Economic growth in El Salvador reached 2.4 percent in 2016. This growth was mainly driven by external factors, including a significant decline in oil imports, which fell by US$262 million, and remittances, which increased by US$306 million from 2015 to reach US$4,576 million (or 17.1 percent of GDP). The country’s economic performance also benefited from an improvement in the trade balance, as both imports and exports fell, but the decline in imports was more marked.
Yet, El Salvador continues to suffer from persistent low levels of growth, which between 2010 and 2016 only averaged 1.9%. This sluggish performance has made El Salvador the slowest growing economy of Central America in recent few years. The country is expected to grow by 2.3% in 2017.
The country’s low growth has translated into persistently high poverty levels, and increased urban poverty in recent years. According to WB data based on national poverty lines, 41 percent of households lived below the poverty line in 2015 including 10 percent which lived below the extreme poverty line. These figures represent an increase in poverty of about 4 percentage points compared to the previous year, driven mainly by an increase in urban poverty resulting from the growing cost of living in the urban areas.
An additional element that is becoming increasingly important is the country’s fiscal situation, which has progressively deteriorated in recent years. The fiscal deficit is currently around 2.8% of GDP while debt is expected to reach 61.3% of GDP by the end of 2017, almost one percentage point higher than in 2015. The rising debt-to-GDP ratio, together with the low growth performance, has negatively impacted El Salvador’s debt profile.
In terms of political and social developments, the country has accomplished significant progress on both fronts. Democracy and peace have been consolidated since the end of the civil war in 1992, and five consecutive democratic presidential elections have taken place with peaceful transitions of power. Moreover, El Salvador continues to make progress on the social front thanks in part to active policies which have expanded access to public services. For example, in the health sector, increased access to healthcare facilities, particularly by the poor, contributed to El Salvador’s ability to reach MDG 4 (reducing under-5 mortality).
Immunization rates have also increased from 76 percent in the 1990s to 93 percent in 2016. Similarly, the share of the population with access to improved water sources increased from 79 percent to 89 percent, and the share with access to improved sanitation expanded from 56 percent to over 95 percent during the same period. In education, both access (particularly at the primary level) and literacy rates have increased, with the most significant advances in urban areas.
Inequality – measured by the Gini coefficient –also declined by about 4 percentage points between 2006 and 2015. This reduction was driven by income growth for the poorest 20 percent, making El Salvador the most equal country in Latin America in 2015 after Uruguay.
But crime and violence threaten social development and economic growth in El Salvador, and negatively affect the quality of life of its citizens. While a truce established between street gangs in 2012 contributed to reducing violence levels to fewer than 39 homicides per every 100,000 inhabitants, violence has been on the rise since 2014. Crime and violence make doing business more expensive, negatively affect investment decisions and hinder job creation.
In addition to these problems, El Salvador's vulnerability to adverse natural events, exacerbated by environmental degradation and extreme climate variability, also compromises the country's sustainable development and long-term economic growth.
Last Updated: Oct 10, 2017