El Salvador WT/TPR/S/226/Rev.1 
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I. ECONOMIC ENVIRONMENT 
(1) OVERVIEW  
1. El Salvador's real GDP grew at an average annua l rate of 3.1 per cent in the period 2003-2008 
- below the average for Latin America in the same peri od, but slightly faster than in the years covered 
by the previous Review.  Growth accelerated in 2006  and 2007, notably as a resu lt of a strong surge in 
domestic demand;  but it then slowed sharply from the second half of 2008 onwards in the wake of the 
international crisis, which also resulted in lower levels of investment, exports and remittances from 
Salvadoran workers abroad, and a drop in gross pr ivate capital formation of some 5 per cent for 2008 
as a whole. 
2. As El Salvador is a dollarized economy, it ca nnot conduct an autonomous monetary policy;  
so fiscal policy plays a key role.  The fiscal defi cit narrowed steadily betw een 2003 and 2007, before 
expanding in the first few months of 2009 to give a central government  deficit of 1 per cent of GDP in 
June 2009, as a result of lower income and higher  spending.  The NFPS (non-financial public sector) 
deficit stood at 1.3 per cent of GDP in June 2009. 
3. The current account deficit grew steadily from 2005 onwards, fuelled mainly by faltering 
merchandise trade, to reach 7.6 per cent of GDP in 2008.   The deficit has been offset by the high level 
of current transfers, chiefly consisting of rem ittances from Salvadorans liv ing abroad, which were 
equivalent to 17.1 per cent of GDP in 2008;  and it ha s been financed by capital inflows, principally in 
the form of foreign direct investment (FDI), govern ment bond issues and loans.  El Salvador has also 
negotiated loans from the World Bank and the Inter-American Development Bank (IDB) totalling 
US$950 million.  In September 2009, the Internati onal Monetary Fund (IMF) and the Salvadoran 
authorities reached preliminary agreement on a new economic programme, which could be 
underpinned by a three-year stand-by arrangement  (SBA) for US$800 million.  This new programme 
replaces the 15-month precautionary SBA approved in January 2009. 
4. Trade in goods and services represented 73.6 per cent of El Salvador's GDP in 2008, the 
country's leading partners for trade in goods (incl uding the maquila industry) being the United States 
of America and the other members of the Central American Common Market (CACM).  
Manufactures remain the major export category, alt hough the share of textiles and clothing shrank 
during the period under review, while share of co mmodities grew.  Manufactures still also account for 
the largest share of imports.  The traditional defic it in the balance of trade in services has widened 
since 2003 and was equivalent to 2.6 per cent of GDP in 2008. 
(2) MACROECONOMIC TRENDS  
(i) Structure and development of the economy 
5. The sector composition of the Salvadoran ec onomy changed during th e period under review, 
largely reflecting the favourable international economic setting prevailing until mid-2008, and the 
various sectors' accommodation to this.  For example,  the share of agriculture in GDP increased from 
8.3 per cent in 2003 to 12.2 per cent in 2008, mainly  thanks to the rising trend in agricultural product 
prices, while the manufacturing sector, including the maquila industry, saw its GDP share at current 
prices shrink from 22.5 per cent to 20.1 per cent over the same period.  Services accounted for 
61.5 per cent of GDP in 2008, with commerce, rest aurants and hotels (20.1 per cent of GDP in 2008) 
followed by transport (9 per cent) as the leading subsectors. 
6. Real GDP expanded at an average annual rate of 3.1 per cent in 2003-2008 - below the Latin 
American average for the period, but slightly fast er than the 2.8 per cent reported in the previous WT/TPR/S/226/Rev.1 Trade Policy Review 
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Review for 1996-2001 (Table I.1).  Growth gather ed pace in 2006 and 2007, driven mainly by 
burgeoning domestic demand;  but from the sec ond half of 2008 onwards, the expansion was 
impacted by the international crisis, and gross private capital formation for 2008 was down by over 
5 per cent. 
7. Results for the first half of 2009 reveal a contraction in economic activity, reflecting the 
slump in external demand and smaller remittances.  Goods exports were down by 16.5 per cent in 
nominal terms in the first quarter, and there was a pa rticularly sharp decline in maquila exports, which 
fell by 22.8 per cent year-on-year.1 
Table I.1 
Basic economic indicators, 2003-2009 
 2003 2004 2005 2006 2007 2008 2009 I 2009 II
I. Gross Domestic Product (GDP)    
Current GDP (US$ million) 15,047 15,798 17,070 18,654 20,373 22,115 5,521 5,468
Current GDP per capita (US$)  2,504 2,621 2,822 3,071 3,341 3,611  
Gross disposable national income (US$ million)a 16,738 17,895 19,526 21,595 23,546 25,410  
Net current transfers from  abroad (US$ million) 2,114 2,555 3,035 3,472 3,750 3,832  
Gross disposable national income per capita (US$) 2,786 2,969 3,228 3,555 3,861 4,149  
Real GDP, rate of growth (%) 2.3 1.9 3.1 4.2 4.7 2.5 -1.8 -2.4
 Domestic demand 3.3 2.7 3.1 6.9 5.9 2.7  
 Final consumption expenditure 1.9 2.9 3.9 5.6 6.4 4.2  
 Private consumption 2.1 3.0 4.0 5.9 6.8 4.3  
 Public administrations -0.3 1.1 1.8 2.8 1.1 1.8  
 Gross capital formation 7.8 -3.9 2.5 6.8 6.4 -5.3  
 Gross fixed capital formation 2.5 -5.0 2.1 11.1 6.4 -5.3  
 Private 4.1 2.6 -0.8 12.7 7.7 -6.5  
 Public -4.9 -43.2 27.9 -0.4 -4.1 5.0  
 Exports of goods and services 4.7 5.7 1.4 10.1 4.6 5.5  
 Aggregate supply 3.3 2.7 3.1 6.9 5.9 3.4  
 Imports of goods and services 4.8 4.1 3.1 11.2 7.9 4.7  
II. Sectoral breakdown (% of current GDP)b    
 Agriculture 8.3 8.9 9.7 10.1 11.2 12.2 12.0 12.4
 Mining 0.5 0.4 0.3 0.3 0.3 0.4 0.4 0.4
 Manufactures 22.5 22.1 21.1 20.6 20.3 20.1 20.0 20.2
 Electricity, gas and water 2.0 1.8 1.8 1.9 1.8 1.9 2.0 2.0
 Construction 4.7 4.2 4.2 4.2 4.0 3.9 4.4 4.0
 Commerce, restaurants and hotels  19.4 19.8 20.0 19.8 20.0 20.1 20.2 20.0
 Transport, storage and telecommunications 8.9 9.2 9.1 9.3 9.2 9.0 8.9 8.9
 Financial services 4.3 4.5 4.5 4.5 4.5 4.4 4.4 4.4
 Real estate 4.2 4.2 4.2 4.1 4.1 4.0 4.2 4.1
 Housing 7.6 7.5 7.5 7.1 6.8 6.5 6.2 6.4
 Community, social and personal services 7.4 7.7 7.4 7.3 7.2 7.2 7.4 7.4
 Public services 6.9 6.6 6.5 6.6 6.4 6.4 6.7 6.7
III. Breakdown by expenditure (% of current GDP)  
 Total consumption 98.9 101.0 102.0 103.3 105.3 107.5  
 Private 89.0 91.4 92.4 93.7 96.1 98.4  
 Public 9.9 9.6 9.6 9.6 9.2 9.2  
 Gross fixed capital formation 16.7 15.7 15.3 16.1 16.1 15.0  
 Private 13.4 13.8 13.0 13.9 14.1 12.8  
 Public 3.3 1.9 2.3 2.2 2.0 2.1  
 Changes in equity capital 0.3 0.5 0.4 0.0 0.0 0.0  
 Exports of goods and services 27.1 27.8 26.6 27.8 27.2 25.6  
 Imports of goods and services 43.0 45.1 44.3 47.2 48.5 48.1  
                                                      
