El Salvador Secures $500M IDB Loan to Drive Structural Reforms and Strengthen Economic Stability

The loan carries a seven-year maturity with a three-year grace period and will accrue interest at a rate linked to the Secured Overnight Financing Rate (SOFR), making it a competitive financing option for the country.

In a significant boost to its reform agenda, El Salvador has secured a $500 million loan from the Inter-American Development Bank (IDB) aimed at advancing a comprehensive program of macroeconomic and fiscal reforms. The loan, approved by the IDB Board of Executive Directors, falls under the institution’s special development lending framework and is intended to provide vital budgetary support as the Central American nation navigates a path toward sustainable growth and fiscal consolidation.

This new financing package aligns closely with the structural reform program that El Salvador committed to as part of a recent agreement reached with the International Monetary Fund (IMF) in February 2025. That agreement outlines a roadmap for restoring fiscal sustainability, rebuilding financial buffers, and enhancing economic resilience in the face of persistent global and domestic challenges.

According to the IDB, the $500 million in funding will create fiscal space that enables the Salvadoran government to implement crucial reforms aimed at increasing tax revenues, reducing the public debt burden, rebuilding international reserves, and improving financial governance and integrity. The IDB emphasized that these changes are essential for boosting investor confidence, improving public service delivery, and promoting inclusive economic growth in the medium to long term.

The loan carries a seven-year maturity with a three-year grace period and will accrue interest at a rate linked to the Secured Overnight Financing Rate (SOFR), making it a competitive financing option for the country.

“This operation represents a significant vote of confidence in El Salvador’s economic reform path and institutional modernization efforts,” said an IDB spokesperson. “It builds on nearly a decade of collaboration with the country, during which the IDB has provided both technical and financial assistance to support critical development goals.”

Since 2016, the IDB has worked closely with El Salvador to strengthen public financial management and implement wide-ranging policy reforms. This includes initiatives to modernize tax and customs administration, improve transparency in public spending, and enhance the efficiency of social protection programs. During the COVID-19 pandemic, the IDB also played a key role in financing emergency measures to mitigate the economic and social impact of the crisis on vulnerable populations.

As El Salvador enters this new phase of reform, the IDB's continued support is expected to be instrumental in ensuring the effective implementation of policy measures that not only address short-term fiscal challenges but also lay the groundwork for long-term sustainable development.

The government of El Salvador has indicated that the funds will be allocated strategically to prioritize reform areas that generate the greatest economic return and social benefit. Key objectives include broadening the tax base, improving debt management strategies, enhancing the accountability of public institutions, and increasing resilience to external economic shocks.

This latest financial injection from the IDB underscores the importance of multilateral cooperation in supporting emerging economies as they confront the complex realities of post-pandemic recovery, inflationary pressures, and global market volatility.

By reinforcing its commitment to structural transformation, El Salvador aims to set a precedent in the region for responsible fiscal stewardship and forward-looking economic governance.