Addressing Poverty and Inequality in El Salvador: Strategies for Sustainable Growth

The World Bank’s "Poverty and Equity Assessment for El Salvador 2024" highlights significant poverty reduction over two decades, but challenges persist with extreme poverty, labor market inequities, and climate vulnerabilities. The report calls for inclusive strategies focusing on jobs, services, and adaptive social protection to ensure sustainable growth and resilience.

The World Bank's "Poverty and Equity Assessment for El Salvador 2024" provides a nuanced analysis of the country’s strides and struggles in addressing poverty and inequality. Despite notable progress over the past two decades, El Salvador continues to face persistent challenges, with extreme poverty affecting 9.3% of the population in 2023. Poverty rates have dropped significantly from 44.7% in 2000 to 30.3% in 2023, yet recent economic shocks, including the COVID-19 pandemic, have reversed some gains, particularly among vulnerable groups such as children, women, and rural communities. Researchers stress the need for targeted, inclusive strategies to tackle structural inequalities and create sustainable pathways out of poverty. This multidimensional approach is essential as the country seeks to build on its achievements while addressing emerging challenges.

Labor Market Gaps and the Struggle for Quality Employment

The labor market in El Salvador presents significant barriers to reducing poverty. A staggering 64% of workers are engaged in informal employment, leaving many without stable, secure, and adequately paid jobs. The situation is particularly dire for the poor, who are often relegated to precarious jobs or multiple forms of low-paying employment to survive. Women face additional challenges due to caregiving responsibilities, resulting in one of the region’s highest inactivity rates among working-age females. Returns on education, once a beacon of upward mobility, have diminished over time, discouraging investments in schooling and eroding its potential as a tool for economic advancement. The report emphasizes the urgency of improving education quality and aligning skills development with labor market demands. This, coupled with gender-sensitive policies, can bridge critical gaps and foster a more equitable workforce.

The Lifeline of Remittances and Social Transfers

Non-labor income sources, such as remittances and domestic transfers, are crucial for alleviating poverty in El Salvador. Remittances account for a substantial portion of household income, particularly for poor and rural families, and have been instrumental in maintaining consumption levels and mitigating extreme poverty. However, the country’s reliance on these private transfers creates vulnerabilities. A sudden halt in remittances could double extreme poverty rates, disproportionately affecting the elderly and rural populations. Public transfers, on the other hand, remain insufficient and poorly targeted. Only a fraction of households receive direct cash transfers, and the amounts are often inadequate to meet basic needs. The report calls for enhancing the efficiency and reach of social protection systems through better-targeted subsidies and an expanded social registry to maximize their impact on poverty reduction.

Climate Change and Vulnerabilities of the Poor

El Salvador’s geographical location in the Dry Corridor exposes it to severe climate risks, including droughts, floods, and other natural disasters that disproportionately affect low-income households. These events not only threaten livelihoods but also exacerbate food insecurity and deepen poverty. The report highlights the urgent need for adaptive social protection mechanisms and climate-resilient infrastructure to mitigate these impacts. Natural disasters often push households into extreme poverty, particularly those in rural areas and children. Investments in disaster preparedness, sustainable agricultural practices, and efficient food supply chains are critical to safeguarding the livelihoods of vulnerable populations. Additionally, the interplay between environmental challenges and migration underscores the need for long-term strategies that address the root causes of displacement while enhancing local resilience.

A Roadmap for Inclusive Growth and Resilience

The World Bank proposes a three-pillar strategy focused on jobs, services, and social protection to tackle these complex challenges. Enhancing labor market dynamics by fostering rural development, increasing productivity, and creating quality jobs is crucial for sustainable poverty alleviation. Expanding access to education, healthcare, and basic services will provide a solid foundation for economic inclusion and resilience. Developing adaptive, well-targeted social protection systems is vital to mitigating future shocks and creating sustainable pathways out of poverty. This strategy requires strong institutional governance, data-driven decision-making, and a coordinated national framework to ensure its success.

The report also highlights recent achievements that offer hope for the future. El Salvador’s transition to an upper-middle-income country and its reduction in crime rates are positive developments that provide a foundation for building a more equitable society. However, these successes must be leveraged to address persistent structural inequalities and emerging threats like climate change. El Salvador can achieve its vision of shared prosperity and improved livelihoods for all citizens by fostering an environment that promotes inclusive growth and resilience. The recommendations in this assessment provide a comprehensive roadmap for policymakers to address these challenges and create a brighter, more equitable future for the nation.