The smallest country in Central America, El Salvador has a population of 6.4 million (plus over 1.5 million Salvadorians living abroad) and is one of the most densely populated countries, ranking in the 83rd percentile worldwide in terms of population density.
GDP growth in El Salvador reached 2.3 percent in 2019, but the country has been suffering from persistently low levels of economic growth. Annual GDP growth has exceeded 3 percent only twice since 2000 and averaged just 2.3 percent in recent years.
The country had recently registered a moderate poverty reduction. The poverty rate (based on a US$5.5 per person per day poverty line) declined from 39 percent in 2007 to 29 percent in 2017. Extreme poverty (US$3.2 per person per day) also declined from 15 percent to 8.5 percent over the same period.
El Salvador also became a more equal country in recent years, with the second-highest level of equality in Latin America and the Caribbean, after Uruguay, on par with the world average. Inequality –measured by the Gini coefficient– declined from 0.51 in 2001 to 0.38 in 2018.
However, the COVID-19 pandemic will have a significant negative impact, even though El Salvador was the fastest country in Central America to adopt strong containment measures against the outbreak and remains among the least affected in the region.
The Government also took steps to limit the pandemic’s impact on households and businesses. Measures included cash transfers to approximately 60 percent of all households; food distribution for low-income households; payment deferrals for basic utilities, mortgages and personal loans; extensions on income tax payments for individuals and applicable firms; lowering banks’ reserve requirements for newly issued loans, and the temporary relaxation of lending conditions through a grace period for loan repayments, among others. The Government also invested in strengthening the capacity of the public health system, renewed various health care centers and built a new hospital specializing in COVID-19 treatment.
The pandemic will negatively impact poverty reduction and economic growth, as El Salvador’s GDP is expected to contract by 8.7 percent in 2020, due to diminished economic activity, decreased aggregate demand in international markets and a reduction in remittances sent to households mainly from the United States. An economic growth of 4.9 percent is expected in 2021.
Crime and violence also threaten social development and economic growth in El Salvador and are among the main factors driving Salvadorians to migrate. Nevertheless, murder rates have declined dramatically since August 2019, bringing the country’s violence indicators towards the regional average.
El Salvador has also a high exposure to natural hazards, including earthquakes and volcanic eruptions. It is also highly vulnerable to climate change impacts, including more frequent occurrences of floods, droughts, and tropical storms.
Despite these challenges, El Salvador has great potential to bolster its economic growth. The country’s strategic location, with access to many markets, a growing labor force, and a solid industrial base could support the expansion of the trade sector to achieve stronger and more inclusive growth. Development goals could be achieved with a long-term commitment to structural reform, quality job creation and investment in human capital.
Last Updated: Oct 09, 2020