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