1. Overview: Obstacles, opportunities and priorities for development in El Salvador

El Salvador has attained major achievements during the last three decades, including the peaceful resolution of its civil war, a series of significant institutional reforms, and substantial improvements to the well-being of Salvadorans. Growth in real gross domestic product (GDP) accelerated after the end of the war, bolstered by strong exports and private investment, but it has moderated since. Current measures of citizens’ well-being show signs of considerable progress, especially in terms of infrastructure and employment.

However, great economic, social and environment challenges still lie ahead for the country. El Salvador needs to advance towards the consolidation of its middle class by improving the social services that are delivered to all Salvadorans. For decades, persistent high rates of violence imposed high extra costs for Salvadoran society, and also exerted a significant negative impact on all dimensions of development in the country1. El Salvador’s high degree of vulnerability to natural hazards and extreme weather events, as well as a legacy of mismanagement of natural resources, are important constraints to the country’s development path. Low levels of investment over several decades have limited growth potential, and low tax compliance is a major drain on the mobilisation of domestic resources, limiting the state’s ability to respond to these challenges.

El Salvador’s development model remains to a large extent in the configuration in which it was set at the end of the 20th century. Liberalising reforms paved the way for a small, open, free-market economy, albeit one in which the limited size of the domestic market and a relatively high concentration of economic clout have led to a high degree of concentration in key sectors. Democratic institutions were consolidated in the post-war years around a highly polarised two-party system. This ensured peaceful political confrontation, but in some cases it also contributed to undermining trust in key political institutions. The gradual expansion of public services and social protection have contributed to reducing inequality and improving living standards. Finally, the country’s development has a strong gravitational centre in the metropolitan capital city, with limited capacity in other territories to establish a development path of their own.

Global and domestic transformations call for a reconsideration of El Salvador’s development model. The country’s export-led manufacturing model has failed to deliver strong growth and job-creation. This is partly a consequence of stalling reforms and of the persistence of violence and crime, which for its part is also fuelled by the economy’s failure to offer a livelihood to many of its young people. Ongoing transformations in the global economy, including the emergence of new global players, digitalisation, and the increase in trade in services, offer new opportunities and challenges, but will require decisive action that transcends the political cycle if El Salvador is to attain its development objectives. This reassessment of the development model is in line with the “development in transition” approach, which recognises the need to adopt and implement national strategies that do not merely follow a linear predetermined path, but rather take into consideration country-specific development challenges and opportunities.

The Multi-dimensional Country Review (MDCR) of El Salvador has been undertaken to support the country in achieving its development objectives. The MDCR process is implemented in three phases: i) initial assessment, ii) in-depth analysis and recommendations and iii) from analysis to action2.

The initial assessment (Part I) builds on the OECD framework for measuring well-being and progress and on the 2030 Agenda for Sustainable Development and Sustainable Development Goals (SDGs) to identify the binding constraints to achieving sustainable and equitable improvements in well-being and economic growth. Whenever relevant and subject to data availability, El Salvador is compared with a set of benchmark countries, selected jointly by the team undertaking the review and El Salvador, in Latin America (Costa Rica, the Dominican Republic, Ecuador, Guatemala, Honduras, Nicaragua, Panama) and beyond (Estonia, Sri Lanka, Morocco, Serbia, Viet Nam). The choice of these countries is based on factors such as income per capita, size, structural characteristics and the degree to which experiences from some of these countries could be useful models for policy development in El Salvador.

The second phase analyses the key constraints that were identified in order to formulate policy recommendations that can be integrated into El Salvador’s development strategy. The third and final phase of the MDCR further hones the analysis and recommendations through a participatory process in order to build support for their implementation. Part 2 of this report combines the results of the second and third phases of the review. Action plans developed during the participatory process are clearly signalled in the respective thematic chapters, while key insights drawn from the process have been incorporated into the text.

This overview chapter analyses El Salvador’s performance in the key dimensions of well-being and brings together the results of the Review’s three phases. Firstly, it provides a brief presentation of the historical and structural context of El Salvador’s development path, as well as an overview of the impact of the COVID-19 pandemic in the country. Secondly, the chapter analyses the country’s performance across a range of well-being indicators. Thirdly, it builds on the thematic sections in Chapter 2 to identify the key constraints to development in the country. Finally, it summarises the key policy recommendations from the thematic chapters of the report in order to highlight priorities for action in the areas of productive transformation, water resource management, education and skills, and public governance. A table at the end of the chapter provides an overview of the recommendations included in the Review.

Until the 1970s, El Salvador’s model of development was largely based on the development of agricultural exports, and was dominated by the coffee industry. Coffee production had been organised with state support since the end of the 19th century, and a coffee oligarchy3 had effectively ruled El Salvador with the support of the military since the 1930s. Coffee was a key source of economic dynamism and the main source of foreign exchange, and in the early 1950s it made up 87.5% of exports (Dada, 1978[1]). Land was highly concentrated: by 1971, large agricultural properties of over 200 hectares (ha) occupied 28% of agricultural land, while small properties under 10 ha occupied 27% (Pleitez, 1986[2]). A latifundia-minifundia land regime ensured the availability of excess labour for harvest duties while depressing wages, and sustained the growth of plantation crops as the economy diversified from coffee into cotton and sugarcane.

Starting in the 1950s, and despite the centrality of agricultural production, the country forged an industrial base through import substitution policies. Rents from agricultural export sectors provided capital for the development of light manufacturing industries. Manufacturing was linked in large part to the processing of agricultural goods (textiles, coffee) and the production of agricultural inputs (fertiliser). The impetus provided by the Central American Common Market (CACM) in 1960 contributed to rapid growth in the manufacturing sector of 8.1% between 1960 and 1970. By 1969, the manufacturing sector made up 21% of value added in El Salvador. However, it employed only 11% of the labour force in 1970, and half of the manufacturing labour force was employed in the processing of key agricultural exports (Acevedo, 2003[3]).

The 1970s marked the decline of the prevailing political and economic model and the intensification of political and social strife. A process of relative openness had permitted the emergence of opposition political parties during the 1960s, alongside a process of economic modernisation. The possibility of a left-wing opposition win in presidential elections in 1972 was thwarted by electoral fraud. This episode was a turning point in Salvadoran politics. Mobilisations intensified, and so did repression from the military regime and paramilitary groups. On the economic front, war with Honduras in 1969 marked the beginning of the decline of the CACM, closing markets for the Salvadoran economy, and also shutting an escape valve for excess rural labour, fuelling social strife (Wade, 2016[4]).

From 1979 onwards the intensification of conflict in El Salvador turned into a civil war that would last until the Chapultepec Peace Accords of 1992. There is no agreement on the start of the war, but it can be dated back to the initial military offensive of the Frente Farabundo Martí para la Liberación Nacional (FMLN) in January 1981, although armed struggle started earlier than this. The war is estimated to have caused 75 000 deaths and over 5 000 disappearances. It also caused major and durable disruption to the country’s economy and institutions. Losses to the country’s infrastructure are estimated at over 1.5 billion US dollars (USD) (IMF, 1998[5]). The financial and export-marketing systems were nationalised, and resources were diverted to military uses. Real GDP per capita fell by a third between 1978 and 1982, and declined by 2% a year on average during the conflict. El Salvador only recovered to its pre-war level of GDP in 1995, and not until 2012 in per capita terms.

Signed in 1992, the Chapultepec Peace Accords marked the end of the armed conflict, and they constitute a turning point in El Salvador’s recent history. The agreement, which was brokered by the United Nations, organised a ceasefire and a process of demobilisation, and included provisions for the retreat of the military from the political arena as well as for an in-depth reform of the security forces. The FMLN became a political party and would run in elections from 1994 onwards. The accords also set out reforms in the judicial and electoral arenas. From 1989 onwards, economic activity started picking up in a climate of reduced social and political tension. Reconstruction efforts, helped by significant external assistance (Boyce, 1995[6]) and the repatriation of capital, led to a rebound in growth, which averaged 5.6% between 1992 and 1995.

Key economic reforms took place at the beginning and the end of the conflict, partially addressing the agrarian question that was one of the roots of the war. In 1980, before the start of the military conflict, a reformist-minded Junta enacted a land-reform law that limited the size of individual landholdings and put into motion a redistributive land reform. Due to the conflict and the resistance of conservative forces, several provisions of the law would never be implemented. However, the 1983 Constitution imposed a ceiling of 245 ha on the size of landholdings. The ceiling was much higher than that established by the land-reform law, but it recognised the agrarian problem in the country. Several phases of land reform did take place, redistributing almost 300 000 ha to around 85 000 families. The land reforms of the 1980s expropriated land from the largest estates and provided sharecroppers and tenants with access to land, redistributing close to 20% of the agricultural surface in the country. Following the peace accords of 1992, a programme to provide land and security of tenure to ex-combatants and farmers resulted in over 100 000 ha being titled to demobilised combatants (Pleitez, 1986[2]; De Bremond, 2007[7]).

A wave of liberal reforms also marked the end of the conflict. Starting in 1989 following the election of a liberal government, and in the context of a structural adjustment programme, El Salvador carried out a number of reforms to dismantle part of the war economy and to reduce the weight of the state in the economy. The country eliminated a number of price controls, simplified and sharply reduced tariff levels, privatised coffee and sugar commercialisation, and restructured and privatised the financial sector. These measures were accompanied by donor-supported social programmes that aimed to deliver health, education and sanitation services throughout the country (Wade, 2016[4]; Acevedo, 2003[3]). The liberal reform programme was pursued during the second half of the 1990s, with further trade liberalisation lowering the floor of tariffs to zero for capital goods, in addition to the deregulation and privatisation of the electricity and telecommunications sectors, and a reform of the pension sector centred around private pension-fund administrators. The 1990s also saw the emergence of a maquila industry serving the United States market. This drove the increase in manufacturing exports until the mid-2000s.

