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 2.5 percent in 2018 and its per capita GDP is US$4,058. However, El Salvador suffers from persistent low levels of growth. Annual GDP growth has exceeded 3 percent only twice since 2000 and averaged just 2.3 percent in the last five years. The country’s economy is expected to grow at 2.4 percent in 2019.
The country’s low growth has translated into 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’s levels of public debt (70.7 percent of GDP in 2018) are a matter for concern. The pension system reform in 2017 reduced the financing needs of the public sector. As a result, it is expected that the fiscal deficit will stabilize around 2.5 percent of GDP in the coming years.
In terms of political developments, the country has accomplished noteworthy progress. Democracy and peace have been consolidated since the end of the civil war in 1992, and six consecutive democratic presidential elections have taken place with peaceful transitions of power.
Moreover, El Salvador continues to make progress in advancing human development outcomes mainly through the expansion of access to public services. For example, increased access to healthcare facilities, particularly by the poor, contributed to El Salvador’s ability to reach MDG 4 (reducing under-5 mortality). In education, both access and literacy rates have increased, with the most significant advances in urban areas. Yet, high school dropouts remain a challenge.
El Salvador is also becoming a more equal country. Inequality –measured by the Gini coefficient– declined from 0.51 in 2001 to 0.38 in 2017, making El Salvador one of the most equal countries in Latin America.
But crime and violence threaten social development and economic growth in El Salvador, and negatively affect the quality of life of its citizens. While gang-related violence has substantially dropped in recent years (OSAC, 2018), the country continues to have one of the highest homicides rate in the world: 61.8 homicides per 100,000 inhabitants in 2017.
Crime and violence make doing business more expensive, negatively affect investment decisions and hinder job creation. El Salvador produces only 30,000 jobs per year while 40,000 jobs are needed every year to provide work for those entering the labor market. Crime and violence and lack of opportunities and jobs are the main drivers for many Salvadorians to migrate.
The country has also very high exposure and vulnerability to natural hazards, including earthquakes and volcanic eruptions. It is also highly vulnerable to climate change impacts, including increased occurrences of floods, droughts, and tropical storms.
El Salvador will need to take advantage of export markets to achieve sustainable long-term growth. Economic growth and household income could be boosted by increased regional integration. Solutions for the country’s challenges will likely involve efforts across a broad range of areas including skills, labor market opportunities, health, and the provision of infrastructure, among others.
Last Updated: Oct 10, 2019