Economy of El Salvador

The economy of El Salvador has experienced relatively low rates of GDP growth, in comparison to other developing countries. Rates have not risen above the low single digits in nearly two decades. The Salvadoran economy is characterized by income inequality, with 37.8% of the population below the poverty line.

The Salvadoran government undertook a monetary integration plan beginning 1 January 2001, by which the U.S. dollar became legal tender alongside the colón, and all formal accounting was undertaken in U.S. dollars. This way, the government has formally limited its possibility of implementing open market monetary policies to influence short term variables in the economy. Since 2004, the colón stopped circulating and is now never used in the country for any type of transaction; however some stores still have prices in both colons and U.S. dollars. The change to the dollar precipitated a trend toward lower interest rates in El Salvador, helping many to secure credit in order to buy a house or a car. Over time, displeasure with the change has largely disappeared, though the issue resurfaces as a political tool when elections are on the horizon.

In June 2021, president Nayib Bukele said he would introduce legislation to make Bitcoin legal tender in El Salvador. The Bitcoin Law was passed by the Legislative Assembly on 9 June 2021, with a majority vote of 62 out of 84. Bitcoin officially became legal tender ninety days after the publication of the law in the official gazette. As part of the law, foreigners can gain permanent residence in El Salvador if they invest 3 Bitcoin into the country. In January 2022, The International Monetary Fund (IMF) urged El Salvador to reverse its decision to make cryptocurrency Bitcoin legal tender. Bitcoin had rapidly lost about half of its value, meaning economic difficulties for El Salvador. President Bukele had announced his plans to build a Bitcoin city at the base of a volcano in El Salvador. In the first 18 months of Bitcoin adoption, the cryptocurrency was rarely used by the local population or tourists, leaving USD the de facto standard for transactions. The Bitcoin experiment was largely a failure.

In 2021, El Salvador received a $40 million loan for small enterprises and projects for climate action, from the European Investment Bank to the country's development bank, Banco de Desarollo de el Salvador. $20 million will be used to assist investments in renewable energy projects, specifically photovoltaics, biogas, and micro hydro projects. Up to 50% of the loan line will be used to assist small and medium-sized enterprises who were affected by the COVID-19 pandemic.