Following the external shock of the Tequila crisis in 1995, economic growth slowed to 1.5% during the 2000s, picking up slightly to around 2.5% since 2010. This coincided with monetary tightening linked to the development of the financial sector. In order to reduce exposure to exchange-rate risk, the national currency (the colón) was pegged to the US dollar in 1993, and the economy became fully dollarised in 2001. From the 1990s, El Salvador has increasingly become a service economy. The share of manufacturing in value added is on a slow downward trend, accounting for 16% of GDP in 2018, with services generating 60% of GDP. The importance of services is compounded by the large flows of remittances that sustain households’ consumption of final goods and non-tradable services.

Between 1992 and 2019, the country’s political system was characterised by the coexistence of two strong parties with radically opposing views. The right-wing ARENA party and the left-wing FMLN made up a highly polarised and structured party system. This polarisation, along with the specificities of Salvadoran institutions, had a tendency to generate parliamentary deadlock. Despite its diametrically opposite position on the ideological divide, the FMLN did not significantly alter the country’s development model during its two consecutive presidential mandates (2009-19). While the two-party system provided Salvadoran democracy with stability (Scartsacini, Stein and Tommasi, 2010[8]) it also brought political polarisation to key institutions in the country, thereby undermining their legitimacy (Wade, 2016[4]).

The most recent electoral cycle marks a significant turning point in the political and developmental history of El Salvador. In February 2019, Nayib Bukele, a former mayor of San Salvador, was elected president, winning a majority in the first round. A former militant of the left-wing FMLN, Bukele ran under the colours of a third party, and he was the first president since the end of the civil war to be elected while not representing either of the two hegemonic parties. Bukele’s newly created party (Nuevas Ideas) went on to win a supermajority in the legislative elections of February 2021, granting him great latitude to alter the balance of power in the country’s institutions, and giving his administration significant leeway to carry out legislative reform.

From 2009 to 2019, the country’s social policy received renewed attention, although major challenges remain with regard to its reach, financing and quality of provision. Having previously stagnated at around 3.4% of GDP, public expenditure on education received a major boost in 2009 and subsequently stabilised at just under 4%. Expenditure on public health increased by 0.5% of GDP, and a social protection system was established by law along with the expansion of a number of transfer programmes, including a social pension (ECLAC, 2019[9]). Compared to other Latin American economies, major challenges remain in reducing vulnerabilities, especially in education and health (OECD et al., 2019[10]).

The military conflict and the liberalisation of the economy have also deeply transformed the country’s economic elite. The conjunction of land reform and military conflict in rural areas resulted in the dilution of the agrarian elite of the first half of the 20th century, as it diversified its activities and as new entrepreneurial actors entered manufacturing businesses. However, the first wave of privatisations, which was carried out in a context of weak institutional capacity, led to the creation of powerful private-sector groups in the financial sector, and to the establishment of dominant players in privatised sectors (Wade, 2016[4]). While family ties still link the country’s private-sector elites, the diversification of business interests, and the increasing trans-nationalisation of capital holdings – notably with the entry of foreign capital, and especially in the financial sector – have transformed the shape of the country’s private-sector leadership (Rivera, 2017[11]; Waxenecker, 2017[12]).

The COVID-19 pandemic has highlighted the structural obstacles that hamper development in El Salvador, but it has also contributed to an acceleration of change in certain areas. A weak social protection system stands out among the obstacles that made public action more difficult. In addition, the significant fiscal effort that was made in response to the pandemic may limit fiscal space even more in the future, constraining the government’s scope to carry out counter-cyclical fiscal policy and to provide key public goods. Lastly, the institutional conflicts that undermined the response to the pandemic have been resolved by the dominance of the Executive branch and the alignment of political agendas. In the short run, this has the potential to unlock a number of pending issues. In the medium term, however, it could weaken democratic institutions in the country. Moreover, the strong fiscal stimulus, which has been channelled in part through much-needed investment in social and productive infrastructure, has the potential to help boost future growth. Accelerating digitalisation is also a great opportunity for El Salvador, if the country can boost its advantages in sectors such as digital services, and if it manages to capitalise on the creation of digital skills that are pertinent both for the productive sector and for better governance.

Almost 30 years after the end of the civil war that so deeply marked the history of development in El Salvador, the country finds itself at a crossroads. The most blatant expressions of the stark inequalities that spawned the armed conflict have been addressed, albeit imperfectly, by land reform, institutional reforms and changes in the domestic and global economy. However, while the liberal democratic order that emerged after the conflict has endured, the country’s model of economic development has failed to deliver robust inclusive growth. As El Salvador seeks to free itself from the deep polarisation that followed the end of the war, it has the opportunity to redefine its development model and to set its sights on a brighter future. In this context, the adoption and implementation of a development strategy can help to define policy priorities within a multi-dimensional framework. It can also contribute to improving legitimacy, by establishing citizens’ well-being as the central policy objective (OECD et al., 2019[10]).

The incidence of the COVID-19 pandemic in El Salvador was relatively modest by international standards. As of 1 August 2022, 190 818 cases of COVID-19 (30 220 per million inhabitants) and 4 199 deaths (665 per million inhabitants) had been confirmed. Both figures are notably lower than the global averages for cases (73 114) and deaths (810) per million inhabitants, and they are also lower than the corresponding figures for countries in the sub-region such as Costa Rica or Panama (Ritchie et al., 2022[13]).

Vaccination against COVID-19 in El Salvador started on 17 February 2021 and progressed rapidly. By the end of 2021, 71% of the population had received at least one dose of vaccine, and 66% had received a full course. These figures are close to those of Costa Rica (77% and 68% respectively) or Panama (72% and 66%), and are significantly higher than those of neighbouring countries such as Guatemala (37% and 27%) or Honduras (48% and 42%). However, the vaccination campaign has not made much progress following this initial effort. As of 1 August 2022, the share of the population with at least one dose was 73%, yet vaccination is open to all those over six years of age, and this accounts for 90% of the population according to official projections.

El Salvador was among the last countries in Latin America to report the presence of COVID-19 in its territory. The country recorded its first case of coronavirus on 19 March 2020, and its first death on 1 April 2020. The pandemic has unfolded in five epidemic waves, with a notable increase in recorded infections in early 2022. However, due to the levels of immunity achieved, the lethality of the waves of infection in 2022 has been significantly lower than in previous waves (Figure 1.1).

Faced with the risk of the spread of COVID-19, El Salvador reacted quickly, adopting preventive actions. Even before the first case was confirmed in El Salvador, it was one of the first countries in Latin America to adopt urgent measures to curb the spread of coronavirus. On 23 January 2020, the government declared the country to be in an emergency with regard to the prevention of the virus (Government of El Salvador, 2020[15]). Entry into the country was restricted, and on 14 March 2020, the Legislative Assembly approved a state of national emergency, public calamity and natural disaster (Legislative Assembly, 2020[16]). In March, the government announced a series of measures to restrict mobility and gatherings with the adoption, on 21 March, of a strict mandatory stay-at-home order, with no service on public transport, and with limitations on trips to supermarkets or pharmacies determined by rotas identified by identity-card numbers (Government of El Salvador, 2020[17]). The strict stay-at-home order was in force until 16 June 2020, and a voluntary stay at home order (cuarentena) was introduced from 7 July 2020. The stay-at-home order had an immediate effect, and there was a sharp decrease of around 70% in mobility in the country. The reduction in mobility continued until the end of 2020, at which point activity had recovered in most sectors, except for education.

COVID-19 testing capacity in El Salvador has been a constraint for the management of the pandemic, although it stands at comparable levels to other countries in the region (Figure 1.3). Increased processing capacity for polymerase chain reaction (PCR) tests as of early 2022 may help in the management of COVID-19 in the future, and it partly explains the jump in recorded cases in 2022.

Lack of co-operation between the branches of government hampered the management of the COVID-19 pandemic. Opposition between the executive and the judiciary over exceptional mobility restrictions, and the absence of agreements between the executive and legislative bodies in El Salvador, posed major challenges during the pandemic. Following legal controversy over restrictions on personal freedoms that were approved in order to sustain the stay-at-home order, the judiciary declared the executive and legislative decrees in support of quarantine to be unconstitutional on 8 June 2020, almost three months after the start of the pandemic. By also declaring unconstitutional the decree stipulating milestones for the gradual re-opening of the economy, the organisation of the gradual opening was left to the will of the private sector, under advice from the executive. The confrontation between the president and other state entities was identified in a survey as one of the country's main problems (24.1%). As such, it came second only to the pandemic (43.3%), displacing concerns about crime and the economic situation (Instituto Universitario de Opinión Pública, 2020[18]).

In order to confront the pandemic and reactivate the Salvadoran economy, the government announced two ambitious economic, social and health packages totalling USD 3.646 billion. The Legislative Assembly adopted the country’s first package to mitigate the effects of the pandemic on 26 March 2020, after the government put forward a programme amounting to USD 2 billion (7.4% of GDP) (Legislative Assembly, 2020[19]). These resources financed a Fund for Emergency, Recovery and Economic Reconstruction (Fondo de emergencia, recuperación y reconstrucción económica) (Box 1.1). A second package of additional economic and health measures to support the productive sector amounting to USD 1 billion (3.7% of GDP) was approved by the Legislative Assembly on 7 May 2020 (Legislative Assembly, 2020[20]). During the state of emergency, the application of fiscal sustainability targets enshrined in the country’s Fiscal Responsibility Law was also temporarily suspended (Legislative Assembly, 2020[21]). In addition, the government obtained prior authorisation to increase the 2020 budget by USD 645.8 million (MH, 2020[22]).

