2022 Index of Economic Freedom

El Salvador

OVERALL SCORE59.6
WORLD RANK90
Rule of Law

Property Rights43.2

Judicial Effectiveness46.8

Government Integrity36.1

Government Size

Tax Burden77.7

Government Spending74.7

Fiscal Health50.3

Regulatory Efficiency

Business Freedom65.0

Labor Freedom54.6

Monetary Freedom76.8

Open Markets

Trade Freedom69.4

Investment Freedom60.0

Financial Freedom60.0

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Quick Facts
  • Population:
    • 6.5 million
  • GDP (PPP):
    • $54.6 billion
    • -8.6% growth
    • 0.2% 5-year compound annual growth
    • $8,422 per capita
  • Unemployment:
    • 7.0%
  • Inflation (CPI):
    • 0.2%
  • FDI Inflow:
    • $200.0 million

El Salvador’s economic freedom score is 59.6, making its economy the 90th freest in the 2022 Index. El Salvador is ranked 18th among 32 countries in the Americas region, and its overall score is above the regional average but below the world average.

Over the past five years, El Salvador’s economic growth accelerated until 2019, turned negative in 2020, and rebounded in 2021. A five-year trend of declining economic freedom has continued. Dragged down by sharp drops in scores for fiscal health and trade freedom, El Salvador has recorded a 4.5-point overall loss of economic freedom since 2017 and has fallen from the “Moderately Free” category to the “Mostly Unfree” category. Scores for tax burden and government spending are relatively good, but government integrity is weak.

IMPACT OF COVID-19: As of December 1, 2021, 3,778 deaths had been attributed to the pandemic in El Salvador, and the government’s response to the crisis ranked 146th among the countries included in this Index in terms of its stringency. The economy contracted by 8.6 percent in 2020.

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Background

After its 12-year civil war ended in 1992, El Salvador enjoyed robust growth under center-right governments until the leftist and statist Farabundo Martí National Liberation Front (FMLN) took power in 2009. Nayib Bukele, a former FMLN mayor, formed a third party and handily won a five-year term as president in 2019. He pledged to improve the investment climate by addressing investor concerns about bureaucracy, corruption, and the politicized legal system. Since taking office, however, Bukele has increasingly exhibited authoritarian tendencies. His Supreme Court allies have unconstitutionally permitted him to seek an immediate second term, and his commitment to reform is now in question. Its location on Central America’s isthmus makes El Salvador a key transshipment point for drug trafficking.

Rule of Law

Property Rights 43.2 Create a Graph using this measurement

Judicial Effectiveness 46.8 Create a Graph using this measurement

Government Integrity 36.1 Create a Graph using this measurement

Property rights are recognized by law, but enforcement is uneven. The judiciary is independent but slow and costly, and some judges have been subject to political, economic, or other corrupting influences. Corruption is widespread at all levels of government. In June 2021, the increasingly corrupt and authoritarian Bukele administration terminated El Salvador’s participation in a regional agreement against impunity.

Government Size

The top individual income and corporate tax rates are 30 percent. Other taxes include value-added and excise taxes. The overall tax burden equals 20.8 percent of total domestic income. Government spending has amounted to 29.1 percent of total output (GDP) over the past three years, and budget deficits have averaged 4.6 percent of GDP. Public debt is equivalent to 88.2 percent of GDP.

Regulatory Efficiency

Nontransparent and contradictory emergency decrees in response to COVID-19 exacerbated an already murky regulatory environment that traditionally has made the conduct of business in El Salvador complicated. Laws and regulations are not applied uniformly. Some labor laws are enforced more than others. The government continues to subsidize state-owned enterprises in energy production, water supply and sanitation, ports, and airports.

Open Markets

El Salvador has 13 preferential trade agreements in force. The trade-weighted average tariff rate is 7.8 percent, and 12 nontariff measures are in effect. Cumbersome bureaucracy and institutional weaknesses continue to undercut investment flows. The financial sector is dominated by mostly foreign-owned banks. Two state-owned banks focus on mortgages and agricultural-sector financial services, respectively.

Country's Score Over Time

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Regional Ranking

RANK COUNTRY OVERALL CHANGE
1Canada76.6-1.3
2Chile74.4-0.8
3United States72.1-2.7
4Barbados71.36.3
5Uruguay700.7
6The Bahamas68.74.1
7Jamaica67.4-1.6
8Peru66.5-1.2
9Saint Vincent and the Grenadines65.7-0.6
10Costa Rica65.41.2
11Panama65.4-0.8
12Colombia65.1-3.0
13Saint Lucia64.3-3.2
14Mexico63.7-1.8
15Guatemala63.2-0.8
16Dominican Republic630.9
17Paraguay62.90.3
18El Salvador59.6-1.4
19Guyana59.52.1
20Honduras59.5-0.3
21Trinidad and Tobago58.8-0.2
22Belize56.6-0.9
23Nicaragua54.8-1.5
24Dominica54.41.4
25Ecuador54.31.9
26Brazil53.3-0.1
27Argentina50.1-2.6
28Haiti50-0.8
29Suriname48.11.7
30Bolivia430.3
31Cuba29.51.4
32Venezuela24.80.1
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