El Salvador is a small, dollarized economy with a population of 6.3 million people closely tied to the United States through trade and remittances. Since 2022, strengthened security measures have drastically reduced crime, boosting confidence in markets and addressing a key barrier to economic activity. Challenges persist, however, including low productivity, weak human capital, and, over the past decade, high fiscal deficits and limited access to external financing. The government has taken recent steps to address these issues by approving an austere budget for 2025, settling domestic arrears, and reducing short-term financing pressures through three recent debt buybacks.

In February 2025, the IMF Board approved an Extended Fund Facility (EFF) arrangement for El Salvador to support fiscal consolidation, strengthen financial stability, and improve governance and transparency. This paves the way for support from multilateral banks to help drive reforms that promote growth, ensure sustainable public finance, and strengthen resilience to both economic and climate shocks.

To enhance productivity, attract foreign direct investment, diversify the economy, and improve jobs, comprehensive reforms are needed to strengthen the human capital of all Salvadorans through investments in education and health, strengthen labor markets, infrastructure, and resilience to climate change.

To ensure both job creation and poverty reduction, efforts will have to be scaled up to ensure that the poor have access to better quality jobs. In the short term, labor intermediation actions are needed to connect workers with job offers available on the market. In the medium term, poor skills acquisition will need to be addressed, especially among women and vulnerable groups. In the long term, the lifelong learning system will have to be improved.

Last Updated: Oct 6, 2025

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