El Salvador

Growth is moderate again, driven by investment and tourism

Following a rebound in 2025, El Salvador’s economic growth has slowed in 2026, driven by a return to normal levels of activity in the construction sector and expatriate remittances, as well as a resurgence in inflation associated with the oil shock caused by the conflict in the Middle East.

In 2027, economic activity is set to slow further. Private consumption (80% of GDP) will remain the main driver. Inflation, kept in check by dollarisation, is expected to subside after the 2026 spike associated with the energy crisis. Conversely, after reaching a record high in 2025 (USD 10 billion), remittances (25% of GDP, 92% from the US) will decrease amid tightening of US immigration policy and the expiration of El Salvador’s temporary protected status. Year-over-year remittance growth fell to +2.7% in May 2026, while their cumulative growth for January–May reached 6.1%, compared with an average of +17.8% in 2025. Furthermore, tourism (14% of GDP) is being supported by the improved security situation, with record visitor numbers (1.7 million arrivals in the first four months of 2026), primarily from Guatemala and the US, which respectively accounted for 36% and 32% of the total in 2025. Furthermore, public and private investment is expected to remain robust and will continue to be supported by the construction sector, which is expected to grow by 9% in 2026, following a particularly high base effect in 2025 (26% growth). The sector is being driven by a vast public infrastructure programme (Pacific Airport, Morazán Viaduct, Metrocable transit network) and a private investment portfolio totaling more than USD 9 billion in housing, logistics and tourism. However, investors will be torn between the low crime rate and the drift toward authoritarianism. Last, public spending will be subdued due to fiscal consolidation commitments.

In terms of trade, apparel remains the leading export sector (22% of total exports in 2025, half of which is destined for the US). The sector benefits from trade agreements with the US (the US market is El Salvador’s top customer and accounted for 33% of total exports in 2025). The 2026 agreement exempts certain apparel items that comply with CAFTA-DR rules of origin from the 10% US additional duty, while other products are expected to remain subject to an additional duty capped at 10%. Furthermore, coffee exports will be affected by El Niño (production is expected to decline by 7.5% in 2026/27) and structural limits, including ageing plantations and labour shortages.

Fiscal consolidation fragile in the face of a pension system in need of reform

After falling significantly in 2025, the budget deficit stabilided in 2026. Strong tax revenue in the first half of the year has offset increased public spending —particularly on infrastructure — in the second half of the year, as the February 2027 elections approach. In response to the energy crisis, the government reintroduced controls on the reference price of fuel and expanded direct subsidies. The 2026 budget has allocated USD 170 million for LPG and public transportation (1.6% of budget expenditures). In 2027, the deficit is expected to remain stable, supported by spending rationalisation, growing formalisation of the economy and a gradual elimination of certain tax exemptions. The funded program agreed upon with the IMF in February 2025 will remain the anchor of fiscal policy. It was secured after four years of negotiations, following the revocation of bitcoin’s status as legal tender (which had been in place since 2021) and the shift to voluntary use, particularly for tax payments. The authorities have committed to further reducing the public sector’s exposure to bitcoin and the “Chivo” digital wallet. To date, the IMF has disbursed only USD 232 million out of a total allocation of USD 1.4 billion scheduled through mid-2028. The second and third reviews of the program did not take place, largely due to the lack of a formal proposal for pension reform and the ongoing disagreement over the role of Bitcoin. However, the discussions that began in late July 2026 helped consolidate the program and a new review mission is now expected.

