El Salvador, which made Bitcoin legal tender, faces restrictions under a new International Monetary Fund deal. President Nayib Bukele remains committed to the Bitcoin strategy despite the deal's conditions.
IMF Approves Deal 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 the 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 amid a crypto market downturn in February.
Bitcoin Status Changes in El Salvador
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, aligning it with conditions set by the IMF loan agreement. Citizens can no longer pay taxes using the digital asset, and businesses can now decide whether to accept Bitcoin as payment.
El Salvador's Economic Future
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, having recently passed a new law to support AI development.
Despite deal conditions with the IMF restricting crypto activity, El Salvador's government continues to adhere to its Bitcoin development strategy while seeking to attract new investments by fostering AI technology.
