2015 Index of Economic Freedom

El Salvador

overall score65.7
world rank62
Rule of Law

Property Rights35.0

Freedom From Corruption38.0

Limited Government

Government Spending85.5

Fiscal Freedom79.4

Regulatory Efficiency

Business Freedom53.3

Labor Freedom53.3

Monetary Freedom82.5

Open Markets

Trade Freedom85.2

Investment Freedom75.0

Financial Freedom70.0

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Quick Facts
  • Population:
    • 6.3 million
  • GDP (PPP):
    • $47.5 billion
    • 1.6% growth
    • 0.8% 5-year compound annual growth
    • $7,515 per capita
  • Unemployment:
    • 6.3%
  • Inflation (CPI):
    • 0.8%
  • FDI Inflow:
    • $140.1 million
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El Salvador’s economic freedom score is 65.7, making its economy the 62nd freest in the 2015 Index. Its overall score is 0.5 point lower than last year, with declines in labor freedom, business freedom, and property rights outweighing improvements in trade freedom, investment freedom, and freedom from corruption. El Salvador is ranked 12th out of 29 countries in the South and Central America/Caribbean region, and its overall score remains above the world average.

Over the past five years, economic freedom in El Salvador has declined by over 3.0 points, and the country has recorded its lowest score ever in the 2015 Index. Declines in half of the 10 economic freedoms include especially serious deteriorations in fiscal freedom and regulatory efficiency.

El Salvador’s deteriorating economic freedom undermines an already weak institutional environment. Rampant violent crime further incapacitates a legal environment that is already subject to lingering corruption and obstructionism. However, relatively open trading and investment environments have fueled growth and offset other weaknesses.

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Background

After the end of El Salvador’s 12-year civil war in 1992, three successive presidents from the National Republican Alliance (ARENA) sought to liberalize the economy in order to spur growth. A fourth, Antonio Saca (2004–2009), broke with that line of thinking. Corruption and deteriorating property rights during the Saca administration alienated foreign investors and drove the electorate to look for another option. Mauricio Funes of the Farabundo Martí Liberation Front (FMLN), elected in 2009, stepped into the vacuum, but his policies further undermined the rule of law. FMLN member and former guerrilla commander Salvador Sánchez Cerén succeeded Funes in March 2014. The disintegration of a gang truce has led to an increase in homicides, and El Salvador currently has the world’s fourth-highest murder rate. Two days after Sánchez Cerén’s inauguration, El Salvador became a member of Petrocaribe, an alliance formed by former Venezuelan President Hugo Chávez.

Rule of LawView Methodology

Property Rights 35.0 Create a Graph using this measurement

Freedom From Corruption 38.0 Create a Graph using this measurement

In 2014, an arrest warrant was issued for a former president on corruption charges including embezzlement and illicit gains, but few high-level public officials have ever been convicted. The judicial system is somewhat independent but still subject to corruption and obstructionism. Property rights are not strongly respected, and law enforcement is inefficient and uneven. Violent crime, much of it gang-related, remains a problem.

Limited GovernmentView Methodology

El Salvador’s top individual and corporate income tax rates are 30 percent. Other taxes include a value-added tax and excise taxes. Total tax revenue equals 16 percent of gross domestic product. Government spending has reached 22 percent of the total domestic economy in the most recent year, and public debt is equivalent to 55 percent of domestic income.

Regulatory EfficiencyView Methodology

Despite ongoing reform efforts, the overall regulatory environment remains burdensome. Starting a business takes over two weeks on average, and obtaining necessary permits involves 25 procedures. Lack of flexibility in the labor market hinders job growth. Although electricity generation has been largely privatized, the government partially subsidizes fuels and imposes price controls on several goods and services.

Open MarketsView Methodology

El Salvador’s average tariff rate is 2.4 percent. Imports of agricultural products can face additional barriers. Foreign and domestic investors are generally subject to the same rules. Banks, largely foreign-owned and private, dominate the evolving financial system. The two state-owned banks account for less than 5 percent of all loans. A weak legal framework constrains local capital market development.

Country's Score Over Time

Bar Graph of El Salvador  Economic Freedom Scores Over a Time Period

Country Comparisons

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Regional Ranking

rank country overall change
1Chile78.5-0.2
2Colombia71.71.0
3Saint Lucia70.2-0.5
4The Bahamas68.7-1.1
5Uruguay 68.6-0.7
6Saint Vincent and the Grenadines681.0
7Barbados67.9-0.4
8Peru67.70.3
9Jamaica 67.71.0
10Costa Rica 67.20.3
11Dominica66.10.9
12El Salvador 65.7-0.5
13Trinidad and Tobago64.11.4
14Panama 64.10.7
15Paraguay 61.1-0.9
16Dominican Republic61-0.3
17Guatemala 60.4-0.8
18Nicaragua 57.6-0.8
19Honduras 57.40.3
20Belize56.80.1
21Brazil56.6-0.3
22Guyana55.5-0.2
23Suriname54.20.0
24Haiti51.32.4
25Ecuador49.21.2
26Bolivia46.8-1.6
27Argentina44.1-0.5
28Venezuela 34.3-2.0
29Cuba29.60.9
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