extended Fund Facility for El Salvador, expected to last over 40 months. This fund aims to help fix the nation’s economy and support its growth. Reportedly, $113 million has already been paid as first payment.

However, the deal bans the government from buying Bitcoin. President Nayib Bukele remains committed to crypto, recently adding 19 BTC to the country’s holdings. This came after the country bought 7 BTC on February 24 amid a crypto market downturn.

IMF Deal Ends With El Salvador Legal Tender Status

El Salvador gained global attention for making Bitcoin an official currency in 2021. However, the IMF says most people in the country rarely use it. The agency asserted that its unstable price movement and lack of public trust have made it unpopular for everyday payments.

Meanwhile, the country’s financial system has not been affected by Bitcoin, but very few tax payments have been made using it. In late January, El Salvador’s Council approved the amendment to its Bitcoin Law. 

This aligned with conditions set by a $1.4 billion loan agreement with the IMF. As part of the deal, citizens can no longer pay taxes using the digital asset. Also, businesses no longer have to accept Bitcoin as payment. Now, they can decide whether to use it or not. 

El Salvador’s Future Economic Outlook

The IMF’s plan aims to strengthen El Salvador’s economy by cutting government spending by 3.5% of GDP over three years. It focuses on reducing salary costs while still supporting social programs. These changes aim to improve the country’s financial stability.

Due to better security and reforms, the economy is expected to grow by 2.5% to 3% in the coming years. By 2029, debt should fall to 81% of GDP, reducing the country’s need to borrow money. The IMF hopes these changes will bring long-term financial stability, even if El Salvador has to slow down its Bitcoin plans. 

Meanwhile, El Salvador is looking for investments in areas other than crypto. It recently passed a new law to support the growth of artificial intelligence (AI). President Nayib Bukele’s government believes this will attract new technology and more investors to the country.