Thanks to the boom in oil prices, between 2007 and 2014, Ecuador experienced a period of growth and poverty reduction. This bonanza hid some structural problems — such as an inefficient public sector, major macroeconomic imbalances, a lack of stabilization mechanisms and limited private investment — which became evident when prices fell. The World Bank recently published a Systematic Country Diagnostic that examines these issues.
Since 2014, Ecuador has been trying to balance and adapt its economy to a challenging international context characterized by low oil prices, the appreciation of the dollar and increasing external financing costs. To address the absence of fiscal savings, the government began a process of rationalizing public investment and current expenditures. It also mobilized different sources of external financing and applied temporary measures to increase non-oil public revenue. While these policies have mitigated the impact of low oil prices, government liabilities continue to rise.
These measures resulted in an economic growth rate of 2.4 per cent in 2017 following a recession; a reduction in the fiscal deficit from a high of 7.3 percent of GDP in 2016 to 4.5 percent in 2017. Despite economic fluctuations, the poverty rate and the Gini coefficient have remained relatively stable —at around 22.5 percent and 0.47, respectively— since 2014.
The 2018-2020 Country Prosperity Plan recognizes that Ecuador’s economy still does not “enjoy good health” and proposes responsible, transparent and disciplined management. To that end, it calls for stimulating private investment to return to the path of sustainable growth, which will also enable continued poverty reduction. As the Plan states, it is essential to improve the effectiveness and progressiveness of fiscal policy to achieve a consolidation that guarantees macroeconomic stability, protects the most vulnerable population and preserves the confidence of the private sector. It will also be decisive to have a more efficient public sector to improve the provision of public services and create mechanisms that protect the country from fluctuations in oil prices. In a context in which public investment can no longer drive growth, it is crucial to systematically promote an investment climate that fosters increased private participation and facilitates capital mobility and the work of emerging sectors.
Last Updated: Sep 26, 2018