Financing for additional expenditure during the pandemic drew on multiple sources. The government expected that half of the resources in the context of the COVID-19 emergency (approximately 1.6 USD billion) would come mainly from multilateral organisations (MH, 2020[22]). According to data from the Ministry of Finance, around USD 700 million of multilateral funding had come in by December 2020 (MH, 2020[23]). El Salvador received loans from the International Monetary Fund, the World Bank and the Inter-American Development Bank. To finance the remainder of its pandemic spending, the country resorted to other financing mechanisms, including the issuance of USD 1 billion in Eurobonds at a rate of 9.5% (MH, 2020[22]), and the issuance of short-term treasury certificates (CETES) worth USD 645 million in September 2020. In addition to the raising of additional funds, resources were re-allocated across expenditure items, in particular through the allocation of USD 558 million in 2020, and USD 224 million in the first half of 2021, to the Fund for civil protection and the prevention and mitigation of disasters, the Fondo de Protección Civil, Prevención y Mitigación de Desastres (FOPROMID) (MH, 2021[24]).

Difficulties in obtaining legislative approval for taking out external loans imposed liquidity constraints in financing the response to the pandemic. Prior to the inauguration of the newly elected Legislative Assembly in May 2021, more than USD 1.7 billion in agreed loans were pending approval. In practice, this situation led to a series of budget reallocations during the period between April 2020 and May 2021, in order to finance increased public spending that had been approved for the pandemic and to fill the funding gap in the 2020 budget. To date, however, no consolidated document has been published setting out the pandemic-specific expenditure of 2020 and 2021.

Funding for additional expenditure was channelled through multiple mechanisms. Much of the additional expenditure, including emergency cash benefits, was channelled through the FOPROMID fund. Some lines of funding were also channelled through municipalities. According to the Ministry of Finance, USD 191.7 million of the USD 600 million allocated to El Salvador’s 262 municipalities to address the COVID-19 emergency in 2020 was transferred directly to municipalities (MH, 2021[25]; MH, 2021[26]). Finally, a significant fraction of the response to the pandemic (USD 600 million) was processed through a trust fund for the economic recovery of Salvadoran companies (FIREMPRESA), administered by the Development Bank of El Salvador (BANDESAL). This included not only credits, but also subsidies to employees of small and medium-sized enterprises (SMEs).

The measures included in these two ambitious packages correspond to a large extent to the lending policies, guarantees, transfers to enterprises, and payroll subsidies that were implemented in OECD countries as a response to the pandemic in a bid both to secure employment and to encourage a recovery that would maintain employment. El Salvador’s packages included measures to invest in the country's hospital network, to protect the vulnerable population through energy subsidies, food packages and vouchers during the stay-at-home order, and to develop policies to support liquidity, which is particularly relevant given the high number of MSMEs in El Salvador (Table 1.1).

In the education sector, face-to-face classes, workshops, and diploma courses at all levels, were suspended from March 2020 to April 2021 in the public and private sectors (Government of El Salvador, 2021[27]). The Ministry of Education (MINED) adopted an Education Continuity Plan (Plan de Continuidad Educativa) to continue teaching remotely during the COVID-19 emergency. However, MINED faced major difficulties due to the significant number of pupils and students who did not have access to the Internet. This required the mobilisation of other teaching resources such as television and radio, as well as the implementation of a programme to equip students and teachers with hardware, and to train teachers in the use of digital teaching platforms

In aggregate terms, El Salvador has managed to make a remarkable economic recovery from the disruption of the COVID-19 pandemic. According to data from the Banco Central de Reserva (BCR), the country’s central bank (BCR, 2022[30]), GDP growth reached 10.3% in 2021, offsetting the 8.6% contraction in GDP that occurred in 2020. By the end of 2021, most sectors, including ones that had suffered very large contractions, had bounced back from the large falls in activity that had resulted from the pandemic and the temporary shutdown of activities. The manufacturing sector generated value added in 2021 that was only 2% lower than in 2019, despite a 12% contraction in 2020. Retail and repair had 1% higher value added in 2021 than in 2019, after an 8% contraction in 2020. Value added in hospitality and restauration was 1% lower in 2021 relative to 2019, after a 27% contraction in 2020. However, the economically significant sectors of transport, construction and real estate still had not recovered pre-pandemic levels of activity (with respectively 3%, 10% and 14% lower value added in 2021 than 2019).

Employment has also recovered, although gaps in the data make a full assessment more difficult. The number of workers in formal employment as registered with the Salvadoran Social Security Institute fell by 71 700 from February to June 2020, but it recovered quickly, matching its pre-pandemic peak by mid-2021, and totalling 915 0196 by the end of 2021 (a 3.8% increase relative to pre-pandemic levels, and a 13% increase relative to the lowest point) (ISSS, 2022[31]). By contrast, aggregate employment figures point to a fall in employment in 2020 of over 190 000 workers, with a very limited recovery of around 23 000 in 2021 (ILO, 2022[32]). While this can point to a significant fall in informal employment, especially through a contraction in agricultural employment, it should be noted that data collection was severely affected by the pandemic in the year 2020. Moreover, these results contrast with findings from high-frequency phone surveys by the World Bank and the United Nations Development Programme, which find a 5 percentage point increase in the employment-to-population ratio between the start of the pandemic and the end of 2021, largely led by the entry of inactive workers into informal employment (World Bank/UNDP, 2022[33]).

According to official data, the pandemic led to an increase in poverty, albeit a modest one relative to the regional average. The poverty rate increased by 3.4% in 2020, before partially recovering to reach 24.6% in 2021 (DIGESTYC, 2021[34]). The increase in extreme poverty was more pronounced and did not recover as quickly. It increased from 4.5% in 2019 to 8.6% in 2020, before falling to 7.8% in 2021. Even accounting for difficulties in measuring poverty in 2020, the 2021 figures represent a significant setback, indicating a return to levels observed over five years earlier. However, these increases in poverty remain modest compared with the Latin America and the Caribbean region. The harmonised methodology of the UN’s Economic Commission for Latin America and the Caribbean (ECLAC) found that poverty in El Salvador increased only slightly even as poverty rates grew by 1% or more in 11 of the 13 countries in the region for which data were available, and with extreme poverty reaching 10% in the region on average (ECLAC, 2022[35]; OECD et al., 2021[36]). One-off transfers during the pandemic achieved very high coverage in El Salvador, reaching 89% of households according to the high-frequency phone surveys by the World Bank and the UNDP. This was highest in the region, and it certainly contributed to mitigating the impact of the pandemic on the poor.

El Salvador’s large fiscal effort in reaction to the pandemic has created a difficult scenario for public finances. Central government primary expenditure rose by 33% from 2019 to 2020, the largest increase in the whole of Latin America (OECD et al., 2021[37]). As a consequence, public debt increased to 85% of GDP by the end of 2021 according to estimates from the BCR and the International Monetary Fund (IMF). To be sure, a significant part of the new debt is of multilateral origin, and therefore has favourable credit conditions (MH, 2020[22]). For example, 44% of funding for the measures covered by the country’s first package of economic and health measures (as per Legislative Decree 608), and which corresponded to USD 769 million of new debt, came from multilateral institutions. Nevertheless, El Salvador’s level of debt is worrying given its low capacity for tax collection.

The COVID-19 crisis highlighted the fragility of El Salvador's social protection system. Given the low reach of targeted transfer programmes, the government decided to provide a cash transfer of USD 300 to households that had lost income due to the pandemic or the quarantine measures, and that consumed less than 250 kW of electricity. It was expected that 75% of households would receive this stipend, making it a very roughly targeted form of support. According to official communications, 1.23 million households had received the transfer as of April 2020, financed through a 350 USD million transfer from the FOPROMID fund (Office of the President of the Republic, 2020[38]; MH, 2020[23]). This choice was justified because El Salvador's single registry of beneficiaries, which targets interventions such as those of the main conditional transfer programmes, does not yet have national coverage, and its use could not have been agile or equitable. Targeting on the basis of electricity consumption allowed the government to base its initial targeting on the registry of beneficiaries of a subsidy for cooking gas, which uses electricity consumption as a means test.

Management of the COVID-19 crisis was also mired by the lack of institutionalisation of procedures in El Salvador. Conflicts between branches of government during the pandemic generated uncertainty, especially at the end of the stay-at-home order, when the country’s supreme court annulled executive decrees that set out milestones for reopening. Conflicts between the executive and legislative branches also made financing the response to the pandemic more difficult, as a number of negotiated loans were not approved in due course by the legislature. Finally, in order to allow itself greater flexibility, the government channelled most of the resources for the fight against the pandemic through the FOPROMID fund, foregoing the inclusive governance structure that had been established by Legislative Decree 608, and which established an extraordinary budget to channel approved resources, along with a governing board to oversee the Fund for Emergency, Recovery and Economic Reconstruction. Ultimately, only USD 20 million transited through the Fund for Emergency, Recovery and Economic Reconstruction, making public oversight of the overall fiscal effort significantly more difficult (Comité de Seguimiento y Veeduría Ciudadana del Fondo de Emergencia, Recuperación y Reconstrucción Económica, 2021[39]).