1 Central Reserve Bank of El Salvador (BCR, 2009a). El Salvador WT/TPR/S/226/Rev.1 
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 2003 2004 2005 2006 2007 2008 2009 I 2009 II
 Gross national saving 12.3 12.2 12.4 12.5 10.3 7.4  
IV. Memorandum items  
 Population (million)c 6.0 6.0 6.0 6.1 6.1 6.1  
 Terms of trade (1980 = 100) 107.7 116.6 116.5 109.1 103.0 n.a.  
 Net international reserves (US$ million) 1,906 1,888 1, 829 1,907 2,198 2,541 2,783 
n.a. Not available. 
a Gross domestic product, less property income from abroad, plus net current transfers. 
b Excluding imputed bank service charges, cu stoms duties and value-added tax, which explain the difference with a figure of 
100 per cent. 
c Ministry of the Economy.  Directorate-Gene ral of Statistics and Censuses (DIGESTYC).  Estimaciones y Proyecciones de 
Población, 1950-2050 . 
2009 I GDP data through first quarter. 
2009 II GDP data through second quarter. 
Source : Central Reserve Bank of El Salvador. 
 
8. GDP per capita at current prices increased from about US$2,504 in 2003 to US$3,611 in 
2008.  Net transfers, particularly from the United States, remain a crucial source of financing for domestic private expenditure;  and, as a result, gro ss disposable income per capita is higher than per 
capita GDP.  In 2008, gross disposable income per capita, at US$4,149, was 14.9 per cent above per 
capita GDP. 
9. Expenditure on GDP in El Salvador is still dominated by consumption, which in 2008 
represented 107 per cent of total output, with private consumption absorbing 98 per cent.  Despite this 
high proportion, the national saving rate remained re latively stable until 2006, before a sharply higher 
consumption in 2007 and 2008 lowered the savings rate  to 7.4 per cent in the latter year.  Private 
investment represented 12.8 per cent of GDP in  2008, compared to 13.4 per cent in 2003. 
10. Exports of goods and services maintained a re latively constant GDP share between 2003 and 
2008, while the corresponding imports expanded to near ly 50 per cent of GDP in 2008, reflecting the 
high level of domestic demand in the Salvadoran economy. 
11. The economically active population grew from 2. 52 million in 2003 to 2.75 million in 2007, 
(the last year for which data are available), re presenting annual growth of 1.8 per cent, which is 
slower than the rate of expansion of GDP.  The une mployment rate reported for that year was 6.3 per 
cent.  The informal sector is very important in the Salvadoran economy, providing 48.6 per cent of total employment (Multi-Purpose Household Surv ey, 2008) and playing a major role in poverty 
reduction.
2 
12. Although development indicators continued to improve during the review period, World Bank 
data show that 37 per cent of the popula tion was still living in poverty in 2007.3  According to the 
authorities, the equivalent figure in 2009 was 34.6 per cent. 
(ii) Fiscal policy 
13. The Ministry of Finance is responsible for fiscal policy in El Salvador, setting budgetary 
policy applicable to the non-financial public sect or (NFPS), pursuant to the Organic Law on State 
Financial Management.  Fiscal policy and annual budg ets during the review period were formulated in 
conformity with the public debt programme specif ied in the 2004-2009 Strategic Plan, which set the 
                                                      
