El Salvador is experiencing a promising economic landscape, according to a recent macroeconomic report published by Exor. The report reveals improvements in key indicators such as public finances, public spending, Foreign Direct Investment (FDI), the financial system, and other sectors throughout 2023. Projections for the current year also indicate a positive outlook.
Despite international factors affecting the growth of major world economies in 2023, El Salvador managed to keep its macroeconomic indices in the positive, thanks to a series of fiscal strategies that facilitated trade and streamlined processes for registering new businesses.
The government attributes these purely economic efforts to the country’s positioning as the safest in the Western Hemisphere, not only socially but also legally.
Recent data reflected in Exor Latin America’s January Macro Economic Report highlights an optimistic outlook for the Salvadoran economy.
The figures show a significant improvement in public finances and a stable macroeconomic environment. For instance, Non-Financial Public Sector revenues (autonomous institutions) increased by 6.8% in 2023 ($8,416 million) compared to 2022 ($7,881 million), driven by growth in both tax revenues (4.6%) and non-tax revenues (27.1%).
Additionally, there is a notable increase in public financial transfers (90.0%) and foreign donations (7.7%). Despite a 9.3% increase in expenses, gross investment rose by 90.9%, and interest expenses decreased by 10.8%.
Kevin Anderson, the specialist and leader of Exor’s report, highlighted, «There was also a reduction in public spending, especially related to interest and capital transfers. In October 2023, these expenditures decreased by 14.9% and 22.2%, respectively.»
The private financial sector in El Salvador reported a profit of $313.4 million at the end of 2023, showing a growth of 3.8%, though more moderate compared to the 17.8% in 2022. The report notes, «This normalization of economic activity and global macroeconomic challenges have impacted credit demand.»
«The economic growth of El Salvador is the result of policies that promote a favorable environment for businesses, infrastructure development encouraging domestic and foreign investment, and fostering economic diversification,» emphasized the specialist.
The report also revealed that macroeconomic growth was driven by a significant increase in Foreign Direct Investment (FDI). Last year, FDI in the country reached $487 million, marking a recovery from 2021 and 2022, according to the document.
«It is reasonable to predict an increase in Foreign Direct Investment (FDI) in El Salvador following the improvement in security, as this is often a decisive factor in attracting foreign investment,» noted the economist.
Facing economic challenges in 2024, Anderson suggests that the government should «sustain investment in infrastructure, education, and technology, and address the increase in productivity and competitiveness of local businesses.»
Among the pillars supporting the Salvadoran economy, the expert highlights economic diversification, promoting non-traditional industries, innovation, and technological development. Investments in human capital, encompassing education, training, and health to boost long-term productivity and competitiveness, are crucial. «Healthy and well-trained human capital is essential for sustainable economic development and inequality reduction,» he added.
Finally, the Exor spokesperson emphasized that to enhance the business environment, it is crucial to continue simplifying administrative procedures and further reduce bureaucracy, creating a more favorable business environment for investments in the country.