Municipalities in El Salvador reduce their public debt in four years, indicates Cepal

The municipalities of El Salvador achieved a sustained reduction of their public debt in recent years, consolidating a change in the local financial dynamics and showing progress in the management of resources, according to a recent report by the Economic Commission for Latin America and the Caribbean (ECLAC).

In its Fiscal Panorama 2026 report, the organization details that the debt of local governments in the country decreased from 2.5% of the Gross Domestic Product (GDP) in 2020 to 2.2% in 2024, mainly due to debt refinancing processes and the execution of road infrastructure projects that allowed municipalities to improve the management of their financial commitments.

The Ministry of Finance of El Salvador, cited in the organization's report, attributed this improvement to the application of debt control and restructuring policies, as well as greater fiscal discipline in local administrations.

The study indicates that this evolution contrasts with the upward trend observed in the subnational debt of other countries in the region during the pandemic, when numerous local governments relaxed borrowing restrictions to finance emergency measures and address urgent social needs. In the Salvadoran case, the search for financing for priority works was combined with a conservative policy in taking out new loans.

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The public debt of local governments in El Salvador decreased from 2.5% to 2.2% of GDP between 2020 and 2024, attributed to municipal mergers, re-hiring, and road projects. (Illustrative Image Infobae)

Impact of Administrative Reforms and FODES

The ECLAC also highlights the impact of recent reforms that modified the administrative structure at the local level. One of the measures was the reduction in the number of municipalities, aimed at strengthening efficiency in the use of public resources and consolidating more centralized management models for the distribution of funds.

In June 2023, the Legislative Assembly of El Salvador approved a law promoted by President Nayib Bukele that reduced from 262 to 44 the number of municipalities in the 14 departments of the country, with the stated objective of generating a saving of USD 250 million annually in public finances and under the commitment to maintain the cultural traditions of the reassigned districts.

The legal text, called the Special Law for Municipal Restructuring, established that the Salvadoran territory would maintain its division into 14 departments, but each of the 262 former municipalities was classified as a "municipal district". The president of Congress, Ernesto Castro, stated that the administrative restructuring would allow savings by reducing fixed expenses in the current mayoralties. That adjustment resulted in a lower relative participation of the Fund for Economic and Social Development of Municipalities (FODES), the main channel of transfers to local governments. San Salvador Centro City Hall. Photo Infobae/Courtesy Historic Center According to the ECLAC report, the average of intergovernmental transfers destined to Salvadoran municipalities stood at 1.1% of GDP between 2020 and 2024. The organization indicates that the transition towards a more centralized scheme and the emphasis on investment in road infrastructure have favored a better management of resources and a containment of debt levels. In regional terms, El Salvador is among the countries with a notable decrease in local debt, along with Mexico. The report underlines that the Salvadoran experience could serve as a reference for other countries seeking to reduce fiscal vulnerability derived from subnational debt.

The state public debt remains high

The ECLAC also addresses the context of the central government's public debt and highlights that El Salvador maintains one of the highest debt levels in Latin America, close to 60% of GDP by the end of 2025. This situation represents a challenge for Salvadoran fiscal sustainability, given that a large part of these commitments are in the hands of external creditors, which exposes the country to the volatility of international markets and possible increases in financial costs. You can also read: The entity recommends in its report to the Salvadoran authorities to continue with the diversification of funding sources and the strengthening of the technical capacities of local and central governments. In addition, the regional body points out the importance of maintaining fiscal discipline and taking advantage of the progress made in municipal administration to contribute to the macroeconomic stability of the country.