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Restricted - External Jason Keene+1 212 526 7275jason.keene@barclays.comBCI, US Fiscal and IMF program updateCapital expenditures weigh on fiscal performance in the first quarterThrough the first three months of 2025, El Salvador reported a fiscal deficit of $225mn (61bp ofGDP) and a primary surplus of $206mn (56bp of GDP). Tax revenues were up nearly 6% y/y, andcurrent expenditures (including interest) were down approximately 5%. However, capitalexpenditures grew to $372mn in the first quarter, up 82% from last year (Figure 1).FIGURE 1. NFPS fiscal execution, through the first three months of the year ($mn)20222023Revenue & Grants19451950Current Revenues19401948o/w Tax Revenue16291572Capital Revenue00Grants52Total Expenditures20562100Current Expenditures19031858o/w Interest465422Capital Expenditures153242Overall Balance-111-150Primary Balance353272Source: Banco Central de Reserva, Barclays ResearchMissing pension expendituresDespite a commitment to including pension costs, the BCR's reported data has yet to break outthese expenditures as separate line items. Nevertheless, we assume that pensions costs areincluded in the reported numbers. Therefore, El Salvador is likely to have met its March 2025primary balance QPC (Figure 1).FIGURE 2. Primary balance including pension costs, ($mn)The green dots represent the IMF's primary balance targets as part of the country's EFF program. March, June, andDecember targets are quantitative performance criteria (QPCs) under the program.Source: Banco Central de Reserva, Portal de Transparencia Fiscal, IMF, Barclays Research 20242025218522372172223117831885001362393246221882090457432205372-208-225249206 YoY % chg2.42.75.82.9-4.5-5.582.08.3-17.12 1Movimiento de trabajadores denuncia despidos masivos en la PGR,El Diaro de Hoy, 18 September 20242Al menos 230 empleados del sector salud han sido despedidos, según sindicatos,La Prensa Gráfica, 17 December 20243Más de 14,000 empleados públicos fueron despedidos en 2024, dice MTD,El Diario de Hoy, 2 January 2025FIGURE 5. Adjusted interest expense (% of GDP)1900Adj. for CFT interestAdj. Interest (% of GDP)4.5%4.7%20212022Interest (% of GDP)Adj. Interest (% of GDP)We assume $48mn/month in interest on CFTs, in line with a 7% interest rate.Source: Banco Central de Reserva, IMF, Barclays ResearchWage bill largely explained by indemnificationsNearly half of El Salvador's required fiscal adjustment relies on reducing the wage bill (ElSalvador: Initial impressions from the IMF program documents, 4 March 2025). Through the firstquarter, the central government's wage bill has fallen by $177mn (or 19% y/y). However, if weexclude indemnifications (ie,one-offpayments to early retirees), the adjusted wage billdropped by just $6mn, or less than 1% (Figure 3). Nevertheless, this still implies a 10bp of GDPadjustment in real terms — which could still annualize to approximately 40bp of GDP. Localmedia coverage of public sectorlayoffsappears to have cooled since last year.FIGURE 3. Adjusted wage bill, through the first three months of the year ($mn)20222023Wages736784o/w Indemnification2532Wages (ex indemnification)711752% of GDP2.222.21Source: Portal de Transparencia Fiscal, IMF, Barclays ResearchBeware positive signs on the interest billWhile interest costs fell by more than 5% in the first quarter, we believe that this will prove to bea transitory development. The IMF projects a nearly 20% increase in El Salvador's 2025 interestbill, equivalent to $315mn, or approximately 68bp of GDP (Figure 4). While tax seasonalityshould support overall fiscal performance in April, the April interest bill is likely to be quiteelevated. This is driven largely by the timing of last year's first eurobond issuance (El SalvadorSovereign Strategy: 'Boxcars' borrowing, 12 April 2024) and the debt-for-nature swap (Debt-for-nature & El Salvador: Saving Interest Downstream, 21 October 2024), which collectively deferredand bunched interest payments into April and October. Moreover, the government continues todefer interest on Certificados de Financiamiento de Transición, or CFTs (Figure 5). This is notincluded in the IMF's interest expense projections. 5.7%6.2%6.8%202320242025FAdj. for CFT interest1 2 320242025YoY % chg931754-19.018110-94.3750744-0.82.122.023 FIGURE 4. Interest expense (% of GDP)Source: IMF, Barclays Research4 May 2025 4El Salvador's Bukele says he will not return man the US mistakenly deported,Reuters, 15 April 2025FIGURE 6. Overall balance including pension costs ($mn)FIGURE 7. NFPS debt ($bn)05101520253035Jan-22Source: Banco Central de Reserva, IMF, Barclays ResearchSource: Banco Central de Reserva, Barclays ResearchOverall deficits drive debt levelsWhile the IMF program's fiscal consolidation focuses on adjustments to El Salvador'sprimarybalance, a rising interest bill willoffsetsome of the projected fiscal tightening and keep debtlevels elevated. Through March, the overall balance is tracking slightly better than in 2023 and2024 (Figure 6). No