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IDB supports fiscal sustainability and adaptation to climate change in El Salvador

$200 million loan will reinforce key government agencies and increase tax collection

El Salvador will strengthen its public finances to meet the challenges of climate change, in an effort partly financed by a $200 million loan approved by the Inter-American Development Bank (IDB).

With this loan, the IDB will also support the Salvadoran government’s strategy to increase tax collection, revise the tax laws, and implement software to facilitate the filing of income tax returns and the payment of taxes.

"By helping El Salvador improve fiscal sustainability, streamline and make operations transparent, and increase its revenues, we are ensuring that they can better cope with social and environmental problems," said Jose Larios, head of the IDB’s project team and member of its Fiscal and Municipal Management Division.

In conjunction with the loan, the IDB will provide technical support to the Department of Climate Change and Strategic Affairs in El Salvador’s Ministry of Environment and Natural Resources; to the Department of Climate Change Adaptation and Strategic Risk Management in the Ministry of Works, Transport, Housing and Urban Development; and to the Ministry of Agriculture and Livestock.

Hilen Meirovich, project team leader of the IDB’s Climate Change and Sustainability Division, said that strengthening these organizations will help the government respond to natural disasters, which are damaging agriculture and infrastructure, two of Salvador’s most vulnerable sectors, with increasing frequency and intensity.

The team leaders explained that in order to ensure that this project would be comprehensive in scope, the IDB asked its Division of Fiscal and Municipal Management and its Division of Climate Change and Sustainability to collaborate on the design.

The IDB loan is for 20 years with a 5-year grace period. The interest rate is variable, based on LIBOR.