The increased level of public and private investment in El Salvador was one of the drivers of the recovery in 2021. After falling in 2020, public investment recovered to 2.6% of GDP in 2021, while private investment reached a record 18.4% of GDP in 2021. This increase in investment, which had already begun in previous years, has the potential to bridge important gaps in social, productive and transport infrastructure, and to underpin faster sustained growth (see Chapter 2).

Investment in the health system was directed partly towards the construction of a hospital designed to treat COVID-19 patients. It was also channelled into refurbishing and equipping hospitals and health centres – efforts with the potential to address, at least in part, Salvadorans’ very low level of satisfaction with their health system. The construction of the El Salvador hospital in the former international conference centre during the pandemic commanded an investment of USD 75 million. Given the relatively low capacity of the hospital care system prior to the pandemic, this 1 000-bed hospital led to a 10% increase in the number of hospital beds in the country, and tripled the number of intensive care beds (from 3 per 100 000 people to 10.9) (PAHO, 2022[40]). On top of this landmark construction, and after focusing in 2020 on funding for equipment and the provision of care, investment in construction, refurbishment and equipment for hospitals and healthcare centres increased in 2021. The central government invested USD 21 million in 2021, up from USD 4 million in 2020 and USD 3 million in 2019, and the Salvadoran Social Security Institute invested a further USD 6 million in hospital infrastructure in 2021 (MH, 2021[41]; MH, 2022[42]).

A number of framework conditions impact El Salvador’s performance across a range of different areas, and are presented here. The history and legacy of migration both have an impact on people’s well-being, and they also have a significant macroeconomic impact. Trends of urbanisation that are linked both to traditional rural-to-urban migration, and also to violence, have shaped the occupation of space. External trends also continue to set the stage for the country’s development, especially given El Salvador’s vulnerability to climate change and its reliance on foreign trade and regional integration.

A very large share of Salvadorans live abroad, and this exerts a profound impact on the country’s development path. According to estimates from the World Bank, almost 1.6 million Salvadoran migrants lived overseas in 2017, a figure that represents 25% of the country’s population. Almost 90% of them reside in the United States of America. In addition to Salvadoran migrants who were born in El Salvador, a large population group of Salvadoran nationals who were born abroad continues to reside outside the country, including over a million people in the United States alone (Noe-Bustamante, Flores and Shah, 2019[43]). The remittances that they send to El Salvador are a fundamental source of finance for the country’s economy. These remittances amounted to 24.1% of GDP in 2020,4 higher than the average of 18.3% between 2010 and 2016. In 2021, they reached USD 7.5 billion. Migration can act as a safety valve to alleviate the lack of opportunities at home, but it can also drain the country of key human resources.

The history of migration in El Salvador is intimately linked to the civil war. The onset of political violence during the late 1970s and the early 1980s led to massive population movements to neighbouring countries and Mexico as people escaped the conflict. During this period, flows of migration to the United States grew steadily. Between 1970 and 1974, 45 000 Salvadorans entered the United States, and this figure grew to 334 000 between 1985 and 1990 (Gammage, 2006[46]). By the end of the 1990s, most of the 730 000 Salvadorans in other countries in Central America or Mexico had either returned to El Salvador or migrated onwards to the United States. The flow of migrants slowed down after the end of the war, but has fluctuated around 20 000 per year since until the years of the COVID-19 pandemic (Figure 1.5), driven by a number of push and pull factors, including earnings differentials, the performance of labour markets at home and abroad, family reunification, violence, and by the formation of a large Salvadoran diaspora in the United States (OIM et al., 2017[47]).

Changes in migration policy in the United States and other countries in the region could significantly disrupt migration flows. A large share of Salvadoran migrants do not have a migration status that will allow them to stay permanently in their host country. According to El Salvador’s national migration and remittances survey (OIM et al., 2017[47]), 49% of Salvadoran migrants have irregular status (excluding those under temporary protection status). Additionally, there are 193 940 Salvadorans with Temporary Protection Status in the United States (Wilson, 2022[49]), whose leave to remain in the country could be revoked if the programme were to be discontinued. United States authorities estimate that 735 000 Salvadorans resided without leave in the United States as of 2018 (DHS, 2021[50]).

El Salvador participates in the development of global and regional frameworks on migrants' rights. It is a member and a strong supporter both of the Global Compact for Safe, Orderly and Regular Migration (UN, 2019[51]), and the Global Compact on Refugees (UN, 2016[52]). The country joined the Regional Integrated Framework for Protection and Solutions (MIRPS) in July 2019, and it is implementing an action plan that includes a legal framework for the comprehensive care and protection of internally displaced persons (MIRPS, 2020[53]).

El Salvador is a densely inhabited country, even though it is not highly urbanised. Almost half of the Salvadoran population is concentrated in three departments around the most populous cities: San Salvador, Santa Ana, and San Miguel. It is one of the most densely populated countries in Latin America, and relative to the set of benchmarking countries, with around 309.9 inhabitants per square kilometre. In contrast, Latin America and the Caribbean as a whole has only 32 inhabitants per square kilometre of land area. While only a million Salvadorans lived in urban areas in 1960, 4.6 million live in urban areas at present. Conversely, 1.79 million live in rural areas, which represents 28% of the total population. In terms of urbanisation, El Salvador is less urbanised than the Latin America and Caribbean (LAC) region. In 2018, the urban population accounted for 72% of the total population, compared to 80% on average for the LAC region. However, the urban population of El Salvador is growing at 1.5% annually, which is faster than the average growth in the region (World Bank, 2015[54]).

Processes of internal migration and urbanisation have been driven by the search for better economic opportunities, but also by violence. The economic crisis of the 1970s and the armed conflict of the 1980s had a strong impact on El Salvador’s pattern of migration. In particular, the areas in which the highest percentages of inhabitants moved away were those that were more affected by the conflict of the 1980s, and those in which the highest percentage of the population depended on agriculture. Conversely, the main factor of population retention has been the level of industrialisation of each territory (Morán Mendoza, n.d.[55]). The metropolitan area of San Salvador has been the main pole of attraction for internal migrants in recent decades. The strong migratory inflows into the city have aggravated the proliferation of the informal sector, the lack of basic services, the level of ecological deterioration, and the environmental risks caused by the disorderly population of the capital and its surroundings, while also congesting transport infrastructures in urban centres (Lungo, 1993[56]).

Adaptation to climate change and the mitigation of its impact are becoming increasingly important in El Salvador and in Central America more broadly, notably given the region’s vulnerability to climate risks. Future climate projections through to the 2050s include an increase in average annual temperature of 1.4 to 2 degrees Celsius, a decrease in average annual precipitation of between 2% and 21%, longer and drier periods of drought, and more notable extreme weather events, such as droughts (Figure 1.6). Projections for the sea level predict a rise of 18 centimetres by 2050, and of between 37 and 44 centimetres by 2065 (MARN, 2013[57]; MARN, 2018[58]).

The economic costs of climate change are estimated at around 7.2% of GDP in 2030 (DARA, 2012[60]; ECLAC, 2015[61]). The impact of climate change is expected to lead to declines in El Salvador’s agricultural production, mainly for maize, beans and coffee. The “Dry Corridor”, which covers most of El Salvador and its main agricultural areas, is particularly exposed to severe floods and droughts. Maize, bean and coffee production are projected to decline: maize by 18% by 2050, and by 37% by 2100; bean production by 24% by 2050, and by 49% by 2100; and coffee by 22% by 2050%, and by 58% by 2100 (CEPALSTAT, 2021[62]; Barrios et al., 2019[63]).

For a small open economy like El Salvador, a healthy outlook for global trade can create significant opportunities. El Salvador benefitted little from the expansion in global trade during the first decade of this century. While global merchandise trade was accelerating at 10% per annum, it was slowing down in El Salvador, which was confronted with the expansion of manufacturing exports from China. The country was deeply affected by the global financial crisis of 2009 and the slowdown in global trade that ensued. Since 2011, global trade has been growing at a slower pace, with further slowdowns expected due to the current geopolitical situation. During this time, Salvadoran exports have grown at 1.5% per annum, almost double the pace of global trade. Moreover, services exports, although they remain relatively modest at 10% of GDP, have grown at 8.1% per annum, almost double the rate of the global trade in services (4.2%).

During the past five decades, global trade has not only grown very significantly in size, it has also been transformed in shape. Falling transport costs and tariff barriers, plus the rise of digitalisation, have contributed to the emergence of new, internationally fragmented, global production structures. This transformation has also increased the importance of services. The share of value added from services in merchandise exports increased between 2005 and 2015, with most countries recording values between 25% and 40% (Guilhoto et al., 2019[64]). In recent years, global patterns of trade and the organisation of production have shifted slightly, driven largely by changes within the Chinese economy, and leading to greater trade within the East Asian region, and of East Asia with the rest of the world.

Regional integration is an important process for strengthening the development prospects of a small economy like El Salvador. The thrust of the regional integration process dates from the 1960s, when El Salvador joined with Costa Rica, Guatemala, Honduras and Nicaragua in signing the General Treaty on Central American Economic Integration, with the objective of accelerating economic integration though the establishment of a Central American free trade zone, and the construction of a customs union. After promising early days, which included the development of the Central American Common Market (MCCA), the conflict between El Salvador and Honduras in 1969, and the emergence of revolutionary movements across the region, marked a pause in the integration process in the face of the different national realities that each country faced.