2 Ministry of the Economy, DIGESTYC (2004). 
3 World Bank (2009b). WT/TPR/S/226/Rev.1 Trade Policy Review 
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following targets:  NFPS medium and long-term borrowing not to exceed 40 per cent of GDP as an 
average for the five-year period;  NFPS debt service to  be paid on time;  and the debt service indicator 
to be kept below 30 per cent of current income, and brought below 20 per cent by the end of the 
period.4 
14. The following guidelines have been set for fiscal po licy in 2009:  keep the NFPS fiscal deficit 
at appropriate levels, although without a specific ta rget;  endeavour to generate a current account 
surplus for the NFPS to ensure that government financ ing is used exclusively for investment;  increase 
tax revenue without raising tax rate s, mainly by combating contraba nd and tax evasion;  target public 
investment on priority areas;  and maintain borro wing levels in accordance with best international 
practices and the country's ability to pay.5 
15. Central government income is still a relativel y small proportion of GDP, despite expanding 
from 13.2 per cent in 2003 to 14.7 per cent in 2008 (T able I.2).  This slight increase is explained 
mainly by additional tax revenue  obtained in the framework of the fight against tax evasion and 
smuggling.  Public expenditure accounted for 15.3 pe r cent of GDP in 2008.  The central government 
fiscal balance strengthened betwee n 2003 and 2007, as the deficit decreased steadily from 2.7 per cent 
of GDP in 2003 to 0.2 per cent in the latter year, before expanding slightly to 0.6 per cent of GDP in 
2008.  The NFPS deficit has fluctuated between 0. 2 per cent and 2.1 per cent of GDP in the period 
2003-2008, and was 1.1 per cent of GDP in 2008. 
16. The fiscal situation worsened sharply in the first six months of 2009, as the Central 
Government recorded a deficit of US$213.4 milli on (1.0 per cent of year's GDP), following the 
surplus of US$111.4 million achieved in the same pe riod a year earlier.  This was the result of a 
substantial drop in income, mainly tax revenue, a nd higher expenditure, particularly current spending 
(payroll, goods and services, interest and current tr ansfers).  Of these transfers, 52 per cent went to 
government bodies, while the remainder was channelled to the private sector, largely in the form of 
subsidies on transport, electric power and liquefied gas.  Debt service as of August 2009 (US$1,063.9 million) represented 4.8 per cent of estim ated GDP for the year, consisting of principal 
repayments of US$706.8 million a nd interest of US$357.1 million.
6 
Table I.2 
Central government finances, 2003-2009 
(% of GDP) 
  2003 2004 2005 2006 2007 2008 2009a 
Income 13.2 13.3 13.5 14.4 14.6 14.7 6.9 
 Current income 12.7 13. 0 13.2 14.2 14. 3 14.4 6.8 
 Taxes 11.5 11.5 12.5 13.3 13.4 13.0 6.4 
 Income tax 3.3 3.4 3.9 4.2 4.6 4.5 2.7 
 VAT 6.1 6.0 6.5 7.0 6.8 6.6 2.8 
 Consumption tax 0.4 0.5 0.6 0.5 0.5 0.4 0.2 
 Property taxes and other taxe s 0.1 0.1 0.1 0.1 0.1 0.1 0.0 
 Customs duties 1.2 1.1 1.1 1.1 1.0 0.8 0.3 
 Non-tax and other income 1.2 1.4 0.7 0.8 0.8 0.7 0.4 
 Income from capital and grants 0.4 0.3 0.3 0.2 0.3 0.2 0.1 
Expenditure 15.9 14.4 14.6 14.8 14.8 15.3 7.9 
 Current expenses 12.1 12.2 12.1 12.3 12.3 12.6 6.6 
 Payroll 4.9 4.7 4.5 4.5 4.4 4.4 2.3 
 Goods and services 2.1 2.3 2.4 2.1 2.2 2.3 1.1 
 Interest 1.9 2.0 2.2 2.4 2.4 2.3 1.2 
 Transfers 3.2 3.2 3.0 3.3 3.3 3.5 1.9 
                                                      
