Economy of El Salvador

Economy of El Salvador
Currency
calendar year
Trade organizations
WTO, CAFTA-DR, SICA
Country group
Statistics
PopulationIncrease 6.83 million (2021 est.)
GDP
  • Increase $37.17 billion (nominal, 2024)[3]
  • Increase $77.61 billion (PPP, 2024)[3]
GDP rank
GDP growth
10.2% (2021) [4]
GDP per capita
  • Increase $5,825 (nominal, 2024)[3]
  • Increase $12,172 (PPP, 2024)[3]
GDP per capita rank
GDP by sector
  • agriculture: 10.5%
  • industry: 30.0%
  • services: 59.4%
  • (2012 est.)
1.088% (2018)[5]
Population below poverty line
  • Positive decrease 22.8% in poverty (2019 est.)[6]
  • Positive decrease 8.5% on less than $3.20/day (2017)[7]
Positive decrease 38.0 medium (2017)[8]
Labor force
2.91 million (2019 est.)
Labor force by occupation
  • agriculture: 21%
  • industry: 20%
  • services: 58%
  • (2011 est.)
Unemployment6.9% (2016 est.)
Main industries
food processing, beverages, petroleum, chemicals, fertilizer, textiles, furniture, light metals
External
ExportsIncrease$8.491 billion (2021 est.)
Export goods
offshore assembly exports, coffee, sugar, textiles and apparel, gold, ethanol, chemicals, electricity, iron and steel manufactures
Main export partners
ImportsIncrease$15.575 billion (2021 est.)
Import goods
raw materials (such as thread from US [1]), consumer goods, capital goods, fuels, foodstuffs, petroleum, electricity
Main import partners
$17.24 billion (2019 est.)
Public finances
RevenuesUS$5.89 billion (2017 est.)
ExpensesUS$6.52 billion (2017 est.)
Economic aidUS$300 million (2010 est.)
IncreaseUS$4.45 billion (31 December 2019)[6]
All values, unless otherwise stated, are in US dollars.


The economy of El Salvador has experienced relatively low rates of GDP growth, in comparison to other developing countries. Rates have not risen above the low single digits in nearly two decades – part of a broader environment of macroeconomic instability which the integration of the United States dollar has done little to improve.[14] One problem that the Salvadoran economy faces is the inequality in the distribution of income. In 2011, El Salvador had a Gini Coefficient of .485,[15] which although similar to that of the United States,[16] leaves 37.8% of the population below the poverty line,[17] due to lower aggregate income. The richest 10% of the population receives approximately 15 times the income of the poorest 40%.[15]

As of 3 November 2014, the IMF reports official reserve assets to be $3.192B. Foreign currency reserves (in convertible foreign currencies) are $2.675B. Securities are $2.577B with total currency and deposits at $94.9M. Securities with other national central banks (BIS and IMF) are $81.10M. Securities with banks headquartered outside the reporting country $13.80M. SDRs are at $245.5M. Gold reserves (including gold deposits and, if appropriate, gold swapped) reported at $271.4M with volume in millions of fine Troy ounces at $200k. Other reserve assets are financial derivatives valued at $2.7M.[18]

Having this hard currency buffer to work with, the Salvadoran Government undertook a monetary integration plan beginning 1 January 2001, by which the U.S. dollar became legal tender alongside the colón, and all formal accounting was undertaken in U.S. dollars. This way, the government has formally limited its possibility of implementing open market monetary policies to influence short term variables in the economy. Since 2004, the colón stopped circulating and is now never used in the country for any type of transaction; however some stores still have prices in both colons and U.S. dollars. In general, people were unhappy with the shift from the colón to the U.S. dollar, because wages are still the same but the price of everything increased. Some economists claim this rise in prices would have been caused by inflation regardless, even had the shift not been made. Some economists also contend that now, according to Gresham's law, a reversion to the colón would be disastrous to the economy. The change to the dollar also precipitated a trend toward lower interest rates in El Salvador, helping many to secure credit in order to buy a house or a car. Over time, displeasure with the change has largely disappeared, though the issue resurfaces as a political tool when elections are on the horizon.

