Between 2006 and 2014, GDP growth averaged 4.3 percent, 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. During that period, poverty declined from 37.6 percent to 22.5 percent. The Gini coefficient fell from 0.54 to 0.47, given that income growth of the poorest population segment was higher than the average for the remainder of the population.
These achievements are threatened by declining oil prices and the stronger U.S. dollar, however. This situation was exacerbated by the devastating April 16, 2016 earthquake on the northwest coast of Ecuador. Between 2014 and 2016, urban unemployment rose from 4.5 percent to 6.5 percent and urban underemployment increased from 11.7 percent to 18.8 percent. During this period, the poverty rate and the Gini coefficient remained largely unchanged.
Given Ecuador’s lack of a local currency and limited fiscal savings, the government has been forced to reduce public investment and curb spending. Government officials have also mobilized different sources of external and domestic financing and have somewhat reduced spending. Temporary measures were applied to increase non-oil public income and restrict imports. These measures have temporarily eased the effects of low oil prices and enabled the financing of post-earthquake reconstruction. However, they have also increased public debt.
During this difficult period, Ecuador faces the challenge of building the necessary consensus to adapt its economic structure to the new international context, return to the path of sustainable growth with increased public-sector participation and protect key social advances made during the oil boom. The country must also gradually increase public spending and make it more efficient with a view to consolidating macroeconomic stability at the same time it protects the most vulnerable population and maintains private-sector confidence. In a context in which public investment cannot continue to drive growth, the country must systematically improve the investment climate by promoting increased private-sector investment and facilitating capital and labor mobility of emerging economic activities. A more robust, flexible private sector will allow the economy to be diversified, increase productivity and create quality jobs, which will in turn promote development and continue to reduce poverty.
Last Updated: Apr 13, 2017