El Salvador's Economic Struggles: Inflation and Falling Purchasing Power Amid Infrastructure Cuts

A report by FUNDE, an investigative organization in El Salvador, has revealed concerning trends in the Salvadoran economy. The economy is expected to grow less this year due to a decline in public investment in infrastructure. Furthermore, the purchasing power of Salvadorans is being significantly impacted by rising inflation, which ranks among the highest in dollarized economies.

FUNDE Alerts About the Slowing Salvadoran Economy, Warns About Falling Purchasing Power

Despite being an officially dollarized economy, El Salvador is witnessing a slowdown in its economic activities. According to a report from FUNDE, the country will not meet the growth expectations set by the Central Reserve Bank of El Salvador.

The decline in the construction sector, which saw a nearly 17% drop in April compared to the same month in 2023, is a major factor contributing to this economic slowdown. Otto Rodriguez, the coordinator of Macroeconomic Projects at FUNDE, attributed this decline to reduced public investments recorded in the fourth quarter of 2023.

Roberto Rubio, executive director of FUNDE, emphasized that growth projections for El Salvador will need to be adjusted downward due to these economic challenges. He stated, "The growth projections that have been made to date do not take into account this loss of strength in the economy. They are likely to be revised downwards again."

The report also noted that while tax income has increased by nearly $500 million compared to 2023, the fiscal deficit has reached $56 million due to high expenditure levels.

In terms of basic goods and microeconomics, the purchasing power of Salvadorans has worsened, with significant implications for President Nayib Bukele's administration. FUNDE found that in 2023, a minimum wage earner had to spend 70% of their income on food expenses.

To combat food inflation, Bukele has implemented measures such as expanding government-sponsored Farmers’ Markets and eliminating import duties on food and agricultural products. However, the Salvadoran economy still faces the highest inflation rate among all dollarized economies.

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