In June 2021, President Nayib Bukele said he would introduce legislation to make Bitcoin legal tender in El Salvador.[19] The Bitcoin Law was passed by the Legislative Assembly on 9 June 2021, with a majority vote of 62 out of 84. Bitcoin officially became legal tender ninety days after the publication of the law in the official gazette.[20][21] As part of the law, foreigners can gain permanent residence in El Salvador if they invest 3 Bitcoin into the country.[22] In January 2022, The International Monetary Fund (IMF) urged El Salvador to reverse its decision to make cryptocurrency Bitcoin legal tender. Bitcoin had rapidly lost about half of its value, meaning economic difficulties for El Salvador. President Bukele had announced his plans to build a Bitcoin city at the base of a volcano in El Salvador.[23] In the first 18 months of Bitcoin adoption, the cryptocurrency was rarely used by the local population or tourists, leaving USD the de facto standard for transactions.[24]

In 2021, El Salvador received a $40 million loan for small enterprises and projects for climate action, from the European Investment Bank to the country's development bank, Banco de Desarollo de el Salvador.[25] $20 million will be used to assist investments in renewable energy projects, specifically photovoltaics, biogas, and micro hydro projects. Up to 50% of the loan line will be used to assist small and medium-sized enterprises who were affected by the COVID-19 pandemic.[26][27]

  1. ^ "World Economic Outlook Database, April 2019". IMF.org. International Monetary Fund. Retrieved 29 September 2019.
  2. ^ "World Bank Country and Lending Groups". datahelpdesk.worldbank.org. World Bank. Retrieved 29 September 2019.
  3. ^ a b c d "World Economic Outlook Database, October 2023". IMF.org. International Monetary Fund. October 2023. Retrieved 2 April 2024.
  4. ^ "Overview".
  5. ^ "World Economic Outlook Database, April 2021". IMF.org. International Monetary Fund. Retrieved 1 July 2021.
  6. ^ a b "El Salvador". 25 October 2021.
  7. ^ "Poverty headcount ratio at $3.20 a day (2011 PPP) (% of population) - El Salvador". data.worldbank.org. World Bank. Retrieved 30 November 2019.
  8. ^ "GINI index (World Bank estimate) - El Salvador". data.worldbank.org. World Bank. Retrieved 30 November 2019.
  9. ^ "Human Development Index (HDI)". hdr.undp.org. HDRO (Human Development Report Office) United Nations Development Programme. Retrieved 14 April 2024.
  10. ^ "Inequality-adjusted Human Development Index (IHDI)". hdr.undp.org. HDRO (Human Development Report Office) United Nations Development Programme. Retrieved 14 April 2024.
  11. ^ "Export Partners of El Salvador". The World Factbook. 2012. Archived from the original on 13 June 2007. Retrieved 25 July 2013.
  12. ^ "Import Partners of El Salvador". The World Factbook. 2012. Archived from the original on 13 June 2007. Retrieved 25 July 2013.
  13. ^ "Sovereigns rating list". Standard & Poor's. Retrieved 26 May 2011.
  14. ^ "El Salvador GDP - real growth rate". Indexmundi.com. Retrieved 11 June 2015.
  15. ^ a b "Finance & Development, March 2011 - Spreading the Wealth". Finance and Development - F&D. Retrieved 11 June 2015.
  16. ^ "Income, Poverty, and Health Insurance Coverage in the United States: 2008" (PDF). Census.gov. Retrieved 16 October 2017.
  17. ^ "El Salvador". Data.worldbank.org. Retrieved 11 June 2015.
  18. ^ "International Reserves and Foreign Currency Liquidity - EL SALVADOR". Imf.org. Retrieved 11 June 2015.
  19. ^ "El Salvador looks to become the world's first country to adopt bitcoin as legal tender". CNBC. 5 June 2021. Retrieved 5 June 2021.
  20. ^ "Bitcoin: El Salvador makes cryptocurrency legal tender". BBC. 9 June 2021. Retrieved 9 June 2021.
  21. ^ Webber, Jude; Szalay, Eva (9 June 2021). "El Salvador becomes first country to adopt bitcoin as legal tender". Financial Times. Archived from the original on 10 December 2022. Retrieved 9 June 2021.
  22. ^ "Why El Salvador Made Bitcoin Legal Tender with President Nayib Bukele". YouTube. 23 June 2021.
  23. ^ "IMF urges El Salvador to remove Bitcoin as legal tender". BBC News. 26 January 2022.
  24. ^ Tidy, Joe; Barría, Cecilia (6 December 2023). "Bitcoin rally: Is El Salvador's Bitcoin bet paying off?". BBC News. Retrieved 7 December 2023.
  25. ^ Bank, European Investment (3 March 2022). EIB Group activity in Latin America and the Caribbean in 2021. European Investment Bank.
  26. ^ Bank, European Investment (3 March 2022). EIB Group activity in Latin America and the Caribbean in 2021. European Investment Bank.
  27. ^ "BANDESAL SUSTAINABLE ENERGY AND COVID-19 SMES". www.eib.org. Retrieved 5 April 2022.