El Salvador flag El Salvador:

Country risk of El Salvador : Economy

For the latest updates on the key economic responses from governments to address the economic impact of the COVID-19 pandemic, please consult the IMF's policy tracking platform Policy Responses to COVID-19.

In 2021, GDP increased by an estimated 9%, as expatriate remittances from the U.S. hit a record high, driving private consumption. The country's main growth drivers are domestic demand and household consumption, and growth is heavily dependent on economic activity in the El Salvador’s main trading partner and source of remittances, the United States. According to updated IMF forecasts, GDP growth is expected to decrease to 3.5% in 2022 and 2.3% in 2023. 

El Salvador closed 2021 with an account deficit of 2.8%, which is expected to remain stable in the coming years, at 2.9% in 2022 and 3% in 2023. Public debt stood at 84.2% of GDP in 2021 and is projected to slightly increase to 84.5% in 2022. The inflation rate increased to 3.6% in 2021, and should slightly decrease to 2.9% in 2022 before increasing to 3% in 2023, according to the latest World Economic Outlook of the IMF. Given El Salvador's high dependency on the US economy, the country will likely benefit from the economic boost in the United States. Additionally, remittances from the two million Salvadoran immigrants in the United States - that is, 20% of El Salvador's population - are an important source of income, as it represents nearly a quarter of GDP. With a drop in unemployment among the U.S. Latino population, these remittances should continue to increase. In 2021, the government continued implementing a series of fiscal measures to mitigate the impact of the COVID-19 pandemic, which include the distribution of food baskets to affected families, a temporary elimination of import duties on essential medical and food imports (medical textiles, sanitiser, flour, rice, beans), lowering banks’ reserve requirements by 25% for newly issued loans, reducing banks’ statutory reserve requirements for various liabilities by about 12% of deposits (to about 10%), amending provisioning for NPLs through freezing credit ratings, imposing a temporary moratorium on credit risk ratings, temporarily relaxing lending conditions through a grace period for loan repayments, and establishing a USD 650 million trust fund to be operated by the development bank BANDESAL to provide support to workers and SMEs. Overall, El Salvador's fiscal measures to mitigate the pandemic have been effective in boosting economic activity, which has been gradually recovering.

Almost a third of the population in El Salvador lives below the poverty line and income inequality remains high. Moreover, the very low official unemployment rate (estimated by the IMF at 9.5% in 2021) masks substantial underemployment, as 7 out of every 10 Salvadoran work in the informal sector. The IMF expects the unemployment rate to decrease to 8.2% in 2022 and 7.5% in 2023. Other social challenges the country faces include lack of formal and social education, gang violence, and a high homicide rate, especially among young adults. El Salvador's high crime rate and extreme poverty have been driving migration to other countries in the region, as well as the United States.

 

Indicator of Economic Freedom

Definition:

The Economic freedom index measure ten components of economic freedom, grouped into four broad categories or pillars of economic freedom: Rule of Law (property rights, freedom from corruption); Limited Government (fiscal freedom, government spending); Regulatory Efficiency (business freedom, labour freedom, monetary freedom); and Open Markets (trade freedom, investment freedom, financial freedom). Each of the freedoms within these four broad categories is individually scored on a scale of 0 to 100. A country’s overall economic freedom score is a simple average of its scores on the 10 individual freedoms.

 

Business environment ranking

Definition:

The business rankings model measures the quality or attractiveness of the business environment in the 82 countries covered by The Economist Intelligence Unit’s Country Forecast reports. It examines ten separate criteria or categories, covering the political environment, the macroeconomic environment, market opportunities, policy towards free enterprise and competition, policy towards foreign investment, foreign trade and exchange controls, taxes, financing, the labour market and infrastructure.

Score:
5.41/10
World Rank:
64/82

Source: The Economist Intelligence Unit - Business Environment Rankings 2020-2024

 
Country Risk
See the country risk analysis provided by Coface.
Main Online Newspapers
Última Hora (only in Spanish)
Diario El Mundo (only in Spanish)
El Salvador Times (only in Spanish)
Diario La Huella (only in Spanish)
El Diario de Hoy (only in Spanish)
La Prensa Gráfica (only in Spanish)
El Faro (only in Spanish)
El Salvador newspapers and news sites
Useful Resources
Ministry of Finance
Ministry of Economy
Ministry of Foreign Affairs
Ministry of the Environment
Ministry of Public Works and Transportation
Ministry of Tourism
Ministry of the Interior
Central Bank of El Salvador

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Latest Update: May 2022