Analysis of the economy of El Salvador in 2025: economic acceleration driven by construction and record remittances

The Salvadoran economy accelerated in 2025 and closed the year with close to 4% GDP growth. Confirmed by the International Monetary Fund (IMF) in December,  this is a result that is a surprise, considering early estimates of less than 3% by multilateral organizations. This article on the economy of El Salvador shows that the strongest point of the annual cycle was the third quarter with 5.1% year-over-year expansion, the best quarterly performance since the fourth quarter of 2021, when the country was coming out of a pandemic-induced contraction. President Nayib Bukele had already announced in December that the economy would grow “above 4%” despite initial disbelief.

Construction as the engine of growth

Construction became the locomotive of the Salvadoran economy in 2025, with increases of 27.15% in the third quarter and 33.9% in the second. This expansion was based on large public and private infrastructure megaprojects such as the Pacific International Airport, the Francisco Morazán Viaduct, and sanitation works by Spanish companies, the main foreign investors in the country with $284 million in 2024.

The Planning Office for the Metropolitan Area of San Salvador put the administrative backlog of more than 500 construction projects on its books, unlocking an estimated $5 billion in investment. In turn, this construction dynamism has had a direct and indirect job creation effect that has helped El Salvador to have one of the highest employment rates in Central America, with 97.3% of the working-age population employed.

Other sectors also stood out in 2025. Mining and quarrying expanded 23.3%, while manufacturing grew 4.35% in the third quarter, the best quarterly performance since 2021. According to the Central Reserve Bank (BCR), processed foods, oils, dairy products, metal goods, plastics, and textile maquiladoras have already shown a recovery of their subsectors.

Remittances, the silent engine

Family remittances have closed their best year ever in 2025, surpassing $10.001 billion, an 18% increase compared to 2024. In the first 11 months of the year Salvadorans living abroad sent $9.021 billion, which means 27.3% of national GDP, one of the highest ratios in Latin America. An analysis of the economy of El Salvador would be incomplete if it did not take into account the weight of these flows.

95% of these remittances come from the United States and are a reflection of the extraordinary efforts made by the Salvadoran diaspora in the face of migration uncertainty. The Inter-American Development Bank reported that, between April and July, Central American women increased their participation in the formal labor market in the United States by 11.8% and men by 36.7%, thus increasing their capacity to send remittances.

Paradoxically, 90% of remittances are directed to households that no longer belong to the low-income group, creating new inclusion challenges for extreme poverty families that do not have relatives abroad who can send them help. Economists warn that this model of dependence on remittances is vulnerable to changes in U.S. migration policies or to the implementation of the 1% remittance tax approved by the U.S. Senate, which goes into effect on December 31, 2025.

Tourism boom

Tourism has consolidated its transformation into one of the main pillars of the Salvadoran economy. In 2025, the country received over 4 million visitors, 17% more than in 2024, and generated over $3.5 billion in revenue, thus accounting for between 11% and 12% of GDP.

The most important flows come from Guatemala, which led the table with 1.4 million entries between January and November. The United States came in second place with 1.2 million visitors, and Honduras came in third with 764,000 entries. The remodeling of the Historic Center of San Salvador, the development of Surf City, and the perceived greater security after the state of exception were key factors for the boom in tourism.

Tourism Minister Morena Valdez announced that by, 2030 the hotel sector will need 10,000 more rooms, which has generated a wave of private investment, including the JW Marriott San Salvador and five-star hotels in the Historic Center and on the beach.

Controlled inflation and trade deficit vulnerabilities

Inflation closed November at 1.14% year-over-year, evidencing a high degree of control despite regional price pressures. Sectors with the highest increases were restaurants and hotels (3.48%) and alcoholic beverages (2.17%), linked to service-related pressures derived from the boom in tourism.

The trade deficit increased 18.7% and reached $10.18 billion between January and November. The value of exports totaled $6.217 billion with a very modest growth of 3.7%, while imports grew 12.5% to $16.397 billion. This shows the economy’s dependence on imported capital goods, raw materials, and consumer products.

