Between 2006 and 2014, GDP growth averaged 4.6 percent, thanks to robust oil prices and important external financing flows. This stimulus allowed for increased social spending, particularly in the energy and transportation sectors. According to national poverty lines, poverty rates fell from 37.6 percent to 22.5 percent during this period. The Gini Index declined from 0.54 to 0.47 given that growth benefitted the poorest population more than other segments.
Nevertheless, the advances of the past decade are at risk due to the economic deceleration the country is experiencing as a result of the decline in oil prices since late 2014, the difficulty in accessing new funding sources and the appreciation of the dollar. Poverty even rose slightly, from 22.5 percent in 2014 to 23.3 percent in 2015, which reflected an increase in rural poverty, from 35.3 percent to 39.3 percent.
Given Ecuador’s lack of a local currency and the limited liquid assets needed to confront the complex economic situation, the new global context has triggered a significant decline in domestic demand, especially public demand. The government has been forced to sharply reduce public investment and to curb spending, despite efforts to explore external financing options and increase non-oil revenue. This reduction of public spending has negatively affected economic activity, despite government protection of strategic investments and more rational public spending. Additionally, the rapid macroeconomic deceleration has affected prospects of households and firms – reflected, for example, in levels of consumer and business confidence, as well as private consumption levels – putting added pressure on domestic demand.
In this difficult period, Ecuador must adapt to the new international context in an organized way to maintain economic stability, resume strong growth in the medium term and protect the important social advances made during the past decade. To this end, it is essential to strengthen the efficiency of and gradual increase in public spending to ensure that fiscal consolidation does not threaten poverty reduction or the most important investment projects. Finally, with less dynamic public investment, the country must improve the investment climate and confidence levels of private investors to revitalize private investment. More robust private sector activity would also help to diversify the Ecuadorian economy and increase its productivity.
Last Updated: Apr 11, 2016