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- GDP (PPP):
- $54.8 billion
- 2.4% growth
- 2.0% 5-year compound annual growth
- $8,909 per capita
- Inflation (CPI):
- FDI Inflow:
El Salvador’s economic freedom score is 63.2, making its economy the 75th freest in the 2018 Index. Its overall score has decreased by 0.9 point, primarily because of significantly lower scores for property rights and government integrity. El Salvador is ranked 16th among 32 countries in the Americas region, and its overall score is above the regional and world averages.
After nearly a decade of statist governments, El Salvador has suffered a steady decline in economic freedom. Cumbersome bureaucracy and 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 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.
After its 12-year civil war ended in 1992, El Salvador enjoyed strong economic growth and poverty reduction with aggressive free-market policies under a succession of center-right National Republican Alliance presidents. Since 2009, governments of the leftist Farabundo Martí National Liberation Front (FMLN) have increased the state’s role in the economy. President Salvador Sánchez Cerén will leave office in 2019 with a record 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 electricity and the assembly of intermediate goods. Remittances account for nearly one-fifth of GDP, and one-third of the population lives below the poverty line.
The legal system that governs property rights in El Salvador is complex, and enforcement efforts are uneven. The judicial system remains weak, plagued by corruption and obstructionism, and subject to political influence. Corruption scandals at all government levels, often narco-related, are common. Due to rampant gang-related violence, El Salvador is considered one of the world’s most dangerous countries.
The top personal income and corporate tax rates are 30 percent. Other taxes include value-added and excise taxes. The overall tax burden equals 17.5 percent of total domestic income. Over the past three years, government spending has amounted to 21.3 percent of total output (GDP), and budget deficits have averaged 3.0 percent of GDP. Public debt is equivalent to 59.9 percent of GDP.
El Salvador lags behind the region in attracting foreign direct investment. In 2016, the government imposed minimum wage increases ranging from 19 percent to 105 percent. Only about 28 percent of Salvadorans work in the formal sector. The government spends about 4 percent of GDP on poorly targeted subsidies, especially for electricity, liquefied petroleum gas, and transportation, and imposes price controls on a range of goods and services.
Trade is significant for El Salvador’s economy; the combined value of exports and imports equals 64 percent of GDP. The average applied tariff rate is 1.8 percent. Nontariff barriers impede some trade. In general, government policies do not significantly interfere with foreign investment. The financial sector is dominated by mostly foreign-owned banks. Two state-owned banks focus on mortgages and agricultural-sector financial services, respectively.