Santander sees a path to investment grade for El Salvador on the back of its IMF deal

Santander's US capital markets arm has outlined a credible path for El Salvador to reach investment-grade credit ratings, pointing to the country's renewed IMF programme, a fiscal performance that came in ahead of first-half targets, and an ongoing structural reform agenda as the main drivers.

IMF Programme Back on Track

The Spanish bank's analysts map a move toward BB ratings over a four-to-five-year horizon, a meaningful step up for a sovereign that has long traded as a high-yield credit. The backdrop has improved sharply. After a year of delays, El Salvador's $1.4 billion IMF programme is finally back on track, reviving a rally in the nation's bonds. IMF staff and the Salvadoran authorities reached a staff-level agreement on the combined second and third reviews of the 40-month Extended Fund Facility arrangement, which would unlock around $140 million subject to Executive Board approval.

Economic activity has outperformed expectations, while fiscal and external imbalances are being addressed in line with programme commitments, and the structural reform agenda continues to progress. Real GDP growth exceeded expectations in 2025 and is projected to reach 4.5 percent in 2026, supported by strong investment, private consumption, and robust remittance, tourism, and capital inflows.

Santander's own analysis notes that renewed IMF alignment, followed by a rating upgrade, could either support today's tight spreads by reducing market sensitivity or drive spreads lower across the Eurobond curve. The bank favours intermediate maturities for exposure, citing strong carry and upside from curve flattening.

Bitcoin Reserve Terms Clarified

The $BTC question, long a flashpoint in El Salvador's IMF negotiations, has been addressed within the same staff-level agreement. In its latest review of the country's loan programme, the IMF said documents supplied by El Salvador showed that Bitcoin accumulated since the previous review reflected private donations. The Fund added that "no further Bitcoin accumulation beyond the documented donations is expected" and said both sides had agreed to modernise the legal, regulatory, and supervisory framework for digital assets.

El Salvador's reserve stands at 7,771 $BTC, worth approximately $599.5 million. No public resources have been used for Bitcoin accumulation, and the ownership and operational control of the government's e-wallet have been transferred to a private operator, satisfying a key IMF condition.

Pension reform remains the principal outstanding risk. The country still faces a structural pension deficit and a key test in 2027, as the four-year hiatus on paying interest to private pension funds comes to an end. Investors broadly accept the delay given the electoral calendar, but it will be the main item to watch as El Salvador pushes toward a higher credit rating.

Sources:
IMF Press Release: Staff-Level Agreement on Second and Third Reviews under El Salvador's Extended Fund Facility
Bloomberg: IMF Resumes El Salvador Programme, Boosting Bonds
CryptoSlate: El Salvador Added 1,540 Bitcoin, but the IMF Says the Government Didn't Pay for Them