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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