In recent years, the vision of regional integration has regained impetus with the creation of the Central American Integration System (SICA) in 1993, and then by the accession of Belize in 2000 and the Dominican Republic in 2013. The integration system has instances at the executive level (the Presidents’ meeting), the legislative level (the Central American Parliament – PARLACEN), and the judicial level (the Central American Court of Justice). It also includes an active economic branch, with the Central American Bank for Economic Integration (BCIE) and the Secretariat for Central American Economic Integration (SIECA), as well as sector-specific instances in a broad array of areas from transport to natural resource management, to the promotion of SMEs.

Economic and trade integration have intensified with the creation of the Northern Triangle customs union. This customs union, which was created by Honduras and Guatemala, and which El Salvador joined in 2019, is part of a deep economic integration process. Inter-regional trade has brought dynamism to El Salvador’s export performance in recent years (see Chapter 2). At the sub-regional level, intra-regional trade between Costa Rica, El Salvador, Guatemala, Honduras, Nicaragua and Panama represented 31% of total exports and 14% of total imports in 2018 (SIECA, 2019[66]). Nevertheless, this trade integration process must be accompanied by an integration agenda that can respond to the challenges that El Salvador shares with other countries in the sub-region, from social and employment challenges to security, vulnerability to natural hazards and climate change, and challenges with regard to migration.

This report takes continued and sustainable improvements in the well-being of citizens to be the ultimate gauge for measuring development success. The OECD’s Framework for Measuring Well-Being and Progress uses a mix of objective and subjective indicators to account for people’s well-being (OECD, 2017[67]). In a version adapted to developing economies for the Multi-dimensional Reviews, it provides well-being metrics across ten dimensions encompassing material conditions (consumption, work, housing and infrastructure), as well as quality of life (environment, education and skills, health, vulnerability, social connections, empowerment and life satisfaction). Looking at development through the lens of well-being allows a broad view of development outcomes that is based on specific areas of citizens’ experience, instead of being aligned to the mandates of line ministries and agencies. In particular, looking at development outcomes beyond income is increasingly the relevant as countries such as El Salvador move up the income ladder (OECD et al., 2019[10]).

A well-being lens allows countries to identify areas where their performance is better or worse than other countries at similar levels of GDP per capita. Comparing El Salvador to countries that have similar levels of GDP per capita, Figure 1.8 displays the country’s performance across outcome indicators in ten dimensions of well-being. The country’s performance is compared to that of an average country with the same level of GDP per capita. Bars longer than the black circle represent a better performance, whilst bars shorter than the black circle represent a worse performance.

El Salvador performs close to the benchmark in most areas and exceeds average performance in most indicators of material conditions. The country’s rate of extreme poverty (at the international line of USD 2.15 a day at purchasing power parity [PPP]) was, at 1.4 % in 2019, significantly lower than that of the benchmark, whilst unemployment was 2.7% lower.

The analysis highlights three key areas of underperformance in the country in terms of citizens’ well-being. Violence appears as a key area, as the level of intentional homicides was significantly above the benchmark level (7 per 100 000) in 2021, the date for which data are presented in Figure 1.8. Despite this large gap, the differential in terms of feeling safe is relatively small (0.3 standard deviations). Moreover, it is important to underline that insecurity levels have dropped notably in the past few years. While in 2019, the homicide rate was almost four standard deviations from the reference level, in 2022, the recorded homicide rate (7.9 per 100 000 population) was very close to the reference level. Is the reduction of crime and violence were to be durable, it would signify an major change for the country’s development.

The second area of significant underperformance is the environment. Continuing deforestation harms air quality and limits citizens’ access to natural spaces. There is also underperformance in the provision of clean water, although subjective indicators seem to downplay the importance of the issue relative to the findings in Chapter 2.

Empowerment indicators suggest there is little trust among citizens that voicing complaints to state officials will be useful. Perceptions of corruption, which were high in the past are now in line with the benchmark according to experts and business executives (as measured by Transparency International’s Corruption perception index), and lower than the benchmark by over 20% among the population.

The SDGs offer a different framework of measurement for gauging progress in development. El Salvador has made a firm commitment to the SDGs, as shown in its Voluntary National Report. The 17 goals and 169 targets of the SDG framework include both outcomes and means of implementation, and can provide a dashboard of progress.

The analysis of performance in Chapter 2 of this volume highlights a number of inter-related constraints to development. Figure 1.10 recalls the main constraints identified in the detailed analysis, organised by the five Ps of Agenda 2030: People, Prosperity, Planet, Partnerships and Finance, and Peace and Institutions. These obstacles are interlinked and addressing them requires an understanding of the mechanisms that sustain their persistence.

Despite strong liberalising reforms, the economy of El Salvador has not been able to generate a pattern of structural transformation capable of sustaining productivity and job growth. During the 1990s, the liberalisation and privatisation of a number of network institutions generated opportunities for foreign direct investment (FDI), and the establishment of the maquila industry was originally successful in promoting the development of exporters in light manufacturing. However, this dynamism was not maintained after the turn of the century, as international competition in key export markets such as apparel became stiffer, and as investors failed to find appropriate opportunities in the country, despite low interest rates and a solvent banking sector. The regional market, in which El Salvador can leverage its geographical proximity in addition to advantages in terms of production costs, has proven more dynamic for the country.

In its drive to encourage both international and domestic investment, El Salvador still needs to significantly reduce the cost of entry and the cost of doing business. These include high administrative costs and barriers linked to inefficient bureaucratic processes, which can also provide opportunities for corrupt practices. They also include inefficiencies and high prices in the provision of key inputs such as water and electricity, and of key public goods.

As a result of these flaws, the model of economic development has not delivered a sustained creation of good quality jobs. Although unemployment remains low, most job creation happens in the informal sector, with the share of salaried workers tending to stagnate. Barriers to entry limit the prospects of formalising the bulk of informal micro and small enterprises in the country, locking them into low productivity and low-return occupations, and sustaining a two-tier economy.

Along with institutions designed to turn it into a manufacturing export hub, El Salvador developed institutional features that favour an economy that is driven by remittance-fuelled consumption. Dollarisation succeeded in driving inflation and interest rates down. However, wage growth and increases in the prices of real estate, water, electricity and energy have increased production costs, harming the country’s international competitiveness. Remittances help to sustain demand, but they also fuel increases in the prices of non-tradable goods, and shift demand towards certain non-tradable services. While these can generate jobs, they are not necessarily appropriate engines to drive the growth of the economy.

The coverage of access to key public services has improved significantly since 1992, but large gaps remain. Enrolment in secondary school increased markedly to 77% in 2013, from 42% in 1992, but has fallen since. Access to healthcare has improved notably. This contributed to reducing maternal mortality by 37% between 2000 and 2017, meeting the Millennium Development Goals target. However, 25% of people who suffered health problems did not consult a health professional in 2018. Despite El Salvador being a very densely populated country, differences in access remained across the territory, and also between urban and rural areas before the COVID-19 pandemic. They are the consequence of other limitations to access, such as violence in certain areas restricting free movement, and of the limited territorialisation of public policies.

Public finances and the organisation of public services are key constraints to further developing the capacity of the state to provide public goods in El Salvador. Public expenditure in education was 3.75% of GDP in 2017, compared to the OECD average of 4.5%, and 7.4% in Costa Rica – the highest among the benchmark countries. Moreover, it was only 2.8% in the year 2000; a long-term deficit in investment in education results in a significant gap to make up today, reflected in the educational attainment of the adult population. Education expenditure increased notably in response to the COVID-19 pandemic, reaching 4.07% of GDP at the end of 2020 despite the downward revision of the budget. The 2022 budget plans to maintain the increase with expenditure close to 5% of GDP. Health expenditure from government and social-security sources was 4.6% of GDP before the pandemic, a higher level than in neighbouring countries, but well below the figure for Costa Rica (5.6%) and the OECD average of 6.8%. The response to COVID-19 also led to increases in health expenditure (reaching 5% in 2020). In practice, El Salvador has partly relied on international co-operation to sustain some of the increase in social investment that has taken place in recent years.

The limitations of local government in providing public goods also constrain local economic development. Local government’s lack of accountability results in lower infrastructure spending than should be realised. The emergence of new profitable sectors requires both national and local public goods in order to sustain investment.

An insufficient presence of the state opens the door to unequal provision of services by the market, or indeed to provision by illegitimate actors. The persistence of gang violence has responded in the past decades not only to their capacity to recruit disenfranchised youths, but also to the gangs’ ability to provide certain services, including protection from their own violence and that of rival gangs. Establishing the presence of the State in violence-ridden areas is the central premise of the Territorial Control Plan put in motion in July 2019 by the Bukele administration. Its first phases emphasise the presence of security personnel, but the presence of the state in these areas will eventually have to be established through public services and political representation in addition to the deployment of security forces, complementing repression with preventive measures.

Institutional reform has supported political stability, but it remains unfinished. Following the Peace Accords of 1992, reforms to political institutions and the security sector (police, military and the judiciary), as well as the transformation of the fighting force of the FMLN into a political party, contributed to establishing a durable democracy that has seen six peaceful presidential handovers. However, the limitations of the reforms that were carried out helped to sustain polarised and politicised institutions.

Salvadoran citizens’ trust in their political institutions has seesawed over the past ten years. A number of high-profile corruption cases across the political spectrum of the country’s leadership, and a lack of transparency in the finances of political parties may have contributed to political disengagement on the part of citizens, especially youths. By 2018, only a third of Salvadorans expressed confidence in their national government, following a long downward trend. By 2021, however, as many as 70% of the population had confidence in the national government. The perception that corruption is widespread in the public sector was held by over three quarters of Salvadorans in 2018, although that share fell to 39% by 2020. Increasing transparency in the dealings of the public sector in a sustainable manner is, therefore, a major challenge.

