Between 2006 and 2014, GDP growth averaged 4.3%, driven by high oil prices and substantial external financing. This stimulus enabled increased social spending and important investments, especially in the energy and transportation sectors, as well as in education. According to official country information, poverty declined from 37.6% to 22.5% during that period. The Gini Index decreased from 0.54 to 0.47, given that growth benefitted the poorest population more than other segments.
Nevertheless, these achievements are threatened by deceleration and, more recently, by the economic slowdown the country has experienced in response to declining oil prices since 2014 and the stronger U.S. dollar. Poverty even rose slightly, from 22.5% in 2014 to 23.3% in 2015, which reflected an increase in rural poverty, from 35.3% to 39.3%. This situation was exacerbated by the devastating April 2016 earthquake on the Ecuadorian coast. The government initially estimated reconstruction costs at nearly 3 percentage points of GDP.
Given Ecuador’s lack of a local currency and the limited fiscal and external cushions, the country has been unable to apply macroeconomic policy to address the complex economic situation. Consequently, the new global context has led to a significant decline in domestic demand, especially public demand. The government has been forced to sharply reduce public investment and curb spending – a measure that has eased in recent months thanks to significant mobilization of external financing. On the external front, the current account has stabilized through restrictions on movement of goods and capital. These measures have affected economic activity. The government is working to protect investments and rationalize public spending, and has imposed limits on labor market movements.
During this difficult period, Ecuador faces the challenge of adapting its economic structure to the new international context to achieve strong growth in the medium term and to protect key social advances made during the oil boom. In this process, the country also faces the challenge of maintaining economic stability, although it is clear that there will be a period of low growth and a shift from less to more productive sectors. On the fiscal side, it is crucial to gradually increase public spending and make it more efficient. Finally, in a context in which public investment cannot continue to drive growth, the country must systematically improve the investment climate. More robust private sector activity will allow the country to diversify the economy, increase productivity and create quality jobs.
Last Updated: Oct 03, 2016