El Salvador - GFDRR

102 | El Salvador: Damage, Loss, and Needs Assesment
TABLE 42. PRINCIPAL MACROECONOMIC INDICATORS
(In rates of variation and percentages of GDP)
Indicators 2001 2002 2003 2004 2005 2006 2007 2008
Gross Domestic Product 1.7 2.3 2.3 1.9 3.1 4.2 4.7 2.5
Consumer prices 1.4 2.8 2.5 5.4 4.3 4.9 4.9 5.5
Balance of current account /GDP –1.1 –2.8 –4.7 –4 –3.3 –3.6 –5.8 –7.2
Balance of goods and services/GDP –15.8 –14.7 –15.9 –17.2 –17.7 –19.4 –21.4 –22.1
Source: CEPAL based on official figures.
i) Economic and fiscal policies. During the four-year period from 2004 to 2007, El Salvador was able
to improve its fiscal performance thanks to expenditure control and increased tax revenue. This
improvement reflected a substantial increase in tax revenue which raised tax collection to 14.1% of
the GDP in 2007 (approximately 2% of the GDP above tax collection in 2003), thanks to a reform that
increased income tax revenue. Meanwhile, expenditures remained relatively constant, around 20% of
the GDP. This policy helped to address the expenditures caused by the 2001 earthquakes and made
it possible to reduce the primary deficit in recent years. The overall deficit (including pensions) of the
Non-financial Public Sector NFPS went from 3.1% of the GDP in 2004 to 1.9% in 2007. Consequently,
the NFPS’s public debt, including the pension debt, dropped from 40.5% of the GDP in 2004 to
38.9% of the GDP at the end of 2007. However, this reduction occurred following significant growth
in recent years (about 10% of the GDP since 2000), especially after the 2001 earthquakes and the
change in the pension system.
Fiscal performance began to deteriorate in 2008, reflecting an increase in the cost of energy subsidies
due to the increase in petroleum prices, selective salary increases and an increase in capital expenditure.
The NFPS’s deficit rose from 1.9% of the GDP in 2007 to 3.1% of the GDP in 2008, while NFPS’s debt
rose to 39.7% of the GDP at the end of 2008.
ii) Monetary and financial policies. The consolidation of the dollarization process drove the decrease in
domestic interest rates. In real terms, average interest rate deposits with a term of 180 days dropped
from 1.5% in 2002 to 0.1% in 2007. In turn, credit to the private sector grew 4.4% in real terms
in 2007. This decrease in interest rates, together with increasing inflation, resulted in negative real
interest rates, which achieved their highest level in March 2008 when the real interest rate reached
-3.7%. With the prospect of the upcoming elections, the Central Reserve Bank of El Salvador (Banco
Central de Reserva de El Salvador) temporarily increased reserve requirements by banks in mid-2008 by
3%. Beginning in the third quarter and due to the international crisis, growth in credit to the private
sector became negative and interest rates increased, resulting in an average of -3% in real terms for
2008. To address this restriction on the system’s liquidity, and in light of the uncertainty regarding the
elections, the government contracted credits through multilateral banks in order to back international
reserves and provide liquidity to the system.