El Salvador achieves historic tax collection

The economist Carlos Acevedo, who also served as president of the Central Reserve Bank (BCR) during the administration of Mauricio Funes, considered in a morning interview that the government of President Nayib Bukele has developed a “good” tax management administration, which has led to reaching historical rates in the country.

“For the first time in history, El Salvador had a collection of more than 20% of GDP in 2021. It was also the highest in Latin America, displacing Chile and Uruguay, which had the first two positions,” said Acevedo.

The former official pointed out that this positive behavior in the collection of taxes has been maintained this year and even with better prospects. From January to July, the Ministry of Finance (MH) reported a year-on-year growth of 30% in the collection of Income Tax (ISR).

Likewise, he highlighted the strong work that the Ministry of Finance carries out in auditing, especially with the policy against evasion.

“In El Salvador we have an evasion of $2,000 million per year, but work is being done to recover that money. The Minister of Finance, Alejandro Zelaya, is tightening the control, with the famous Thursdays of evaders », he said.

On the other hand, he praised the liability management carried out by the head of the Treasury, since it is being done “in a scenario where there is not much room for maneuver.”

Acevedo even questioned the position of the risk rating agency, Fitch Ratings, which, despite the success of the government’s fiscal policies, continues to affirm that there is a possibility of “default” or implicit non-payment in the country.

Fitch applied a second downgrade to the country’s sovereign rating on September 15, shortly after the announcement that the repurchase of the two closest bonds to maturity would be carried out. However, when the operation was carried out, the government achieved a savings of $275 million for the country, since 16.3% of the 2023 debt and 54% of the 2025 debt were acquired.

«It strikes me how serious rating agencies like Fitch have said that there is a “default”, an implicit non-payment, and I say: “default” why. There is no element that you are forcing creditors to accept your conditions, which is the typical case of a country that goes into default. This is not unpaid,” said the former official.

In addition, he claimed to agree with the recent report by the investment bank, Bank of America, which disagreed with the report by the rating agency, Moody’s, which stated that the buyback was a “worrying exchange.” The financial institution also stated that El Salvador has the capacity to meet its obligations.

«For the first time I see in a report from an investment bank of the caliber of Bank of America to say that it does not agree with the report of the rating agencies. I agree with Bank of America in this specific case », he concluded.