The economy of El Salvador in 2025

The government in El Salvador is trying to address years of lackluster macroeconomic performance.  Despite all the publicity surrounding tourism growth and Bitcoin initiatives, figures released by El Salvador's Central Reserve Bank show that annual economic growth in El Salvador for 2024 was a very modest 2.6%.

Recently Salvador president Nayib Bukele posted on X a plan to infuse liquidity into the Salvadoran economy by advancing payments to medium, small and micro businesses and by paying down government debt held by Salvadoran banks. The funds come from the recently approved loan facility of the International Monetary Fund.   It is hoped that this will kickstart economic activity at the local level.

Fitch Ratings described the level to which public debt has climbed during the Bukele administration:

El Salvador’s public debt, which we estimate at 87.6% of GDP in 2024, is well above the ratings peer median (2024: 50.3%) and is a key sovereign rating weakness. Fitch forecasts consolidation at the general government level under the program to keep the public debt/GDP ratio stable this year and lead to a slight decline to 87.5% in 2026.

Bukele continues to hold up tourism as the fuel for the country's growth.   The president held an event in the east of the country to proclaim the ongoing development of "Surf City 2."   Essentially the project consists of infrastructure improvements, primarily highway improvement between prime surfing beaches in the eastern part of the country.  

US Secretary of State Marco Rubio announced that the US had lowered its travel advisory level to "1" for El Salvador, representing the least safety risk.   Bukele has retweeted that news in various formats more than 20 times already.  

But the country will face headwinds in 2025.  The new Trump tariffs apply to El Salvador at the 10% level.  El Salvador exported $2.41 billion of goods to the US in 2023, with the two leading products being t-shirts and sweaters, which will all cost 10% more for US consumers. To the extent that Trump does not increase the 10% tariff and continues to punish countries like China and Vietnam with higher tariff rates, El Salvador may be able to attract investment on the concept that El Salvador is less likely to be exposed to tariff swings and that such "near shoring" is a prudent business strategy.

Garment factory

The risk of a recession in the US is perhaps El Salvador's greatest economic risk.  An economic downturn would threaten the ability of Salvadorans in the US to send the remittances which represent almost 25% of the smaller country's economy.  Remittances totaled $8.5 billion in 2024.  Trump's deportation machine may also expel workers earning money for remittances, and make it more difficult for Salvadorans who lack fixed immigration status to get and keep jobs.  A US downturn would also reduce demand for Salvadoran products and reduce tourism flows as consumers have less disposable income.

Bukele's favorite digital asset, Bitcoin, is also down more than 20% from its highs above $100,000 hit during December and January.

Bukele travels to Washington on Monday, April 14 to meet with Trump.   It's not clear whether they will discuss economic topics other than the $6 million El Salvador is receiving for Bukele's prison for hire.

Meanwhile, the Salvadoran government appears to be disinvesting in rural areas of the country outside of the coastal tourist areas.  There were reports in the Salvadoran press this week that 29 "ECOs", small community health clinics designed to bring basic primary and preventive health services to remote communities, are being closed.  A Salvadoran teachers' syndicate reported that some 70 schools in impoverished areas have now been closed during Bukele's administration, while his promise to renovate some 5000 schools is less than 10% fulfilled more than 3 years after he made the vow.