El Salvador has recently been recognized for its increasing tourism potential, driven by the government’s achievements in security, according to a recent report titled “An Alternative Growth Model to Reduce Liquidity/Solvency Risks” published by the multinational financial corporation, Santander.
The report, proudly cited by President Nayib Bukele with the phrase “I told you so,” indicates that this alternative growth model, centered on the improvement of social security, has become a viable option for long-term debt solvency.
Santander suggests, “This alternative growth model becomes a viable option for debt solvency in the medium term, provided El Salvador can secure short-term financing. The option to [extend payments] continues to improve with proper budget flexibility, maximum political flexibility, enhanced financial flexibility post-pension reform, and significantly lower credit risk, opening up capital markets (and possibly even an IMF program).”
The publication goes on to highlight “clear growth dividends from vastly improved national security following an extended state of emergency.” It confirms official data showing that El Salvador’s homicide rate has plummeted since its peak in 2015 and is now one of the lowest in the Western Hemisphere (President Bukele claims it’s the lowest after Canada).
“The figures are undeniably impressive: only 2.3 homicides per 100,000 inhabitants (108 in total) between January 1st and September 23rd of this year. This has led to numerous positive outcomes, including an immediate increase in tourism, the return of the Salvadoran diaspora through a wave of reverse migration, and the potential for much higher foreign direct investment,” states Santander.
Additionally, Santander cites a recent United Nations survey, revealing that 60% of Salvadorans in the United States intend to return to their home country.
“While security measures may not be overly popular with the Biden administration, they can not only reduce but also reverse U.S. migration pressures. The recent UN survey among Salvadorans residing in the United States showed that 60% expressed intentions to return to El Salvador,” it noted.
The report also mentions that this may already be reflected in the increase in tourist arrivals this year, with a year-on-year growth of 30%. Tourist arrivals from the United States have nearly doubled since pre-pandemic levels in 2019, from 281,000 in 1H19 to 483,000 in the first half of 2023.
“America represents potential tourism from Salvadoran/U.S. residents and Bitcoin tourists, as well as the convenience of geographical proximity and full dollarization,” Santander explains regarding the country’s economic openness.
Santander further asserts that tourism in the country is growing at a faster pace than that of the Dominican Republic, providing a potential growth alternative that can gradually alleviate some budgetary and debt service pressures. “The tourism potential offers even more incremental positive options, reaffirming our recommendation of structural overweighting,” it concludes.