Economy of El Salvador

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Economy of El Salvador

Headquarters of World Trade Center San Salvador
Currency	Bitcoin (XBT) United States dollar (USD)
Fiscal year	calendar year
Trade organizations	WTO, CAFTA-DR, SICA
Country group	Developing/Emerging[1] Lower-middle income economy[2]
Statistics
Population	6.83 million (2021 est.)
GDP	$37.17 billion (nominal, 2024)[3] $77.61 billion (PPP, 2024)[3]
GDP rank	98th (nominal, 2023) 104th (PPP, 2023)
GDP growth	10.2% (2021) [4]
GDP per capita	$5,825 (nominal, 2024)[3] $12,172 (PPP, 2024)[3]
GDP per capita rank	107th (nominal, 2023) 104th (PPP, 2023)
GDP by sector	agriculture: 10.5% industry: 30.0% services: 59.4% (2012 est.)
Inflation (CPI)	1.088% (2018)[5]
Population below poverty line	22.8% in poverty (2019 est.)[6] 8.5% on less than $3.20/day (2017)[7]
Gini coefficient	38.0 medium (2017)[8]
Human Development Index	0.674 medium (2022)[9] (125th) 0.548 low IHDI (2022)[10]
Labor force	2.91 million (2019 est.)
Labor force by occupation	agriculture: 21% industry: 20% services: 58% (2011 est.)
Unemployment	6.9% (2016 est.)
Main industries	food processing, beverages, petroleum, chemicals, fertilizer, textiles, furniture, light metals
External
Exports	$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	United States 40%  Guatemala 15%  Honduras 15%  Nicaragua 6% (2019 est.)[11]
Imports	$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	United States 30%  China 14%  Guatemala 13%  Mexico 8%  Colombia 5.7%  European Union 4.0% (2019 est.)[12]
Gross external debt	$17.24 billion (2019 est.)
Public finances
Revenues	US$5.89 billion (2017 est.)
Expenses	US$6.52 billion (2017 est.)
Economic aid	US$300 million (2010 est.)
Credit rating	Standard & Poor's:[13] BB (Domestic) BB- (Foreign) AAA (T&C Assessment)
Foreign reserves	US$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]