4 Ministry of Finance, Directorate-General of Investment and Public Credit (2004). 
5 Ministry of Finance, Directorat e-General of the Budget (2008). 
6 BCR (2009b). El Salvador WT/TPR/S/226/Rev.1 
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  2003 2004 2005 2006 2007 2008 2009a 
 Capital expenditure 3.8 2.3 2.6 2.7 2.6 2.7 1.3 
Central government balance -2.7 -1.1 -1.0 -0.4 -0.2 -0.6 -1.0 
NFPS balance -2.1, -0.6 -1.0 -1.1 -0.2 -1.0 -1.3 
Total public debt (US$ million) 7,103.2 7,282.6 7,703.7 8,359.2 8,638.7 9,707.6 10,339.0 
Total public debt (% GDP) 47.2 46.1 45.1 44.8 42.7 43.9 47.3 
NFPS debt (% GDP) 40.3 40.5 39.7 39.7 36.6 35.8 38.1 
a First six months as a percentage of annual GDP.  Preliminary figures. 
Source :  Central Reserve Bank of El Salvador. 
 
17. In June 2009, the Government announced an 18-m onth global plan to cope with the crisis, 
worth approximately US$587 million, representing 17 per cent of total public expenditure.  According 
to the authorities, this has since had to be refocu sed to cope with the damage caused by torrential 
rainfall in November 2009 and the r esulting national disaster situation. 
18. During the period under review, revenue from income tax and the property transfer and 
services tax increased from 3.3 per cent and 6.1 per cent of GDP, respectively in 2003, to 4.5 per cent 
and 6.6 per cent in 2008.  In contrast, customs re venue decreased from 1.2 per cent to 0.8 per cent of 
GDP.  Customs duties represented less than 2 per cen t of merchandise imports in 2008 - below the 
3.2 per cent reported in 2001, for example. 
19. The prudential limit of 40 per cent of GDP for NFPS debt, imposed in 2004, has been 
complied with since 2005, while the total public debt dropped from 47.2 per cent of GDP in 2003 to 
43.9 per cent in 2008, before rising again in 2009.  The total public  debt stood at US$10,339.2 million 
in June 2009, of which US$8,280.0 million corresponded to the NFPS.  In late 2008, a 
US$950 million increase in external borrowing was approved to restructure the debt and promote social development, the corresponding funds be ing secured through loans from the World Bank and 
the IDB (see below). 
(iii) Monetary and exchange-rate policies 
20. Although responsibility for the conduct of moneta ry policy lies with the Central Reserve 
Bank of El Salvador, El Salva dor cannot conduct an independent monetary policy because it is a 
dollarized economy.  The United States dollar h as been the currency of legal tender since 
1 January 2001, when the Law on Monetary Integr ation entered into force (Decree No. 2001 of 
22 December 2000).
7  This legislation fixed the exchange rate  between the colón and the dollar at 8.75 
- the rate that had been in force during the previous  seven years.  The dollar is also the unit of account 
used by the financial system.  The Law on Monetary Integration eliminated three of the main central 
bank functions:  monetary policy management, lende r of last resort to the banking system, and 
currency issuance.  It also aut horized the central bank to fulfil other functions, such as managing 
liquidity reserves and supplying dollars to the economy.8 
21. The authorities consider that the monetary  integration process has been implemented 
successfully, and that it has helped consolidate th e country's macroeconomic stability and strengthen 
its financial system.  The benefits identified incl ude loans with lower inte rest rates and longer 
                                                      
7 The Law on Monetary Integration can be view ed at:  http://www.bcr.gob.sv/uploaded/content/ 
category/1016779392.pdf. 
8 BCR (2009e). WT/TPR/S/226/Rev.1 Trade Policy Review 
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maturities, elimination of exchange-rate risk, a nd protection of the value of savings, wages and 
purchasing power.9 
22. Interest rates have stayed low for most of the period under review, which mainly reflects the 
benefits of dollarization on El Salvador's perc eived country-risk, since exchange-rate risk is 
eliminated.  Interest rates on loans with maturities of up to one year fluctuated between 6.3 per cent 
and 7.9 per cent as an annual average between 2003 and 2008, with spreads (the difference between 
the borrowing and lending rates) below 4 per cent (Tab le I.3).  Nonetheless, both interest rates and 
spreads in El Salvador have risen since mid-2008,  as a result of the global financial crisis, even 
though rates in the United States have come down.  Th is is partly the result of higher perceived risk, 
but mainly reflects the situation on the credit market , where the supply of credit has dwindled.  This, 
in turn, reflects the drop in remittances and conse quently smaller volume of deposits in the financial 
system, as shown by lower levels of near-money in  2009.  Real borrowing rates have been negative 
for most of the period under review, but  they turned positive again in 2008. 
23. Since the introduction of the Law on Monetary Integration, the central bank has had little 
power to influence the price level.  Inflation was held  at levels below 5 per cent for most of the review 
period, but started to rise in the wake of higher international food and raw materials prices.  The 
absence of an independent monetary policy means that external shocks are transmitted more 
immediately to the domestic price level.  Averag e cumulative inflation for 2008 amounted to 5.5 per 
cent, having peaked at 9.9 per cent in August;  the latter reflected increases in 2008 of about 18 per 
cent in the price of food and beverages and almost 12 per cent in the transport sector, which includes 
the price of regular gasoline.  Inflation began to ease in the first few months of 2009, in response to 
weaker raw materials prices a nd a slowdown in demand growth. 
Table I.3 
Monetary and price indicators, 2003-2009 
Indicator 2003 2004 2005 2006 2007 2008 2009a 
Consumer price index (variation %, end of period) 2.8 5.4 4.3 4.9 4.9 5.5 0.2 
M1 (variation %) 1.2 12.5 7.4 15.2 16.5 1.6 -0.3 
M2 (variation %) 0.3 3.0 2.6 11.9 17.6 0.1 -0.2 
Near-money (variation %) 0.2 0.9 1.4 11.1 17.9 -0.2 -0.2 
Loans to the private sector (variation %) 7.0 5.6 7.7 10.9 7.1 4.4 -2.7 
Real effective exchange rate index (global, ba se 2009) -0.7 -0.2 -0.2 -1.4 0.8 -2.0 -2.9 
180-day deposit rate (% p.a.) 3.4 3.3 3.4 4.4 4.7 4.2 4.8 
Rate on loans of up to one year (% p.a.) 6.6 6.3 6.9 7.5 7.8 7.9 9.5 
Spread 3.2 3.0 3.5 3.1 3.4 3.7 4.8 
a Figures at July (CPI in June). 
Source : Central Reserve Bank and IMF Interna tional Financial Sta tistics, March 2009. 
 
