Category: El Salvador economy

El Salvador’s country-risk indicator fell to 275 basis points in July 2026, its lowest level since January 2011. AI-generated image created for Our Life in El Salvador.

When I first began visiting El Salvador in 2004, the country was often viewed from the outside through the problems it faced. Crime, political uncertainty, limited investment, and economic instability shaped much of its international image.

After moving here permanently in November 2011, I watched that image follow the country for years. Even when positive changes were taking place, old perceptions were difficult to overcome.

That is one reason the latest financial news deserves attention.

According to a report published by Diario El Salvador, El Salvador’s country-risk indicator fell to 275 basis points at the end of July 2026. That is the country’s lowest level since January 2011.

The number may sound technical, but its direction sends an important message: international investors now see less risk in holding Salvadoran government debt than they have at any time during the past 15 years.

What Does “Country Risk” Mean?

Country risk is commonly measured through the Emerging Markets Bond Index, better known as the EMBI. The index was developed by JPMorgan to compare the returns investors demand from the bonds of emerging economies with those offered by United States Treasury securities.

Because U.S. Treasury bonds are treated as a low-risk benchmark, investors normally expect countries considered less financially secure to pay a higher interest rate.

Each 100 basis points represents one percentage point. Therefore, an EMBI score of 275 means investors were demanding approximately 2.75 percentage points more to hold Salvadoran government bonds than comparable U.S. Treasury securities.

The EMBI does not determine the exact interest rate El Salvador would pay on a new bond issue. The final rate would also depend on the maturity date, international interest rates, market conditions, and the details of the bond.

However, it remains a useful measure of how financial markets view a country’s ability and willingness to meet its obligations.

When country risk rises, borrowing usually becomes more expensive. When it falls, a government may eventually gain access to financing under better conditions.

A Dramatic Change From 2022

The latest figure becomes more significant when compared with El Salvador’s position only four years ago.

In July 2022, the country-risk indicator reached approximately 35%, or about 3,500 basis points. At the time, international concern about El Salvador’s finances was intense. Questions surrounded the government’s debt payments, limited access to international credit, the adoption of bitcoin, and whether the country would be able to meet upcoming bond obligations.

El Salvador closed 2022 with its country risk still above 20%.

The indicator subsequently declined sharply:

• It ended 2023 at approximately 6.84%.
• It fell to 3.88% at the end of 2024.
• It finished 2025 at 3.29%.
• It closed July 2026 at 2.75%.

That is a remarkable change in market perception over a relatively short period.

Investors who once demanded an exceptionally large premium to hold Salvadoran bonds now see substantially less danger. The improvement suggests growing confidence that the government will continue meeting its financial obligations.

Why Has Investor Confidence Improved?

There is no single reason for the decline.

El Salvador successfully paid its $800 million bond due in January 2023, despite predictions that the country might default. The government also repurchased portions of its outstanding debt and continued making scheduled payments.

Another important development was the agreement reached with the International Monetary Fund.

In February 2025, the IMF approved a 40-month Extended Fund Facility worth approximately $1.4 billion for El Salvador. Additional support from the World Bank, the Inter-American Development Bank, and other institutions increased the broader financing package.

For international investors, the IMF agreement provided an additional level of confidence. It offered access to financing while placing attention on fiscal consolidation, government transparency, financial reserves, and the management of public debt.

Credit-rating agencies have also recognized some improvement. Fitch Ratings confirmed El Salvador’s rating at B- with a stable outlook in April 2026. The agency cited reduced financing needs, the IMF-supported economic program, the stability provided by dollarization, and expectations of continued fiscal consolidation.

All these developments have helped reduce fears of an immediate debt crisis.

El Salvador Still Trails Its Central American Neighbors

The decline to 275 basis points is clearly positive, but it should be placed in regional context.

At the end of July, the EMBI figures reported for several Central American countries were:

• Guatemala: 122 basis points
• Panama: 123 basis points
• Costa Rica: 127 basis points
• Honduras: 164 basis points
• El Salvador: 275 basis points

El Salvador therefore recorded the greatest monthly improvement in the region, falling from 303 basis points at the end of June to 275 in July. At the same time, it continued to have the highest country-risk indicator among the Central American countries included in the comparison.

Both statements can be true.

El Salvador has made substantial progress, but investors still demand a higher premium for Salvadoran debt than they do for the debt of neighboring countries.

That difference reflects concerns that have not disappeared, including the size of the public debt, high interest payments, future pension obligations, and the government’s continuing need for financing.

