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Aug 6 (Reuters) - The International Monetary Fund (IMF) on Tuesday said progress had been made in negotiations with El Salvador toward a fund-supported program with the Central American nation, though issues remained such as its use of Bitcoin cryptocurrency.

Discussions focused on policies that could be supported by an IMF program, it said in a statement, such as those which could strengthen public finances, boost bank reserve buffers, improve governance and transparency and mitigate risks from the country's investment in Bitcoin.

The IMF and El Salvador have reached "preliminary understandings" on improving the nation's primary balance, the IMF said, to around 3.5% of gross domestic product (GDP) over a three-year period.

The country also plans to gradually strengthen its reserve buffers by reducing reliance on domestic financing and instead receiving support from the IMF and other development banks, the fund said.

On Bitcoin, the IMF said that many potential risks "have not yet materialized," but that there was a joint recognition that El Salvador needed to enhance transparency and mitigate risks from the project.

Salvadoran President Nayib Bukele made bitcoin a legal tender and has touted plans for "Bitcoin City," a tax-free crypto haven powered by geothermal energy from a volcano.