2016 Index of Economic Freedom

El Salvador

overall score65.1
world rank63
Rule of Law

Property Rights35.0

Freedom From Corruption39.0

Limited Government

Government Spending85.3

Fiscal Freedom79.1

Regulatory Efficiency

Business Freedom56.0

Labor Freedom52.6

Monetary Freedom83.4

Open Markets

Trade Freedom85.8

Investment Freedom75.0

Financial Freedom60.0

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Quick Facts
  • Population:
    • 6.4 million
  • GDP (PPP):
    • $50.9 billion
    • 2.0% growth
    • 1.8% 5-year compound annual growth
    • $8,021 per capita
  • Unemployment:
    • 6.2%
  • Inflation (CPI):
    • 1.1%
  • FDI Inflow:
    • $275.0 million
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The government’s turn away from economic reform and liberalization has caused El Salvador’s economy to record a gradual decline in dynamism. Institutional shortcomings have slowed growth, and regulatory inefficiency and the precarious security situation have undercut competitiveness.

Economic Freedom Snapshot

  • 2016 Economic Freedom Score: 65.1 (down 0.6 point)
  • Economic Freedom Status: Moderately Free
  • Global Ranking: 63rd
  • Regional Ranking: 12th in the South and Central America/Caribbean Region
  • Notable Successes: Trade Freedom and Monetary Freedom
  • Concerns: Property Rights and Corruption
  • Overall Score Change Since 2012: –3.6

Law enforcement remains ineffective, respect for the rule of law is low, and corruption is perceived as widespread. Crime and violence continue to disrupt overall social development and economic growth.

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Background

Following four years of rule by FMLN President Mauricio Funes, Salvador Sánchez Cerén, a former Marxist guerrilla of the same party, took office in June 2014 following a narrow and hotly contested election. Since then, increasing violent crime and slow economic growth have eroded his popularity. The opposition center-right Alianza Republicana Nacionalista (ARENA) became the largest party in Congress after March 2015 midterm elections, but Sánchez Cerén still controls the legislature through an FMLN coalition with the smaller, putatively right-wing Gran Alianza Nacional (Gana) party. Transparency International’s San Salvador representative has alleged that the FMLN government’s persecution of political enemies is reminiscent of the 1970s military governments. El Salvador’s National Association of Private Enterprise has accused the government of using social media to harass those who defend free speech, generate jobs, and are considered the opposition. In two successive presidential terms, the FMLN has increased the state’s role in the economy.

Rule of LawView Methodology

Property Rights 35.0 Create a Graph using this measurement

Freedom From Corruption 39.0 Create a Graph using this measurement

El Salvador had one of the world’s highest per capita homicide rates in 2015, much of it related to gang activity and narco-trafficking. Corruption is still a serious problem, and few high-level public officials have been charged or convicted. The judicial system is somewhat independent but remains subject to corruption and obstructionism. Property rights are not strongly respected, and law enforcement is inefficient and uneven.

Limited GovernmentView 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 17.1 percent of total domestic income. Government spending amounts to 22.1 percent of total domestic output. The government budget is chronically in deficit, and public debt has increased to about 57 percent of GDP.

Regulatory EfficiencyView Methodology

A significant reduction in the minimum capital requirement has made business start-ups less burdensome, but obtaining the necessary permits remains time-consuming. Imbalances persist in the demand and supply of skilled workers in the rigid labor market. The government imposes price controls on a range of goods and services, and the IMF reports that poorly targeted subsidies cost the economy about 1 percent of GDP each year.

Open MarketsView Methodology

El Salvador’s average tariff rate is 2.1 percent. Quotas and high tariffs restrict rice and pork imports. Foreign and domestic investors are generally treated equally under the law, but the slow-moving judicial system may discourage foreign investment. Banking is highly concentrated, with four private banks accounting for over 70 percent of total assets. Progress in broader financial-sector reforms has been limited.

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
1Chile77.7-0.8
2The Bahamas70.92.2
3Colombia70.8-0.9
4Saint Lucia70-0.2
5Saint Vincent and the Grenadines68.80.8
6Uruguay 68.80.2
7Barbados68.30.4
8Jamaica 67.5-0.2
9Peru67.4-0.3
10Costa Rica 67.40.2
11Dominica670.9
12El Salvador 65.1-0.6
13Panama 64.80.7
14Trinidad and Tobago62.9-1.2
15Guatemala 61.81.4
16Paraguay 61.50.4
17Dominican Republic610.0
18Nicaragua 58.61.0
19Honduras 57.70.3
20Belize57.40.6
21Brazil56.5-0.1
22Guyana55.4-0.1
23Suriname53.8-0.4
24Haiti51.30.0
25Ecuador48.6-0.6
26Bolivia47.40.6
27Argentina43.8-0.3
28Venezuela 33.7-0.6
29Cuba29.80.2
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