In brief

Nayib Bukele has won a second consecutive term in office, defying a constitutional ban on re-election. In addition, his right-wing party, Nuevas Ideas (NI), secured almost all of the 60 seats in Congress earlier this year, indicating that he will face virtually no obstacles to passing legislation. Given the continued erosion of democratic counterweights in El Salvador, we do not rule out the risk that Mr Bukele will stay in office beyond 2029 (when his next term ends).

Mr Bukele's second stint will bring broad policy continuity and a push for more infrastructure development. He will also try to secure a long-awaited financing deal with the IMF, but we do not expect him to succeed, as we assume that he will keep Bitcoin as legal tender (a policy that has elicited criticism from the Fund). Mr Bukele is likely to carry on his effective (but authoritarian) crackdown on crime, which has caused homicide rates to fall dramatically over the past few years and has made him one of the most popular leaders in the region. 

Meanwhile, the economy will lose momentum this year, as a slowdown in important trading partners (particularly the US) will dampen exports and inflows of workers' remittances to El Salvador, which account for about a quarter of the country's GDP. Looking further ahead, El Salvador's continued institutional deterioration will sustain concerns about contract rights and the rule of law, keeping foreign investment below potential and precluding stronger GDP growth over the medium to long term.

Read more: What lies ahead following Bukele's re-election?

Read more: Is Bukele any closer to striking a deal with the IMF?