2017 Index of Economic Freedom

El Salvador

overall score64.1
world rank66
Rule of Law

Property Rights45.3

Government Integrity31.7

Judicial Effectiveness35.4

Government Size

Government Spending85.9

Tax Burden79.0

Fiscal Health74.7

Regulatory Efficiency

Business Freedom57.3

Labor Freedom54.5

Monetary Freedom79.2

Open Markets

Trade Freedom86.5

Investment Freedom80.0

Financial Freedom60.0

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Quick Facts
  • Population:
    • 6.4 million
  • GDP (PPP):
    • $52.9 billion
    • 2.4% growth
    • 2.1% 5-year compound annual growth
    • $8,303 per capita
  • Unemployment:
    • 6.4%
  • Inflation (CPI):
    • -0.7%
  • FDI Inflow:
    • $428.7 million
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El Salvador’s economy, once considered to be among the region’s most promising, has been suffering from a gradual decline in economic freedom. Institutional weaknesses continue to slow development, and judicial independence and the rule of law have eroded in recent years. Government interference in the private sector has increased, with populist spending measures and price controls further distorting markets.

Open-market policies that support El Salvador’s engagement with the world through trade and investment are still largely in place, but overall competitiveness is increasingly constrained by chronic fiscal deficits and regulatory inefficiency. A growing perception of corruption has undermined popular trust in government.

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Background

Since 2009, governments of the leftist Farabundo Martí National Liberation Front have increased the state’s role in the economy and strengthened their alliance with the socialist, Venezuela-led Alliance for the Peoples of Our America (ALBA). The term of the current president, Salvador Sánchez Cerén, will end in 2019. He has pursued relatively moderate policies but has lost popularity as a result of anemic economic growth, weak government effectiveness, a surge in violence and drug trafficking, and rising gang-related homicides. The economy relies on exports of coffee, sugar, textiles and apparel, gold, ethanol, chemicals, and the assembly of intermediate goods. Remittances account for nearly one-fifth of GDP.

Rule of LawView Methodology

Property Rights 45.3 Create a Graph using this measurement

Government Integrity 31.7 Create a Graph using this measurement

Judicial Effectiveness 35.4 Create a Graph using this measurement

Property rights are not strongly respected, and enforcement efforts to protect them are uneven. No single natural or legal person can own more than 245 hectares (605 acres) of land. Substantial corruption in the judicial system contributes to a high level of impunity, undermining the rule of law and the public’s respect for the judiciary. Narcotics-related corruption within El Salvador’s political system remains a serious problem.

Government SizeView Methodology

The top personal income and corporate tax rates are 30 percent. Other taxes include a value-added tax and excise taxes. The overall tax burden equals 17.3 percent of total domestic income. Government spending has amounted to 21.7 percent of total output (GDP) over the past three years, and budget deficits have averaged 3.4 percent of GDP. Public debt is equivalent to 58.9 percent of GDP.

Regulatory EfficiencyView Methodology

Despite some progress, regulations are enforced inconsistently. The inefficient labor market lacks flexibility, and imbalances persist in the demand for and supply of skilled workers. The government imposes price controls on a range of goods and services. In its report on El Salvador’s fiscal deficit in 2016, the IMF noted the government’s failure to reform poorly targeted subsidies, especially for electricity, liquefied petroleum gas, and transportation.

Open MarketsView Methodology

Trade is important to El Salvador’s economy; the value of exports and imports taken together equals 68 percent of GDP. The average applied tariff rate is 1.8 percent. In general, foreign and domestic investors are treated equally, and there is no screening of foreign investment. Banking is highly concentrated, with four private banks accounting for over 70 percent of total assets.

Country's Score Over Time

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Regional Ranking

rank country overall change
1Canada78.50.5
2Chile76.5-1.2
3United States75.1-0.3
4Colombia69.7-1.1
5Uruguay 69.70.9
6Jamaica 69.52.0
7Peru68.91.5
8Panama 66.31.5
9Saint Vincent and the Grenadines65.2-3.6
10Saint Lucia65-5.0
11Costa Rica 65-2.4
12El Salvador 64.1-1.0
13Dominica63.7-3.3
14Mexico63.6-1.6
15Guatemala 631.2
16Dominican Republic62.91.9
17Paraguay 62.40.9
18Trinidad and Tobago61.2-1.7
19The Bahamas61.1-9.8
20Nicaragua 59.20.6
21Honduras 58.81.1
22Belize58.61.2
23Guyana58.53.1
24Barbados54.5-13.8
25Brazil52.9-3.6
26Argentina50.46.6
27Haiti49.6-1.7
28Ecuador49.30.7
29Suriname48-5.8
30Bolivia47.70.3
31Cuba33.94.1
32Venezuela 27-6.7
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