El Salvador—Domestic Resource Mobilization Program

Over the past 10 years, El Salvador’s government, with support from the U.S. Agency for International Development (USAID), implemented a series of important tax system reforms that helped raise an additional $2.4 billion in state revenue. Combined with reforms in public financial management (PFM), this increase in public funds led to improved citizen welfare, such as higher public health spending that has reduced child mortality and raised life expectancy. Despite these advances, the current tax effort has fallen short of its full potential, while government overspending has created a persistent fiscal deficit. In addition, municipal governments still need to improve their revenue mobilization to fund basic public services.

USAID’s Domestic Resource Mobilization Program supported local and national government partners to address these challenges through a combination of increased revenue mobilization, improved expenditure management, and enhanced public-private dialogue. The program built upon the achievements of USAID’s Tax Policy and Administration Reform project and Fiscal Policy and Expenditure Management Program, both managed by DAI, which assisted El Salvador’s government to significantly improve revenue mobilization and public financial management. By assisting government partners to further enhance their systems for collecting and spending revenue, DAI’s Domestic Resource Mobilization team helped increase public funding to support social programs, generate employment, and reduce inequality. This support helped El Salvador to reap an additional $1.03 billion (or 2.5 percent of GDP) between 2017 and 2021.

To ensure that the increase in revenue mobilization has the best possible impact on public value creation, El Salvador’s government, with the support of USAID, modernized its PFM system and strengthened its revenue collection. The reforms included the budget system reform, the treasury system modernization, the adoption of International Public Sector Accounting Standards, the deployment of a state-of-the-art Government Financial Information System, the development of a fully transactional e-procurement system, and the enhancement of fiscal transparency.

Sample Activities

• Develop e-learning platforms and procedure manuals to support the transition to a results-oriented budget focused on achieving results over spending money.
• Assist government agencies in upgrading information systems to accurately assess citizen needs and target budgeting to serve marginalized communities.
• Collaborate with the Ministry of Finance in creating and training a Fiscal Reform Unit to review and analyze tax policy and advance reform proposals.
• Support the Public Procurement Ombudsman Office to improve citizen oversight of public procurement, increasing transparency and reducing corruption.

Select Results

• Increased social spending from 6.9 percent of GDP in 2006 to 11.7 percent in 2021.
• Increased public spending in education from 3.38 percent in 2007 to 3.85 percent in 2017.
• Increased public spending in health from 2 percent in 2007 to 2.5 percent in 2017.
• Reduced value-added tax evasion from 25.7 percent of potential value-added tax revenues in 2014 to 17.6 percent in 2019.
• Increased tax revenues from 16.1 percent of GDP in 2006 to 18.3 percent in 2019.
• Supported the supreme audit authority in reforming the audit practices to improve accountability and transparency practices—increasing the agency’s productivity by 500 percent.
• Implemented a call center for the National Administration of Aqueducts and Sewers that monitors all technical and environmental issues related to operations. The agency’s productivity increased initially by more than 100 percent.