This structural imbalance reflects the double-edged nature of remittances. On the one hand, they support household consumption, but on the other, they end up financing the purchase of imported products more than the purchase of local products. Economists have warned of the effect on export competitiveness and the risk of deepening external dependence, which would require an ever-greater inflow of foreign exchange to sustain imports at current levels.

The twilight of the Bitcoin experiment

In January 2025, a turning point was reached in the government’s crypto policy. The Legislative Assembly took bitcoin off the books as legal tender under IMF pressure as a requirement to access the $1.4 billion program. Since then, its use has been voluntary, and it cannot be used to pay taxes.

The amount sent through cryptocurrency wallets fell 33.4% in 2025, an indicator of the low adoption rate of the currency among Salvadorans. However, the government still has more than 7,500 bitcoins worth $699 million, and Bitcoin Office director Stacy Herbert assured that El Salvador will continue buying it—“possibly at an accelerated pace.”

Fiscal consolidation and the IMF agreement

The government’s efforts to commit to fiscal consolidation advanced in 2025. The IMF stressed that the 1.9% target for the primary fiscal balance is “well on track” and praised publication of the actuarial study of the pension system and of the Medium-Term Fiscal Framework. For any analysis of the economy of El Salvador, fiscal consolidation is key for investors’ confidence.

The IMF program was approved in February 2025 for a period of 40 months and contemplates a fiscal adjustment of 3.5 percentage points of GDP over the three years. The recently approved 2026 budget fits into this logic of continuing to reduce the deficit while increasing social spending.

However, public debt rose to $33.805 billion in October, 89.2% of GDP, an increase of $2.586 billion over the same month in 2024. External debt grew 18.7% to $15.074 billion. Interest payments will absorb $2.784 billion in 2025, 28.8% of the general budget, leaving less room for social and productive investment.

Political hegemony and the investment climate

This economic performance takes place in a context of uncontested political hegemony. After consolidating total control of the Executive and Legislative branches, the Bukele administration has maintained the state of exception as a cornerstone of its governance.

While this “iron-fist” policy has drastically reduced extortion-related operating costs and increased consumer and tourism confidence, international observers warn of a long-term downside in the form of legal uncertainty due to the lack of institutional checks and balances.

The government’s legislative agility, as evidenced by the rapid repeal of the mandatory acceptance of bitcoin to satisfy the IMF, shows a pragmatic verticality that, to some investors, is attractive for its speed of execution. On the other hand, rating agencies are skeptical of a model that bets on economic stability in an increasingly fully dollarized economy being linked to the popularity and centralized decisions of a single political figure.

Informality versus formal employment

El Salvador will close 2025 with the second-highest employment rate in Central America, with 97.3% of the working-age population employed and only 2.7% open unemployment. These apparently healthy indicators hide a more complex reality, as 70% of workers are in the informal sector without social security or stable working conditions.

The Central American Economic Integration Secretariat itself warned that “low unemployment can coexist with high informality, limited social protection coverage and precarious labor conditions—evidence that the quantity of jobs does not guarantee their quality.”

Expectations and challenges for 2026

ECLAC projects El Salvador will grow 3.4% in 2026, while the IMF sees “very good prospects.” The country, however, is still very vulnerable structurally due to its high dependence on remittances, its growing trade deficit, its high public debt, and its exposure to shifts in US trade and migration policies. This is an important part of any informed analysis of the economy of El Salvador.

El Salvador closed 2025 with stronger economic growth than expected due to the dynamism of infrastructure megaprojects, a record in remittances, and expanding tourism. The challenge for 2026 will be to turn this cyclical growth into sustainable development that includes diversifying the productive matrix, reducing labor informality, and building a model less dependent on exogenous factors. In this analysis of the economy of El Salvador, we cannot overlook that fiscal consolidation and compliance with the IMF agreement will be decisive for long-term investment attraction and the reduction of vulnerability to external shocks in a fully dollarized economy.