24. The real exchange rate has experienced relativel y small variations during the review period;  
and the IMF views the rate as consistent with the country's economic fundamentals.  The real 
exchange rate depreciated between early 2007 and early 2008, owing to the weakness of the 
United States dollar in relation to th e currencies used by El Salvador's  main trading partners, and this 
offset the increase in domestic inflation.10 
25. El Salvador does not impose any controls on foreign currency transactions. 
                                                      
9 BCR online information.  Viewed at:  http://www.bcr.gob.sv/?cat=1053&name 
=Reseña%20Histórica&lang=es. 
10 IMF (2009b). El Salvador WT/TPR/S/226/Rev.1 
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(iv) Balance of payments 
26. El Salvador ran a current account deficit con tinuously between 2003 and 2008, which ranged 
between US$702 million and US$1,682 million (Tab le I.4).  The gap grew steadily from 2005 
onwards, to reach a level of 7.6 per cent of GDP in 2008.  The merchandise trade balance has 
recorded a growing deficit since 2005, amounting to  US$4,394 million or 19.9 per cent of GDP in 
2008.  This is explained by the fact that imports have outpaced exports:  the former were 65 per cent 
higher in 2008 than in 2003, while exports grew by just 46 per cent over the same period.  The 
balance of trade in services has also been in deficit throughout the period under review. 
27. Nonetheless, the size of the current account de ficit has been mitigated by the high level of 
current transfers, mainly in the form of remittances from Salvadorans living abroad - particularly in 
the United States and Spain.  Foreign remittances totalled US$3,788 million in 2008, equivalent to 
17.1 per cent of GDP11, compared to US$2,105 million (14 per cent of GDP) in 2003.  The 
international economic crisis has ha d repercussions on employment levels in industrialized countries, 
which has meant that Salvadoran s living in the United States are sending less money home;  in the 
first half of 2009, remittances dropped by 10.3 per ce nt compared to the same period a year earlier, 
shrinking from US$1,938.5 million to US$1,739.7 million.   The smaller volume of transfers has had a 
major impact on final consumption, particularly in 2009. 
Table I.4 
Balance of payments, 2003-2009 
(US$ million) 
  2003 2004 2005 2006 2007 2008 2009a 
I. Current account -702 -642 -610 -783 -1,221 -1,682 -114 
Trade in goods -2,287 -2,661 -2,938 -3,533 -4,105 -4,394 -1,226 
Exports f.o.b.b 3,153 3,339 3,447 3,759 4,039 4,611 1,955 
Imports f.o.b.b 5,439 6,000 6,385 7,291 8,144 9,004 3,181 
Services -107 -79 -128 -192 -291 -584 -303 
Receipts 949 951 946 1,015 1,130 1,041 399 
Payments 1,055 1,030 1,074 1,207 1,420 1,625 702 
Investment income -423 -458 -579 -531 -576 -536 -356 
Receipts 140 144 175 234 287 223 88 
Payments 564 602 754 765 863 759 444 
Current transfers (net) 2,114 2,555 3,035 3,472 3.75 3,832 1,770 
Private remittances 2,105 2,548 3,017 3,471 3,695 3,788 1,740 
Public transfers and other 9 7 18 1 55 44 31 
II. Capital and financial account 846 276 929 1,094 400 1,380 -6  
 Capital account 113 100 94 97 151 80 50 
 Financial account 733 175 836 997 250 1,300 -56 
Direct investment 123 366 398 268 1,408 719 51 
Portfolio investment 189 57 105 777 -196 138 277 
Other investments 737 -300 274 24 -682 777 -148  
III. Errors and omission s -144 352 -360 -423 783 216 120 
IV. Overall balance -144 352 -360 -423 783 216 120 
V. Financing        
Free reserves (variation) 144 -352 360 423 -783 -216 -120 
Memorandum        
Current account deficit (percentage of GDP) 4.7 4.1 3.6 4.2 6.0 7.6 n.a.  
Total external debt (US$ million) 8,602. 9 8,869.8 9,419.8 10,259.2 9,808.4 10,691.1 10,143.7  
Net international reserves (US$ million) 1,905.8 1,888.3 1,829.4 1,907.2 2,197.5 2,540.9 2,782.9 
n.a. Not available. 
a June 2009. 
b Includes the maquila industry. 
Source : Central Bank of El Salvador. 
 