A weak social contract manifests itself in a number of ways that are inimical to development. Tax morale – the general willingness to pay tax – is particularly low in El Salvador, and it is partly responsible for the limited degree of fiscal space that the government has. Taxes represented only 20.8% of GDP in 2019, which is below the average levels both for the OECD (33.4%), and for Latin America and the Caribbean as a whole (22.9%) (OCDE et al., 2019[90]).Low state legitimacy, and low levels of trust in formal dispute resolution, also contribute to maintaining the cycle of violence that the country has continued to experience since the end of the war. Low legitimacy and state capacity also manifest themselves in the use of public office for clientelist motives.

The modernisation of the state can offer an entry point from which to break the vicious cycle of low legitimacy, low revenues, and low capacity. El Salvador shares this institutional trap with a number of other economies in the region (OECD et al., 2019[10]). Turning this trap into a virtuous circle of institutional development and increased capacity and legitimacy will require strategic and decisive action. El Salvador has engaged in a process of fostering the development of the digital economy. Increasing the use of electronic government can offer new avenues for citizen engagement. However, it will also be necessary to modernise the processes that govern the state and its interaction with citizens, as well as the management tools that the Salvadoran government has at its disposal, especially with regard to the management of its own human resources.

El Salvador’s natural environment offers potential for tourism and agriculture, but it is also highly vulnerable to natural hazards. This vulnerability has been exacerbated by climate change, with longer and drier dry spells. These threaten the livelihood of smallholders whose production consists largely of basic grains (maize, beans). Given its size and position, El Salvador is also dependent on external water sources, which can increase the degree of water stress, and which makes the management of the country’s precious natural resources all the more critical for the well-being and economic development of its citizens.

The institutional capacity of the Salvadoran government to manage and preserve natural resources has been historically weak. Despite adequate human resources, the country’s environmental authorities have not had the institutional capacity to impose fines on polluters and to enforce environmental regulation. As a result, the country has one of the highest deforestation rates in the region, and suffers from high levels of air, water and soil pollution.

Development in El Salvador appears to be caught in trap: a stalled model of economic development cannot provide the necessary growth or jobs, resulting in limited fiscal revenues on the one hand, and persistent vulnerabilities on the other, and with the situation compounded still further by the country’s exposure to natural hazards. In turn, lacklustre economic and institutional performance fuels citizens’ disaffection, further limiting the state’s ability to provide key public goods such as security, justice, and key public services such as education and health. And yet the quality of these public goods is a key condition for attracting investment, both domestic and foreign, and for reigniting a dynamic of development in the country.

El Salvador can rely on a number of assets to overcome this trap, including its well-established electoral democracy, a relatively large and diversified manufacturing base, and a large diaspora whose remittances help to finance the economy. Setting the stage for broadly shared development will require policy action to ensure that the country can deliver on key framework conditions for economic and social progress. These include:

  • Improving the framework conditions for investment and the business climate. The establishment of the Office for Better Regulation (the Organismo de Mejora Regulatoria, or OMR), and the adoption of a set of principles to instruct regulatory impact assessment (RIA) principles provide a basis for improving key aspects of the business environment that constrain investment and entrepreneurship.

  • Guaranteeing effective fulfilment of social rights, in particular by ensuring appropriate delivery of social services like healthcare and basic education. First and foremost, this requires improved management of available assets and a rethink of the models of provision, but it will also require an increase in resources, especially in the case of education. Identifying appropriate modes of providing education that are commensurate with the country’s ambitions will be of critical importance to attract investment and increase human development.

Beyond framework conditions, spurring a virtuous cycle of economic, social and institutional development will require coherent policies that bridge presidential and legislative terms, and that can foster a climate of trust among citizens, investors and partners. This will require the resolution of four key issues through broad-based agreements. These are:

  • Expanding fiscal space to deliver more and better. The fiscal responsibility law has provided the administration with a series of tools to improve the management of public finances and sets out the commitment to fiscal responsibility. However, a low tax-to-GDP ratio of 20.8% and the pressures of debt-servicing costs and the wage bill seriously limit fiscal space and public investment. In the short run, the pension reform needs to be completed to limit the fiscal incidence of a regressive pension system. In the longer term, a new fiscal pact is required to address large-scale tax evasion and informality, improve the quality of public spending, and identify the appropriate size of public resources and their sources.

  • Ensuring security and the rule of law. Crime and violence have long imposed a high cost on citizens and firms, limiting the profitability of investment and people’s access to public services, as well as their well-being. In the short run, it is necessary to establish the presence of the state in all areas of the country, including by deploying the security forces - but also by going beyond this. The similarity of the approaches that have been taken by various administrations suggests that there is already a high degree of agreement on the approach to be taken. A security pact establishing a long-term vision of the security sector and the necessary institutional reforms, and also of how to finance these changes, is needed in order to sustain this effort.

  • Building capacity to manage environmental resources, especially water. Faced with a context of water stress, El Salvador cannot afford to mismanage its water resources. Waste and pollution limit citizens’ access to clean water, and they also represent a key constraint to doing business in the country. The adoption of a landmark general law on water in 2022 constitutes an important step forward, and its implementation could pave the way for the sustainable and equitable management of water resources. In order to ensure success, the implementation of the law will require a recognition of the many models of provision and management that exist today. More broadly, El Salvador needs an agreement that sets out a basis for the recognition of the importance of natural-resource management, including adaptation to climate change.

  • Modernising the Salvadoran state. To ensure that it provides better public goods and services, El Salvador needs to better manage its public resources, including its public human resources. Better human resource management in the public sector is critical for controlling a wage bill that continues to constrain fiscal space, for putting an end to corruption and the perception of corruption, and for providing better public goods for all of the country’s citizens. El Salvador’s ongoing efforts to develop e-government can go some way to alleviating the issues that the administration faces. However, they should be accompanied by a modernisation of the particularly cumbersome processes that it continues to use, through legal reform and regulatory review.

Given El Salvador’s limited fiscal space, a strategic decision should be taken regarding the future of its model of economic development. In determining the priorities for the provision of public goods, the country can influence, directly or indirectly, the path that the economy will take. Its recent successes in key service industries could spur further growth, but these efforts will need to be accompanied by the further development of digital infrastructure, as well as by securing the legal and regulatory basis to foster investment.

Identifying the future drivers of economic development is a key strategic orientation that needs to be taken, with cross-cutting implications. It includes making sure that market institutions and the provision of public goods are aligned for these drivers to effectively spur development. For example – and although these should not represent an exclusive choice – consolidating recent successes in the export of services, and harnessing the digital economy will require that specific priority be given to digital infrastructure and to the formation of relevant skills, which differ from those that are needed for traditional exports that compete on labour costs. Indeed, the skills base in the economy is relatively low, which limits El Salvador’s attractiveness for key investors.

In addition, El Salvador should rethink the model of territorial development as a way to bring the state closer to citizens, to overcome territorial inequalities, and to identify new productive opportunities. El Salvador is currently a very centralised state. While the drive to decentralise public spending can create local opportunities, it seems to be at odds with the lack of accountability and capacity in local administrations, and the lack of adaptation of public policies to the specificities of each territory.

Based on the priorities identified in the diagnostic phase, this report focuses on four thematic areas, providing specific policy recommendations along with action plans to implement them. The thematic areas are productive transformation (Chapters 3, 4 and 5), water management policy (Chapter 6), education and skills policy (Chapter 7), and policies to improve public governance (Chapter 8). Chapter 4 focuses on the framework conditions for investment, while Chapter 5 analyses the strategic orientation of investment and the policy tools that El Salvador can put in motion to steer economic development. Security emerges as a key cross-cutting issue, given the negative impact that violence has on all dimensions of development. The report does not make specific recommendations on security policy, but recommendations on mitigating the impact of insecurity on development outcomes are presented in the thematic policy chapters. The thematic chapters included in this report present complementary analyses, as well as recommendations developed jointly by OECD experts and stakeholders in El Salvador through an interactive process and a series of public policy workshops conducted between July 2021 and July 2022. This section presents the main conclusions and policy recommendations in each of these areas and proposes a set of priorities for further deepening co-operation between El Salvador and the OECD.

El Salvador needs a productive transformation to meet its development challenges. The government of El Salvador has set itself the goal of achieving a prosperous, dynamic and modern economy capable of generating opportunities for personal and community development for all. However, low productivity growth of 0.1% per year during the 2010s has been too slow relative to the trend in most middle-income countries, impeding improvements in living standards and competitiveness. Moreover, El Salvador’s economic growth has not been sufficiently inclusive. Since 2010, the working-age population has increased by more than 92 000 people per year, but the economy has created only slightly more than 15 000 formal jobs annually, mainly in low-value-added service sectors, in which 80% of new jobs are informal.

El Salvador's low productivity growth is explained by productivity disparities across sectors, by exports with low levels of economic complexity, by the paucity of FDI in the most innovative and technology-intensive sectors, by the small number of globally competitive firms, and by the large size of the country’s informal sector. Labour productivity across sectors is very uneven, providing an opportunity for structural transformation to drive productivity growth. Moreover, only a small fraction of Salvadoran firms are globally competitive, and there are large differences within sectors. El Salvador's exports are concentrated in goods with moderate levels of economic complexity, skill and technological intensity. At the same time, FDI in El Salvador is primarily directed towards low-skilled activities, and it does not reach the most innovative, technology-intensive sectors. There is also scope for a further increase in the participation of Salvadoran firms in global value chains. Finally, the size of the informal sector in El Salvador is a drag on productivity and job quality.

