El Salvador

El Salvador is a small, dollarized economy with a population of 6 million people, closely linked to the United States through trade and remittances. Since 2022, strengthened security measures have drastically reduced crime, boosting market confidence and removing a key barrier to economic activity. However, challenges persist, including low productivity, limited human capital, large fiscal deficits, and restricted access to external financing.

The government has recently taken steps to address these issues by approving an austere budget for 2025 and 2026, clearing domestic arrears, and reducing short-term financing pressures through three debt buybacks between 2022 and 2024. At the same time, major transformative programs have been launched to modernize education and healthcare by integrating artificial intelligence, complementing efforts that have already transformed early childhood education and health services.

In February 2025, the IMF Executive Board approved an arrangement for El Salvador under the Extended Fund Facility (EFF) to support fiscal consolidation, strengthen financial stability, and improve governance and transparency. This has paved the way for increased support from multilateral banks, such as the World Bank, to back reforms aimed at ensuring the sustainability of public finances, strengthening resilience to disasters, and promoting growth.

To improve productivity, attract foreign direct investment, diversify the economy, boost job creation, and reduce poverty, comprehensive reforms are needed to strengthen the human capital of all Salvadorans through investments in education and healthcare throughout the life cycle, as well as improvements in labor markets, infrastructure, and climate resilience.

In the short term, labor intermediation actions are needed to connect workers with available job opportunities, strengthen the financing ecosystem for MSMEs, and promote investment in strategic sectors such as tourism. In the medium term, it will be necessary to address skill gaps, especially among women and vulnerable groups.

Last Updated: Apr 8, 2026

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Between 2000 and 2024, El Salvador’s economic growth averaged 2.1% annually, historically constrained by high crime rates and other structural limitations. Economic activity has largely depended on consumption financed by remittances, while investment, exports, and productivity have lagged. Although high remittance inflows have supported consumption, constraints remain, including limitations in human capital, low job quality, and weaknesses in the efficiency of public investment.

Economic activity strengthened in 2025, with estimated growth of 3.9%, 1.3 percentage points higher than in 2024. Private investment was the main driver, growing at its fastest pace since the pandemic (26.2%), along with private consumption (3.3%), amid improved security conditions and record levels of remittances. In addition, construction grew by more than 20%, reflecting strong investment dynamics. Growth is projected to moderate to 3.2% in 2026 and stabilize at around 3% in the medium term. According to international standards, poverty is estimated to have declined from 29.6% to 28.4% in 2025, although it continues to disproportionately affect children and women. It is expected to continue declining gradually in the medium term, albeit at a slower pace due to a potential slowdown in remittances.

Fiscal performance improved in 2025. Revenues increased to 26.1% of GDP, driven by economic dynamism and improvements in tax administration, while spending declined by about 1 percentage point to 28.9% of GDP, mainly due to a reduction in the public sector wage bill. As a result, the primary balance improved from 0 to 1.9% of GDP. However, interest payments remained high (4.7% of GDP), resulting in an overall deficit of 2.8% and public debt that remains elevated (90.7% of GDP). In the medium term, the deficit is projected to decline to 1.8% in 2027, before rising again due to higher debt payments associated with the pension system.

Last Updated: Apr 8, 2026

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As of April 2025, the World Bank’s portfolio in El Salvador amounts to US$2.43 billion and includes nine investment operations, one development policy loan, one program-for-results loan, and several trust funds. These operations focus on boosting economic growth and job creation through investments in education, health, transport infrastructure, water, energy, and local economic development.

To enhance employability, key initiatives include the Enhanced Financial Intermediation for Jobs Project, which expands access to credit for micro, small, and medium-sized enterprises with the aim of creating and improving around 8,300 jobs, and a program-for-results designed to accelerate learning through digital innovation. These efforts are complemented by the project to promote employment opportunities and skills development, as well as the Grow and Learn Together Project, which seeks to improve teaching practices and upgrade early childhood facilities.

The Development Policy Loan for Fiscal Sustainability and Resilience is the first of three operations aimed at supporting the country’s efforts to strengthen fiscal sustainability and improve resilience to climate change.

The health improvement project strengthens the national health system with an emphasis on primary care and complements the Growing Up Healthy Together Project, which promotes early childhood development and maternal health. The resilient transport and infrastructure project aims to improve connectivity in a key logistics hub in the metropolitan area of San Salvador, Apopa.

The economic resilience project strengthens local capacity to improve municipal services, while the water project focuses on the quality and reliability of potable water services. The geothermal energy project supports renewable energy generation and the direct use of geothermal resources to enhance reliability and reduce supply costs.

The World Bank also supervises smaller grants that support integrated landscape management, sustainable land use through networks of agricultural communities, and more agile project preparation. Trust funds and advisory services complement efforts in trade, education, social protection, energy, and disaster risk management.

Last Updated: Apr 8, 2026

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The World Bank’s current Country Partnership Framework 2023–2027 (CPF) addresses the Government of El Salvador’s vision of achieving higher levels of growth, generating more and better jobs, overcoming shortcomings in human capital, and fostering resilience to natural disasters and climate change. It is based on the Systematic Country Diagnostic, a comprehensive assessment of the challenges faced by El Salvador in terms of growth and poverty reduction.

The CPF has three main objectives aimed at promoting sustainable, equitable, and inclusive growth:

• Increased private sector-led job creation, focusing on improving macro-fiscal and contextual conditions to promote access to quality jobs.
• Strengthening human capital throughout the life cycle, focusing on El Salvador’s most important resource: its people. Goals start with the early childhood years (preschool, maternal and child health) and aim to connect youth (especially the most vulnerable) to employment and/or entrepreneurship opportunities.
• Increasing resilience to disasters and climate change, with special emphasis on reliable access to basic services, especially water and climate-resilient road infrastructure.

Under the CPF, the country’s work program has been bolstered by two cross-cutting themes. First, promote the economic empowerment of women throughout their life cycle, so that they and their families can benefit from better employment opportunities. Second, promote good governance by strengthening institutions and enhancing citizen participation in key sectors, such as health, water, transportation, education, employment, and local development, aimed at promoting transparency and quality public services.

You can download the CPF here

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