El Salvador’s development over the pastdecade has been dichotomous. On the one hand, economicgrowth has remained persistently low, employment and laborforce participation have barely increased, and progress onpoverty reduction has slowed. On the other hand, inequalityhas fallen, and shared prosperity improved together withadvances in many social indicators, such as pre-primaryenrollment rates, access to prenatal care, immunizations,and water and sanitation. The increase in the use of socialspending, which now accounts for 12.4 percent of GDP,together with an improvement in the quality of socialspending, explain at least part of this dichotomy ofredistributive and social gains despite low growth, a tightfiscal situation and generally low government revenues andspending. Looking forward, the key challenges El Salvadorfaces are related to continuing improving the quality andefficiency in the social sectors, while maintaining theoverall level of social spending within an increasinglyconstrained fiscal environment, where fiscal constraints,low revenues, and the need to cut the deficit by 3 percentof GDP are significant elements, as well. Priority will haveto be given to reallocations and improvements within thespending envelope for the social sectors to maximize impact.This document analyzes social spending for El Salvador forthe education, health and social protection and laborsectors in depth and explores a series of policy options forEl Salvador to reallocate social spending for more effectiveimpacts, to enhance and reform social policies and socialservice delivery, and to improve the management of publicspending and budget execution in the social sectors.
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