                                                      
11 BCR (2009d). WT/TPR/S/226/Rev.1 Trade Policy Review 
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28. El Salvador's total external debt e xpanded from US$8,602.9 million in 2003 to 
US$10,691.1 million in 2008, while net interna tional reserves (foreign assets) rose from 
US$1,905.8 million in December 2003 to US$2,782.9 m illion in June 2009 - to some extent reflecting 
the higher external debt.  Reserves are invested con servatively;  and, at the end of the second quarter, 
the duration for investment in United States dolla rs was 0.18 years.  Just over 77 per cent of 
investments are held with sovereign issuers, such  as the United States Treasury, other agencies of the 
United States and Germany, and supranational or ganizations such as the Bank for International 
Settlements (BIS), the World Bank and others.  Abou t 87 per cent of the securities held are tradable 
on secondary markets, while the remaining 13 per cent consist of time deposits with maturities of up 
to one week.  This is consistent with the risk pr ofile specified in the investment policy and the range 
of assets in which the portfolios are invested.12 
29. El Salvador has negotiated loans with the World Bank and the IDB totalling 
US$950 million.13  In January 2009, the IMF approved a precautionary 15-month SBA for 
El Salvador amounting to roughly US$800 million (SDR 513.9) to support the country's economic 
strategy in coping with the adverse effects of th e international financial crisis.  The Salvadoran 
authorities stated that they had no intention of using the funds and the programme supported by the 
IMF was a precautionary measure forming part of a gl obal strategy to bolster the country's defences 
against the crisis.  The programme's key objective is to help provide liquidity to the country's 
economy.  The authorities believe that the agreem ent approved in January has achieved its main 
objective of helping El Salvador cope with the financial crisis and maintain stability in the 
macroeconomic and financial sectors, as well as b oosting investor confidence.  In September 2009, 
the IMF and the Salvadoran authorities reached  preliminary agreement for a new economic 
programme that could be supported by a precau tionary three-year SBA also for a total of 
SDR 513.9 million.  The new programme replace s the 15-month SBA approved in January 2009.14 
(3) MERCHANDISE TRADE AND INVESTMENT FLOWS  
30. The composition and geographic distribution of El  Salvador's merchandise trade is shown in 
Annexes AI.1 to AI.6.  Complete data are only available since 2005. 
31. The country's merchandise trade grew significan tly during the period under review.  Exports 
(including maquila exports) expanded from US$3, 418 million in 2005 to US$4,549 million in 2008, 
while imports (including maqu ila-related) grew from US$6,690 m illion in 2005 to US$9,754 million 
in 2008, i.e. an average annual growth of 13.4 per cent.  Imports greatly outweighed exports in value 
terms throughout the period under review, thereby ge nerating a trade deficit of US$5,295 million in 
2008, excluding maquila activity. 
(i) Composition of trade 
32. Tables AI.1 to AI.4 show the composition of trade during the period under review.  The 
structure of El Salvador's exports suffered a number of alterations during that period, with the textiles 
and clothing shares both shrinking.  Manufactures remain the main export category and, maquila 
activities included, accounted for over 73.7 per cent of total exports in 2008.  Within this category, 
textile products and their manufactures are the lead ing export item, accounting for 41.3 per cent of the 
total in 2008 - albeit considerably  below the 52.7 per cent recorded in 2005.  Chemicals and plastics 
accounted for 10.9 per cent of exports in 2008, compared to 7.1 per cent in 2005. 
                                                      
