The real GDP growth of 2.6% at the end of 2022 was enough to reclassify El Salvador’s national economy from a Lower Middle-Income to an Upper Middle-Income status in 2022.
The Salvadoran economy continues its positive trend for fiscal year 2024, from July 1, 2023, to June 30, 2024, according to the recent classifications released by the World Bank Group, where the country is now placed in the “Upper Middle-Income” category.
The global financial institution classifies the world’s economies into four income groups: Low, Lower Middle, Upper Middle, and High. The rankings are updated annually on July 1st and are based on the previous year’s Gross National Income (GNI) per capita.
Regarding El Salvador, the bank detailed that the 2.6% real Gross Domestic Product (GDP) growth at the end of 2022, a feat hailed as historic by the government, was sufficient to reclassify the economy from Lower Middle-Income in 2021 to Upper Middle-Income last year, a trend that continues to grow for the next fiscal year.
Based on this scenario, the institution states that income levels in El Salvador rose from $4,140 in GNI in 2021 to $4,720 in 2022, a leap that places it in the Upper Middle-Income category, which ranges from $4,096 to $13,845.
The GNI figures are expressed in U.S. dollars using conversion factors based on the Atlas method, introduced in its current form in 1989.
The World Bank explains that in each country, there are various factors influencing GNI per capita, such as economic growth, inflation, exchange rates, and demographic growth.
It is worth noting that according to data from the Central Reserve Bank (BCR), 17 out of 19 economic activities recorded growth last year, meaning that 89% of them experienced a positive boost.
Moreover, El Salvador registered the best inflation rate in the Central American region at 7.3% in 2022, while last June, it was recorded at 3.78%.
According to the report, neighboring countries like Nicaragua and Honduras, and further south, Bolivia, remain in the Lower Middle-Income category, according to the World Bank’s classification. Venezuela was not rated.
On the other hand, Uruguay, Chile, French Guiana, and Panama join Canada and the United States as countries in the “High-Income” category.
The World Bank’s income classification aims to reflect a country’s level of development, based on Atlas GNI per capita as a widely available indicator of economic capacity.
The classification of countries into income categories has evolved significantly since the late 1980s. In 1987, 30% of the reporting countries were classified as Low-Income, while in 2022, only 12% fell into this category, according to the World Bank.
The extent of this decline varies among different regions of the world, with the proportion of low-income countries in the sub-Saharan Africa region dropping from 74% to 46% in 2022; East Asia and the Pacific from 26% to 3%; and South Asia from 100% to 13%, as economies moved to higher categories during this period.