In order to expand productive industries and increase productivity in El Salvador, it is essential to improve the provision of key public goods, and to reduce the impact of obstacles to competitiveness and to doing business. First and foremost, it is essential to combat crime, and to mitigate its impact on business. High levels of crime generate additional costs for private companies and affect investment decisions. In addition, improving the quality of El Salvador's energy and transport infrastructure would reduce operating costs for private companies, and could increase productivity and promote economic growth. Removing barriers to international trade and further deepening regional integration could stimulate El Salvador's exports. Reducing the country’s lengthy bureaucratic procedures could also boost productivity and private investment. Access to finance remains an obstacle for micro and small enterprises in El Salvador. A large majority of Salvadoran businesses fall into this category and improving their access to finance could raise their productivity. Accelerating digitalisation could boost productivity, leading to significant efficiency gains. The level of digitalisation and internet access in El Salvador remains moderate. Moreover, innovation could increase the productivity of key economic sectors, and bring benefits to the Salvadoran economy through the creation and diffusion of new and emerging production technologies. The amount of innovation in El Salvador is currently at a medium level, and it is very low among micro and small enterprises.

There is room for improvement in the institutional and policy framework for El Salvador's productive transformation. Its productive transformation policies would benefit from a better-aligned strategic framework, and from a stronger focus on implementation. The attribution of clear leadership for productive transformation policies would support a more agile prioritisation process. The creation of an implementing agency for productive transformation policies, which would bring together existing capacities and could focus on implementation, would also be beneficial. Strategy documents on productive transformation need to be harmonised, policy implementation needs to be accelerated, and policies need to be rigorously monitored. In addition, El Salvador needs a broad, comprehensive and institutionalised public-private dialogue, and a body entrusted with the formulation and co-ordination of policies to support productive development. This body could be managed jointly by the public and private sectors.

El Salvador would benefit from rebalancing the mix of instruments for productive transformation in order to better target the companies and sectors where they are most effective. Currently, programmes for productive transformation are heavily focused on micro and small enterprises. In the future, El Salvador should allocate more policy instruments and a higher percentage of the budget to productive transformation policies for medium-sized enterprises, and to policies that help MSMEs to grow. Furthermore, and in order to increase the effectiveness of sectoral support policies and to maximise their impact, El Salvador should reduce the number of policy instruments in support of private enterprises, and concentrate financial, human and material resources on the most efficient ones, subject to rigorous evaluation. At the same time, El Salvador should reduce the importance of tax incentives while targeting them better and allocating more resources to other public goods. Tax incentives have a positive impact on job creation, but they are costly and do not promote linkages between foreign and domestic firms.

For many years, the scarcity and management of water have constituted an important conditioning factor in El Salvador's socio-economic development. Despite the availability of water resources, changes in land use that alter the permeability of the ground, plus the concentration of rainfall in relatively short bursts of time hinder the availability of water of sufficient quality in sufficient quantities. This results in low water productivity, as it is often used for low value-added activities. The management of water supply generates delays in obtaining a connection to the supply network, which is among the factors that most penalise business development in El Salvador, according to the World Bank's business surveys (World Bank, 2020[91]). The vast majority of the urban population (96%) has access to improved drinking water, but there are still significant access gaps. Among the rural population, only 41% had access to improved drinking water supply in 2019, and only 54% had access to improved sanitation, according to the state-owned water company ANDA (Administración Nacional de Acueductos y Alcantarillados). There is also a significant gap in wastewater treatment: only 8% of domestic wastewater was treated before being discharged into the environment in 2020.

A fragmented legal and institutional framework has hitherto limited progress in integrated water resource management in El Salvador, despite the development of integrated management plans such as the 2017 National Integrated Water Resource Management Plan. The fragmentation of the legal framework was compounded by the fragmentation of institutional responsibilities for the management of water resources and the provision of water and sanitation, making it difficult to act on issues related to the environmental management of water resources, the allocation of resources for different uses, or the provision of drinking water. The institutional framework is also fragmented with regard to the provision of water and sanitation services. While the state-owned company ANDA covers most of the urban population, the rural population is covered by a large number of local operators, many of which are established as water boards and community associations.

The adoption of the General Law on Water Resources in 2022 represents a milestone for water management in El Salvador. In addition to consolidating much of the regulatory framework, this legislation fills several gaps in the previous legal framework. For example, it introduces charges for water use and pollutant emissions, and creates delegated management bodies at the watershed level. It also creates a lead agency for water resource management (the Salvadorian Water Agency, ASA), although operational responsibilities for different aspects of water management remain dispersed. Progress in water resource management will depend on the proper implementation of the law. In particular, the legislation does not explicitly recognise the existing modes of water resource management and water provision that exist in the country, and which could serve as building blocks to deliver integrated water resource management and water and sanitation for all.

El Salvador should move towards basin-based water management, which, as the basic hydrological unit, constitutes the best scale of governance. The country could also move towards water financing at the basin level, allocating water use charges to the basin organisations themselves (according to the “water pays for water” principle). It could also introduce payments for water and soil conservation services provided by upstream communities.

El Salvador should adopt a risk-management approach in order to better manage the multiple risks that are linked to water, such as scarcity, pollution and floods. This involves defining risk areas within each basin based on current impacts on water, and anticipating impacts on vulnerable areas. Within each area, specific risks would be identified, and the acceptable level of risk would be established. Implications would be derived in terms of the levels of water abstraction or emission of pollutants.

Investment needs for water supply and sanitation in El Salvador are significant. They amount to approximately USD 14 billion according to the National Drinking Water and Sanitation Plan (PLANAPS). In order to make sure that it has an up-to-date view of its investment needs, El Salvador could maintain, and regularly update, a template of infrastructure costs and needs. This can be adjusted when new information becomes available. Calculations should include operation and maintenance costs, and should also take into account the rehabilitation of existing infrastructure, and include the needs and costs of economic sectors (in addition to those of households). El Salvador should develop demand-side management instruments to complement investment and supply-side development.

In order to generate the necessary resources for water supply and sanitation, El Salvador could move towards full cost recovery in the long term (e.g. 2050), through a revision of tariffs. In the short term, it will be necessary to combine public and external financial support (official development assistance [ODA] or foreign investment), with tariff revenues to cover the financing gap. In order to realise an adjustment in tariffs, El Salvador could establish an independent water regulator to develop and enforce water pricing criteria that aim to recover costs gradually, while at the same time improving the profitability of providing water and sanitation services.

Increasing educational attainment, as well as the quality and relevance of education, are key challenges for the future of El Salvador. Only 59% of adults in El Salvador have completed primary education, which puts the country below the average for the region, and below the level of attainment in countries with which El Salvador competes to attract foreign investment. Although educational attainment has progressed in line with successive reforms (10.3 years of schooling for 18-29-year-olds), it remains below national targets. Progression into the last cycle of basic education (corresponding to lower secondary), and in secondary education, is a challenge. Only 62% of 16 to 18-year-olds attend school. It is even more worrying that dropouts start at ages that correspond to compulsory education: 12% of 13 to 15-year-olds do not attend school. Limited access to schooling increases inequality: there is a 20 percentage point gap between the school attendance of 15-year-olds in poor rural households and the national average.

Early childhood education and care (ECEC) provides a promising basis for strengthening the education system in El Salvador. Compulsory schooling from the age of six has allowed the country to reach pre-primary enrolment levels (67% in 2018) that exceed the regional average. Despite this, access to pre-primary education is neither universal nor equitable, with particularly low levels of access for low-income households, as well as in rural areas and for younger children.

Strengthening the governance of the education sector, ensuring financial resources for the expansion of supply, and strengthening communication in order to encourage demand are all necessary for promoting ECEC. Efforts to establish a governance system have made progress in recent years – for example with the establishment of a national strategy for integrated early childhood development in 2018 – but implementation has been insufficient. The development of the Growing Together (Crecer Juntos) policy in the current administration, and the reform of the key law on childhood protection (the LEPINA law), have also reshaped the governance framework. It will be important to strengthen implementation both at the decision-making level and across the country. To ensure that supply expands, it will be necessary to increase resources for early childhood, both from the national budget and from other sources. The development of community-based services can also provide an important contribution to the expansion of ECEC services, provided that they are adapted to local circumstances, and that they are accompanied by established quality standards.

Mitigating and counteracting the negative effects of socio-economic inequality and violence is necessary to increase educational attainment. Salvadoran households bear a relatively high burden of education finance, which partly explains the low school attendance levels of young people in more disadvantaged households. To counteract these effects, El Salvador could strengthen targeted support programmes for vulnerable households with school-age children, complementing universal school feeding programmes and the provision of school supplies. El Salvador’s main conditional cash transfer programme (formerly called Comunidades Solidarias) has had positive results in this respect, but its coverage remains much too limited. Violence also has multiple negative effects on the education process. The presence of gangs has been a deterrent to school attendance, and gangs can be seen as a viable alternative by young people. In addition, violent environments have negative effects on children's learning and development. Violence in schools in El Salvador goes beyond the gang phenomenon. Half of all children under the age of 14 have suffered physical punishment, and recent reports indicate an increase in gender-related sexual violence targeting girls. Combating gang violence in general, and school violence, is of utmost importance. But in addition, efforts focused on public security should be complemented by a comprehensive approach to the prevention of violence in the school environment.