12 BCR online information (2009).  Viewed at:  http://www.bcr.gob.sv/. 
13 IMF Press Release No. 09/10, 16 January 2009, and IMF (2009).  Viewed at:  http://www.imf.org/. 
14 IMF Press Release No. 09/322, 24 September 2009.  Viewed at:  http://www.imf.org/. El Salvador WT/TPR/S/226/Rev.1 
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33. Commodities slightly increased their share of total exports during the period, food products 
being the leading category in that sector.  These, al ong with beverages, alcoho lic liquids and vinegar, 
tobacco and manufactured tobacco substitutes, account ed for 19.9 per cent of  total foreign sales in 
2008, compared to 17.2 per cent in 2005.  Coffee re mains the leading individual commodity export, 
accounting for 5.7 per cent of total exports in 2008. 
34. Manufactured goods remain the leading category on the import side, representing 63 per cent 
of total foreign purchases in 2008, albeit a smaller share than previously.  Machinery, transport 
equipment and chemical products account for a large share of manufactured imports (Table AI.4).  Commodity imports increased substantially during th e review period, mainly owing to larger fuel 
purchases. 
(ii) Geographic distribution of trade 
35. El Salvador's main export markets are the othe r members of the CACM and the United States 
(Table AI.5).  Within the Central American regi on, Guatemala was the leading destination in 2008, 
absorbing roughly 13.6 per cent of El Salvador's exports, above the 11.5 per cent recorded in 2003.  The United States provided a market for 48.1 per cent of the country's exports in 2008, while other 
major trading partners, Honduras and Nicaragua, abso rbed 13 per cent and 5.5 per cent respectively.  
A further 7 per cent of Salvadoran exports in 2008 went to Europe, mainly Germany and Spain. 
36. The United States is El Salvador's main supp lier country, providing 34.4 per cent of all 
imports in 2008.  Mexico was the next most importa nt, supplying 9 per cent of the total, followed by 
Guatemala with 8.5 per cent.  The Central Ameri can region as a whole accounted for 17 per cent of 
El Salvador's total imports (Table AI.6), while  the European Union provided 6.9 per cent, led by 
Germany and Spain, with 1.6 per cent and 1 per cent, respectively. 
(iii) Trade in services 
37. El Salvador's balance of trade in services is traditionally in deficit, and the gap has been 
growing since 2004 to reach a level of US$584 million in 2008, equivalent to 2.6 per cent of GDP.  
Most service categories run trade deficits, the larges t of which are in transport and insurance, while 
travel and communications are the key ex ceptions generating surpluses (Table I.5). 
Table I.5 
Trade in services, 2003-2009 
(US$ million) 
Description 2003 2004 2005 2006 2007 2008a 2009b 
Balance -106.8 -79 -128 -191.5 -290.5 -584.0 -303.2 
Revenue 948.5 951.2 945.7 1,015.0 1,129.7 1,041.0 398.7 
Transport 330.1 342.5 344.6 352.3 367 351.2 133.1 
Travel 383.1 314.3 360.8 381.6 482.3 424.5 154.5 
Communications 122.9 139.3 122.7 135.7 162.1 153.7 62.8 
Construction 10 18.6 24.1 45.4 22.9 33.1 9.5 
Insurance 31.4 34.8 32.4 34.7 37.1 29.6 16.5 
Financial sector 2.8 9.7 7.1 3.4 4.1 1.4 0.2 
Information services 0.4 0.4 0 0.7 0 1.0 0.0 
Royalties 0.2 0.1 2. 4 0.5 0.4 1.4 0.2 
Personal, cultural and recreational 
services 0 0.2 0 0 0 0.0  
0.0 
Government services 42.3 51 30.3 38.8 38 26.4 14.9 
Other services 25.3 40.3 21.2 21.9 15.8 18.8 7.0 
Expenditure 1,055.3 1,030 1,073.6 1,206.5 1,420.2 1,625.1 701.9 
Transport 477.1 504.5 520.2 589.4 730.3 948.5 432.4 
Travel 229.6 167.9 206.0 224.1 278.7 240.7 83.4 
Communications 36.9 34 25.2 25.5 30.8 44.8 9.8 
Construction 6.3 6.5 12.7 8.5 8 13.6 2.8 WT/TPR/S/226/Rev.1 Trade Policy Review 
Page 10 
 
 
Description 2003 2004 2005 2006 2007 2008a 2009b 
Insurance 106.4 108.4 101.7 128.4 148.4 189.5 94.8 
Financial 19.7 28.5 13 9.3 9.8 12.0 3.5 
Information services 3.1 6.1 2.9 3.9 7.5 4.9 1.4 
Royalties 22.2 17.8 30. 4 27.3 24.1 33.7 13.8 
Personal, cultural and recreational 
services 1.2 1.5 1.6 1.3 1.9 1.0  
0.2 
Government services 15.6 24 21.8 26.4 28 35.9 12.8 
Other services 137.2 130.7 138.2 162.3 152.8 100.4 47.1 
a Preliminary figures. b At June 2009. 
Source : Central Reserve Bank of El Salvador. 
 
(iv) Foreign direct investment 
38. The volume of foreign investment in El Salvador reached a level of US$6,701.4 million in 
late 2008, of which US$1,858 million was channell ed to the financial sector, mainly representing 
foreign takeovers of local banks, along with US $917 million to the telecommunications sector and 
US$879 million to the electricity sector (Table I.6).  Other sectors receiving substantial FDI inflows 
include manufacturing, maquila and commerce. 
Table I.6 
Balance of foreign direct investment by  receiving economic sector, 2003-2009 
(US$ million) 
 2003 2004 2005 2006 2007 2008a 2009a,b 
Industry 496.1 536.9 853.5 870.2 891.6 919.7 926.0 
Commerce 239.2 278.3 305 356.3 397.3 411.9 426.9 
Construction 12.4 12.4 12.4 12.4 12.3 12.3 12.3 
Communications 411.3 746 793.8 793.9 860.6 917.4 927.9 
Electricity 848.2 800.2 800.2 847.6 847.6 879.5 879.5 
Agriculture and fisheries 46.8 68.6 67.1 67.7 69.6 69.6 69.6 
Mining and quarrying 0 0 1.5 29.5 37.8 42.5 43.0 
Financial 161.1 148.1 250.4 321.9 1,489.4 1,858.9 1,902.5 
Maquila 263.3 294.7 298.9 298.5 399.1 425.4 488.9 
Other services 110.9 110.8 125.2 137.1 177.2 184.2 192.4 
Subtotal 2,589.2 2,996.1 3,508.1 3,735.0 5,182.5 5,721.5 5,869.2 
Loans between FDI firms 686.2 659.4 658.4 672.8 733.8 979.9 865.7 
Total 3,275.4 3,655.5 4,166.5 4.407.8 5,916.2 6,701.4 6,734.9 
a Preliminary figures. 
b At June 2009. 
Source : Central Reserve Bank of El Salvador, on the basis of surveys of private-se ctor firms and the balance sheets of 
banks in the financial system. 
 