Public debt is heavy and predominantly denominated in US dollars. It is evenly split between external and domestic debt. As far as domestic debt is concerned, liabilities to private pension funds have increased by USD 3.1 billion since the beginning of 2023 and reached USD 11.6 billion in May 2026. The trend prompted the IMF to recommend reforms to strengthen the sustainability of the pension system. Since the system’s privatisation in 1998, pension funds have invested a significant portion of household savings in government securities, making them a major source of government financing. The system’s actuarial deficit for the period 2024-2070 is estimated at nearly 60% of GDP, while the solidarity guarantee fund, used to supplement pensions, could be depleted as early as 2027 unless contribution rates and/or the retirement age are raised. Meanwhile, 51% of the external debt (44% of GDP at the end of 2025) is held by private creditors, primarily bondholders, with the remainder held by multilateral organisations. Debt service amounted to USD 3.1 billion in 2025, representing nearly one-fifth of the executed budget. In this context, an initial domestic debt restructuring, carried out in 2023 with the pension system and local banks, made it possible to extend maturities and reduce short-term pressure. In addition, the country’s return to the international market in 2024 enabled the government to finance the repurchase of three Eurobonds totalling approximately USD 1.8 billion, maturing in 2025, 2027 and 2029, and to clear arrears.

The current account deficit will widen this year on back of a deeper trade deficit as El Salvador is a net importer of energy (6% of GDP). The trade deficit is structurally high and results from strong demand for imported goods (construction materials, fuels, equipment and consumer goods) driven by the construction boom and resilient consumer spending. However, the deficit is almost offset by expatriate remittances. In 2027, the current account deficit is expected to moderate thanks to a gradual decline in energy prices. Clothing exports will continue to benefit from preferential access to the US market, but coffee exports will remain hampered by El Niño. Furthermore, remittance flows will continue to normalise as the tightening of US immigration policy has brought Salvadoran immigration to a standstill. Tourism will provide a counterbalance. FDI (less than 2% of GDP) will not be enough to cover the deficit, which will continue to be financed by portfolio flows and multilateral disbursements, subject to the resumption of IMF disbursements. Last, the foreign exchange reserves of Banco de El Salvador (BCR) reached a record high of USD 5.1 billion in April 2026 (compared with a low of USD 2.4 billion at the end of 2022), supported by strong remittances and the financing agreement reached with the IMF. They cover approximately three months of imports. External liquidity is further bolstered by the foreign assets held by commercial banks, which totalled USD 3 billion midway through 2026.

President Bukele on track for a third term in 2027

President Nayib Bukele was first elected in February 2019 to a five-year term and was re-elected in February 2024. In July 2026, he won – unopposed – the primary of his right-wing party, Nuevas Ideas, setting the stage for his candidacy for a third consecutive term in the February 2027 general elections. His quest for re-election has been facilitated by a series of constitutional reforms enacted by Nuevas Ideas’ supermajority in Congress (54 out of 60 seats). In 2021, the sacking and replacement of the judges of the Constitutional Court and the Attorney General with the administration’s allies enabled him to run for a second term. Then in July 2025, the limit on terms was abolished and the presidential term of office was extended from five to six years, the election system was changed to a single-round system and the 2029 election was moved up to 2027. In April 2026, the rules governing the appointment of judges to the Supreme Electoral Tribunal were also amended to give Congress sole authority over the court. The various moves were made possible by Bukele’s exceptional presidential popularity – he enjoyed an approval rating of up to 94% in March 2026 – as a result of the country’s security transformation. The homicide rate fell to 1.3 persons per 100,000 inhabitants in 2025, the lowest in all Latin America. A state of emergency, which has been in continuous effect since March 2022, suspends certain procedural safeguards and authorises arrests without a warrant. The launch of a digital and artificial intelligence strategy will round out the President’s campaign narrative and seek to showcase government action that goes beyond security alone. Nevertheless, the weakening of the systems of checks and balances is fuelling uncertainty about the legal and regulatory framework, which is weighing on investor confidence.

Close ties with the Trump administration will remain the cornerstone of El Salvador’s foreign policy. This is reflected in cooperation on migration (accepting deportees) and security, a reciprocal trade agreement signed in January 2026 and a visit in May 2026 by a US State Department delegation accompanied by investors. At the same time, El Salvador will maintain its economic relations with China, particularly regarding infrastructure financing, without undermining the priority given to Washington. Last, regional integration will continue with Guatemala and Honduras.

Last updated: August 2026