In order to improve the quality of education, teacher training and human-resource management in the sector, the quality of educational environments and the evaluation framework both require improvements. Increasing the quality of education at the compulsory levels of schooling in order to improve learning outcomes is a key policy challenge for El Salvador’s education system. According to international assessments, less than a third of students reach expected achievement levels in reading in the sixth grade, with even more pronounced difficulties in mathematics. Reviewing and improving teacher training is an important step towards ensuring better performance. El Salvador has an oversupply of teachers with initial teacher training, coupled with a mismatch between supply and demand for specialisations. However, many teachers in challenging environments – such as schools with only one or two teachers, or multi-grade classes – have not received specific, appropriate pedagogical or management training. The insufficient supply of in-service training limits the capacity of the education system to adapt to these situations and to encourage the implementation of educational reforms. There is a need to develop a comprehensive teacher training policy that includes in-service training, and that is coupled with a system of incentives for teachers. There is also ample scope to reduce gaps both in education infrastructure and in equipping schools, as well as in making them more inclusive. The system for evaluation in education in El Salvador is being developed. However, it requires institutional stability, which it has lacked so far, in order to build lasting capacity, and to ensure that evaluations are followed by effective action to improve education.

The COVID-19 pandemic has been an important turning point in the country's education system. On the one hand, the prolonged closure of schools may have led to a significant lag in learning, and may slow down progress in closing education gaps. On the other hand, the response of the government of El Salvador and the education community has made it possible to begin to counteract some of the structural deficiencies of the system, especially through digitalisation efforts such as the provision of equipment and the training of teachers in the use of digital tools.

For education to be a gateway to the labour market, it is necessary to develop mechanisms that will bring education closer to the productive sector. Many young Salvadorans drop out of education before they have obtained skills that are relevant in the labour market, and 28% of young people aged 15-24 are neither studying nor working. To increase the relevance of education, its attractiveness to young people, and its role as a driver of productivity, it is necessary to establish institutional mechanisms to identify the skills and profiles that the productive sector needs, and to translate them into appropriate curricula at all levels of education. To this end, El Salvador can build on recent achievements by strengthening co-ordination structures such as sectoral committees and the Council for the Co-ordination of Technical Education and Vocational Training (the Consejo de Coordinación de la Educación Técnica y la Formación Profesional). Key tools are still to be developed, such as a national skills framework and a system of skills accreditation. The use of active pedagogies, dual training, and the development of closer links between education and training institutions can also help to generate more relevant skills.

A lack of institutionalisation with regard to several areas of public policy, obsolete and fragmented legal frameworks, and the complexity of co-ordination mechanisms all hamper the ability of El Salvador’s administration to perform its functions effectively (see Chapter 2). Moreover, the fragmentation of the centre of government (CoG) – the group of bodies that provide direct support to the president and the council of ministers – limits the government's ability to address multi-dimensional challenges.

In El Salvador, the centre of government (CoG) has evolved extensively over recent decades, but it remains fragmented and needs stronger co-ordination mechanisms. It could benefit from greater clarity in terms of roles and responsibilities. Despite the multiplication of co-ordination structures, the efficiency of existing formal mechanisms of co-ordination could be improved. With greater clarity, it would be easier to ensure greater stability in CoG institutions in El Salvador, and avoid gaps in key functions such as the co-ordination of strategic planning or the co-ordination and monitoring of public investment. The bodies or institutions that perform these key functions could be maintained by successive governments in order to retain institutional memory, guarantee continuity in processes, and develop a strategy for long-term challenges.

A more robust planning framework would help El Salvador to articulate priorities, cluster policy initiatives around a small number of priorities, steer implementation, and improve policy coherence. El Salvador currently has planning and articulation documents for certain areas, such as its Social Development Plan. However, it does not have a plan that articulates government action as a whole. The Bukele Administration’s Cuscatlán Plan, which was designed as an electoral platform, does not have the characteristics of a planning and co-ordination instrument. El Salvador could strengthen its institutional planning capacity at the centre of government by creating a dedicated strategy unit with the time and capacity for medium-term thinking. El Salvador should also establish a more robust framework for monitoring strategic priorities. This includes the development of appropriate performance indicators, with baselines and targets.

Human resource management in the Salvadoran administration suffers from a lack of institutionalisation, as there is no specific institution in charge of leading and overseeing the design and implementation of a national human resource strategy. As a result, the public sector does not have an effective and functional training centre for the administration as a whole, although it does have capacity in some sectors. The limited mobility of civil servants, and the absence of a harmonised framework of competencies, tasks and functions, also prevent a better use of available skills. El Salvador should establish a body with a clear mandate and adequate resources to establish and oversee the national civil service workforce management strategy throughout the administration. The country needs to carry out a reform of its Civil Service Law in order to lay the groundwork for a reform of the civil service that allows for greater mobility, and that also establishes a system to monitor, evaluate and reward performance.

El Salvador has made great progress in regulatory policy and should capitalise on what it has achieved so far. The Law on Better Regulation and the Law on Administrative Procedures establish and articulate strategies for administrative simplification, and establish an institution (the Office for Better Regulation, or OMR), which is in charge of promoting and enforcing regulatory policy. To build on the achievements that it has made, El Salvador could extend the application of regulatory policy from the initial areas of focus, which relate to economic activity, to other areas that are of interest to citizens, such as health, education or the labour market. It could also ensure the effective participation of stakeholders by systematically involving them in the process of regulatory development. Finally, it could support the practice of Regulatory Impact Analysis (RIA) with clear guidance, training programmes and quality control mechanisms, in order to raise awareness and to ensure that RIA is carried out homogeneously across the administration.

El Salvador should renew its commitment to open government, define clear mandates, and develop tools to increase transparency, integrity, accountability and stakeholder participation. The Law on Access to Public Information and the Institute for Access to Public Information are important tools for the development of an open government agenda. However, El Salvador is lagging behind in the creation of spaces for citizen participation and the publication of open data. In addition, activities linked to the multilateral Open Government Partnership process were paralysed after the change of government in 2019, which has contributed to closing down forums for open dialogue.

The relationship between El Salvador and the OECD has deepened in the past few years. El Salvador has been a member of the OECD Development Centre since 2019. It has also been a member of the Global Forum on Transparency and Exchange of Information for Tax Purposes since 2011, and a signatory to the Multilateral Convention on Mutual Administrative Assistance in Tax Matters since 2015. In 2021, it adhered to the Punta del Este Declaration of 2018. A programme of the Tax Inspectors Without Borders initiative – a joint initiative by the OECD and the UNDP – has been active in the country since mid-2021. El Salvador has also adhered to the 2018 Declaration on Strengthening SMEs and Entrepreneurship for Productivity and Inclusive Growth, and to the 2009 Paris Declaration on Aid Effectiveness. The country also actively participates in the activities of the Global Forum on Competition Policy, and the Latin American and Caribbean Competition Forum Forum on Competition that is organised by the OECD and the Inter-American Development Bank (IDB). El Salvador is also an active participant in the activities of the OECD Regional Programme for Latin America, and it was the virtual host of this forum’s 2021 high-level meeting.

El Salvador is participating in the 2022 edition of the Programme for International Student Assessment (PISA). The results of PISA, which are expected in 2023, will provide policy makers with data and evidence that can be used to determine actions to improve the education system and, ultimately, to ensure that students obtain the skills that they need in order to succeed in tomorrow's world, as outlined in the SDG framework for education. The OECD encourages El Salvador to continue its participation in PISA 2025 (the programme’s next cycle), and to take the opportunity to include in its participation the option of assessing out-of-school youths. This option has recently been implemented by Guatemala, Honduras, Panama and Paraguay, and is designed for PISA countries that have significant numbers of out-of-school 15-year-olds, as is the case of El Salvador.

In order to develop the recommendations on productive transformation that are included in this report, El Salvador could mobilise its membership of the Development Centre through the activities of the OECD’s Initiative for Policy Dialogue on Global Value Chains, Production Transformation and Development. Conducting a Production Transformation Policy Review would provide valuable support to the revision of the institutional framework and the harmonisation of the production transformation strategy that is recommended in this report (Chapter 5). As a complement, El Salvador could also consider conducting an Investment Policy Review to analyse the various cross-cutting and business-environment barriers that limit investment in the country (Chapter 4).

In the area of water resources management, El Salvador could draw on OECD policy documents developed for the implementation of the policy principles set out in this report (Chapter 6). In particular, these include the 2016 Council Recommendation on Water, and the accompanying Toolkit for Water Policies and Governance (OECD, 2021[92]).

The public governance recommendations in this report are based in part on OECD legal instruments. These instruments could guide El Salvador in implementing the recommendations. They include: i) the 2019 Recommendation on Public Service Leadership and Capability, ii) the 2012 Recommendation of the Council on Regulatory Policy and Governance, iii) the 2017 Recommendation of the Council on Open Government, and iv) the 2014 Recommendation of the Council on Digital Government Strategies.


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← 1. Violence rates fell substantially in 2021 and, especially, in 2022. As of the end of 2022, detailed and comprehensive analysis of the impact of this fall in the development of the country and the wellbeing of the population is not available.

← 2. Phase 1 was implemented in July-December 2019; Phase 2 from October 2020 to June 2021; Phase 3 from June 2021 to July 2022.

← 3. The coffee oligarchy is often referred to as the “fourteen families” given the high degree of concentration of land and power. In practice they were closer to sixty (Wade, 2016[4]).

← 4. Remittances reached 26.2% of GDP in 2021 (according to BCR estimates).

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