39. The United States was the leading foreign investor  in this period, with investments totalling 
almost US$2 billion.  Other major investor s were Panama and Mexico (Table I.7). 
Table I.7 
Balance of foreign direct investme nt by country of origin, 2003-2009 
(US$ million) 
Country 2003 2004 2005 2006 2007 2008 2009a,b 
United States 1,031.7 1,026.7 1,358.9 1,371.8 1,870.9 1,999.8 2,013.6 
Panama 100.1 102.5 144.5 212.3 1,053.5 1,374 1,443.8 
Mexico 83.6 614.7 647.8 655 714.4 722.0 723.8 
British Virgin Islands 29.2 56.2 356.2 355.9 356.6 361.8 361.9 
Spain 161.4 195 195.2 195.3 205.4 205.9 205.9 El Salvador WT/TPR/S/226/Rev.1 
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Country 2003 2004 2005 2006 2007 2008 2009a,b 
Canada 46.6 56 130.3 145.3 153.6 162.4 163.0 
Costa Rica 68.7 68.8 67.4 70.1 104.2 111.2 111.2 
Guatemala 57.8 60.1 70.4 93.4 96.3 102.4 103.3 
Germany 84.8 84.9 89.4 92.2 93.6 98.6 98.6 
Bahamas 66.4 67.8 68.6 74.9 75.2 75.2 75.2 
Italy 26.6 26.6 26.6 74 74 105.9 105.9 
Chinese Taipei 56.7 57.3 58.6 58.3 58.3 59.0 61.4 
Singapore 32.2 32.5 36.5 37.3 45 45.0 91.8 
Netherlands 39.1 39.1 55 56.3 42 43.3 47.5 
Nicaragua 20 20.4 21.3 27.8 35.5 45.5 45.5 
Republic of Korea 22.9 23.5 26 22 30 25.1 25.5 
Honduras 19.4 21 21.6 21.8 22 22.5 22.3 
Japan 14.2 14.2 14.2 14.2 18.7 17.5 16.3 
Switzerland 11.7 15.6 16.8 16.8 16.8 18.5 18.5 
Aruba 15 15 15 15 15 15 15.0 
Brazil 0 0 0 4.3 13.7 22.7 22.7 
Bermuda 11.2 11.8 12.3 13.3 13.3 13.3 13.3 
United Kingdom 6.4 7.4 8.2 9.7 12.7 13.1 13.4 
France 214.7 5.8 5.8 6 4.5 4.5 11.7 
Israel 5.7 2.3 1 1.5 2.5 2.5 2.5 
Peru 22.3 22.3 22.3 22.3 1.8 1.8 1.8 
Chile 0.2 0.7 0.3 24.8 0.8 0.7 0.7 
Ecuador 9.0 9.0 9.0 9.0 0.0 0.0 0.0 
Venezuela 309.5 309.5 0.0 0.0 0.0, 0.0 0.0 
Other 22.4 29.6 29.6 34.4 52.2 52.2 52.7 
Loans between FDI firms 686.2 659.4 658.4 672.8 733.8 979.9 865.7 
Total 3,275.4 3,655.5 4,166.5 4,407.8 5,916.2 6,701.4 6,734.9 
a Preliminary figures. 
b At June 2009. 
Source : Central Reserve Bank of El Salvador, on the basis of surveys of private-se ctor firms and the balance sheets of 
banks in the financial system. 
 
(4) OUTLOOK  
40. Economic results in 2009 and 2010 will be aff ected by the world recession, with export 
growth likely to suffer from the contraction of dema nd in El Salvador's main export markets such as 
the United States.  There will also be a significant effect on remittances, which have been shrinking as 
unemployment in the United States has spread.  Re mittances represented over 17 per cent of GDP in 
2008 and finance much of private consumption. 
41. The IMF is forecasting GDP growth of -2.5 per cent for 2009 and just 0.5 per cent in 2010, 
with inflation at 1.8 per cent and 2.4 per cent in those two years.15  This stands in contrast to more 
optimistic projections made late last year, when th e Fund predicted 2.6 per cent growth in 2009, albeit 
with inflation higher at 6 per cent.16  It also envisaged a public-sector deficit on the order of 2.2 per 
cent of GDP, and a balance of payments current acc ount deficit equivalent to 5.4 per cent of GDP - 
levels that will probably be surpassed as the overall economic outlook has worsened. 
                                                      
15 IMF online information.  Viewed at:  http ://www.imf.org/external/country/SLV/index.htm. 
16 IMF (2009b).