The latest number is an encouraging milestone, but it is not a declaration that every fiscal problem has been solved.

Why This Matters Beyond Government Bonds

Country risk may seem distant from daily life in places such as Ahuachapán or the rural communities of western El Salvador. Nevertheless, the effects can reach much farther than the government’s accounts.

Government borrowing costs often influence the broader financial system. When a country must pay high interest rates, businesses and banks operating there may also face more expensive or limited financing.

A sustained reduction in country risk can help improve the investment climate. It may make El Salvador more attractive to international businesses, encourage capital investment, and eventually support private-sector expansion.

However, the benefits will not appear overnight. A lower EMBI does not automatically produce new jobs, reduce food prices, increase wages, or put more money into the pockets of Salvadoran families.

It represents an opportunity rather than a finished result.

The challenge is to convert stronger financial credibility into investment that creates employment, improves infrastructure, supports small businesses, and raises living standards.

A Country Changing How It Is Seen

Living in El Salvador since 2011 has taught me that outside perceptions often change more slowly than conditions inside the country.

For years, El Salvador was associated internationally with gang violence and insecurity. The country’s transformation in public safety has begun to alter that image, although the policies behind it continue to generate debate.

The financial story may be following a similar path.

Only a few years ago, many international analysts discussed El Salvador as a possible candidate for default. Today, the country’s risk indicator is at its lowest point in 15 years.

That does not mean every criticism was wrong or that future success is guaranteed. Economic confidence can change quickly if fiscal discipline weakens, debt pressures increase, or international conditions deteriorate.

But it does show that market perceptions are not permanent.

Progress Worth Recognizing—and Protecting

El Salvador’s decline to 275 basis points is a meaningful achievement. It indicates that investors are more confident in the country’s ability to pay its debts and that the immediate financial uncertainty of 2022 has eased considerably.

The next test will be whether the country can maintain this progress.

That will require careful management of public finances, responsible borrowing, continued economic growth, and compliance with the commitments made under the IMF program. It will also require ensuring that improved financial indicators eventually produce benefits that ordinary Salvadorans can see in their communities and household finances.

After living here for nearly 15 years, I have seen El Salvador pass through periods when its future was described mainly in terms of crisis. Today, the country is increasingly being discussed in terms of security, tourism, investment, technology, and economic opportunity.

The lowest country risk since 2011 is another sign of that changing story.

It is not the end of El Salvador’s economic challenges. But it is real progress—and a reminder of how far the country has come from the uncertainty of only a few years ago.

Sources: Diario El Salvador, Bloomberg Línea, and Estrategia & Negocios.

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AI-generated image illustrating construction, commerce, and transportation contributing to El Salvador’s economic growth.

El Salvador economic growth Grows 5.6% as Construction and Services Lead the Way

El Salvador’s economic growth continued to show signs of strength in May 2026, with economic activity growing by 5.6% compared with the same month last year, according to figures from the Central Reserve Bank of El Salvador, or BCR.

The result was measured through the Economic Activity Volume Index, known by its Spanish abbreviation IVAE. The index provides a monthly indication of how the country’s principal productive sectors are performing.

Although the IVAE is not the same as the country’s gross domestic product, it is an important economic indicator because it allows economists to identify changes in activity before the quarterly GDP figures become available.

May’s result was the highest recorded during the first five months of 2026. It also marked the fifth consecutive month in which economic activity expanded by at least 4%.

That consistency may be more important than the figure from any single month. It suggests that the growth reported during the first quarter was not an isolated result but continued as El Salvador entered the second quarter of the year.

Construction Remains an Important Economic Engine

Construction once again led the expansion, growing by 9.7% in May.

The sector has been supported by private residential and commercial developments, together with public investment in roads, schools, airports, and other infrastructure projects.

Cement consumption increased by 21.5%, providing another indication that construction activity remained strong. Cement consumption is frequently used as a practical measure of how quickly building projects are moving forward.

Construction has appeared repeatedly in El Salvador’s recent economic reports. During the first quarter of 2026, the sector grew by 13.5% and was one of the primary contributors to the country’s 4.8% GDP growth.

The May figures therefore represent a continuation of an established trend, although the pace of construction growth has moderated from the unusually high rates recorded earlier in the year.

Real estate activities also benefited from this expansion, growing by 7% in May. The combined credit portfolio for purchasing and constructing homes increased by 13.9%, reaching approximately $3.51 billion.

