El Salvador: World Bank Approves US$450 Million to Support Social Development and Public Finances

Contact:

In Washington: Gabriela Aguilar

gaguilar@worldbank.org   

Tel. (202) 473-6768

WASHINGTON, January 22, 2009 – The World Bank Board of Directors approved today a US$450 million Public Finance and Social Sector Development Policy Loan (DPL) for El Salvador, which will help the country strengthen its fiscal sustainability, governance, accountability and transparency in the use of public funds, as well as maintain improvements in social protection and education.

“This DPL will increase macroeconomic stability and further strengthen public sector efficiency,” said Laura Frigenti, World Bank Director for Central America. “In the social sphere, the measures aimed at expanding the coverage of the Red Solidaria program to lower-income households and increasing access to secondary education are expected to help to close the income gap in the future,” she added.

This operation will support the following:

• Increase fiscal space through administrative and tax measures to fight fiscal evasion.
• Streamline public financial management through the expansion of integrated financial systems and the improvement of budget management.
• Improve public sector accountability and transparency by fostering access to information.
• Expand the coverage of the social safety program Red Solidaria.
• Improve the quality of primary education through a strategy that addresses the outcomes of underperforming schools.
• Increase access to secondary education.

The measures agreed among the stakeholders are key to the future development of El Salvador.

“The development of this DPL is based on broad consultations with policymakers and civil society stakeholders, among which a high level of consensus was found. Notwithstanding, we still need the approval of the Legislative Assembly to move forward in its implementation,” said Alberto Leyton, World Bank Representative in El Salvador.

The DPL requires two approvals from the Congress. The first approval allowed the government to negotiate the operation, but a second approval is required to proceed with its implementation.

The loan will be disbursed in two tranches: the first for US$200 million and the second for US$250 million. Both are repayable in 30 years, including a five-year grace period.