This connection between construction, real estate, and credit is important. New construction creates employment and demand for materials, while access to financing allows more families and businesses to participate in the property market.

Commerce, Transportation, Hotels, and Restaurants Expand

The group that includes commerce, transportation, hotels, and restaurants recorded growth of 6.7%.

According to the BCR, increased movement of merchandise, stronger domestic demand, and greater activity in hotels and restaurants contributed to the result. Mother’s Day celebrations and increased consumer traffic during May also supported commerce and food services.

These sectors are closely connected to several changes that have taken place in El Salvador during recent years.

Improved security has encouraged Salvadorans to travel more freely within the country. At the same time, international tourism has increased demand for accommodations, restaurants, transportation, entertainment, and retail services.

Transportation and logistics are also benefiting from investment in the country’s airport, port, and road infrastructure. These improvements support tourism, but they are equally important for domestic commerce and international trade.

Growth in one sector can therefore spread through several other parts of the economy. A new hotel, for example, requires construction workers and materials before it opens. Once operating, it creates demand for employees, food suppliers, transportation, maintenance, and other local services.

Banking, Industry, and Public Services Contribute

Financial and insurance activities grew by 4.7% in May.

The BCR connected this growth to increasing deposits, an expanding credit portfolio, and greater use of digital banking channels. This supports other recent financial indicators showing growth in both bank deposits and lending.

A healthy expansion of credit can help businesses invest, purchase equipment, expand operations, and hire additional employees. However, the quality of lending remains important because rapid credit growth must be supported by borrowers’ ability to repay their obligations.

Industrial production increased by 4.5%, extending its run of positive growth to 12 consecutive months. Pharmaceutical manufacturing and food production were among the activities contributing to that expansion.

The demand for construction materials also supported manufacturing and extractive activities, while electricity, water, and sanitation services benefited from increased demand and infrastructure improvements.

Government services grew by 6.7%. The BCR attributed this to public infrastructure projects, investments in education and healthcare, social programs, institutional modernization, and efforts to reduce the digital divide.

Professional, technical, administrative, recreational, and cultural services also recorded growth, reflecting demand from businesses as well as increased tourism and the organization of national and international events.

Agriculture Remains the Main Weakness

Despite the broadly positive report, not every part of the economy expanded.

Agriculture, livestock, forestry, and fishing contracted by 0.7% in May. The BCR attributed much of this decline to weather conditions affecting agricultural production.

Agriculture has struggled during several months of 2026. The sector declined by 0.8% during the first quarter and remained the clearest weakness in an otherwise expanding economy.

This deserves attention because agriculture remains essential to rural employment, food security, and the incomes of thousands of Salvadoran families. National economic growth does not necessarily mean that every community or household experiences the same improvement.

Government programs provide seeds, fertilizers, financing, technical assistance, and other support to farmers. These measures may help producers. However, their success will depend on weather conditions, production costs, harvest levels, and the prices farmers receive.

A Continuation of First-Quarter Growth

El Salvador’s economy grew by 4.8% during the first quarter of 2026. This was more than twice the 2.2% average recorded during the same period over the previous 17 years.

The May IVAE result does not mean that annual GDP will grow by 5.6%. The two indicators measure economic performance differently, and growth can accelerate or slow during the remaining months of the year.

Nevertheless, five consecutive months of economic activity growth of at least 4% provide additional evidence that the economy entered 2026 with meaningful momentum.

The results also support a pattern seen across several recent reports. Construction remains a leading economic engine, while tourism and services continue to expand. Bank deposits and credit are rising, and industrial production continues to grow.

At the same time, slower remittance growth and continued weakness in agriculture are reasons to remain cautious. El Salvador still depends heavily on money sent home by Salvadorans abroad, while many rural families depend on agricultural production that can be disrupted by weather and higher costs.

Growth That Must Reach More Salvadorans

The 5.6% increase in economic activity is encouraging, especially because it was spread across most of the sectors measured by the BCR.

The next question is whether this growth will translate into more formal employment, improved wages, stronger small businesses, and better opportunities outside the major urban and tourism areas.

Large construction and infrastructure projects can help move the economy forward, but long-term development also requires support for small businesses, farmers, education, workforce training, and productive investment throughout the country.

For now, the May figures add another positive indicator to El Salvador’s economic story in 2026. The country’s economy continues to expand, led by construction and services, while agriculture remains the sector most in need of attention.

The challenge will be sustaining this momentum and ensuring that its benefits are felt not only in economic reports but also in the daily lives of Salvadoran families.

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