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The economy continues to recover from the slowdown triggered by the pandemic. The health crisis revealed structural weaknesses such as the dependence on oil exports, the lack of macroeconomic buffers, limited access to capital markets, sluggish private sector activity, high rates of employment informality and unequal access to public services.

However, in recent months the economy has slowed substantially as structural challenges have worsened owing to increased insecurity caused by organized crime and political uncertainty, which led to the calling of early presidential and congressional elections. The new administration will have the challenge of laying the foundations for dialogue to promote more inclusive, sustainable and resilient development.

Despite having reduced the fiscal deficit that threatened economic stability, the country still needs to regain the confidence of capital markets and create fiscal buffers to enable it to face future international and climate contexts. Furthermore, the public sector needs to reduce its dependence on the oil sector, which besides being affected by the maturation of wells and insufficient investment, must now deal with the referendum decision to stop operations in Yasuní National Park. In the long term, the public sector needs to generate fiscal space for investments to mitigate the effects of climate-related disasters and promote the decarbonization of economies, as well as to address the expected decline in oil prices associated with global decarbonization efforts.

The country should also make use of its immense growth potential to generate more and better job opportunities to strengthen poverty reduction efforts. This requires building political consensus to address the structural barriers that hinder the creation of formal jobs, the increase in private investment and the diversification of exports. These obstacles include widespread market intervention, weak competition, limited commercial integration and rigid labor regulations. The country could face some sectoral restrictions that prevent it from exploiting opportunities in sectors where the country already has comparative advantages, such as mining, agriculture and tourism.

These challenges assume even greater urgency against a backdrop of risks to the Ecuadorian economy and population arising from external factors such as the slowdown of the world's main economies, the reduction in commodity prices and rising international interest rates. The country also faces other threats, such as climate-related disasters -- including the potential effects of El Niño, which could affect the economy in the coming months -- and increasing insecurity or political instability.

This situation not only affects economic performance but also the building of consensus to facilitate political and social stability and address upcoming challenges. The lack of consensus around critical reforms could perpetuate the economic pendulum associated with oil price cycles and prevent the country from achieving more inclusive growth as it adapts to a world in the process of decarbonization.

Last Updated: Oct 02, 2023


Ecuador: Commitments by Fiscal Year (in millions of dollars)*

*Amounts include IBRD and IDA commitments
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ECUADOR +5932 294-3600
6 de Diciembre Av. and Boussingault T6 Building, 13th Floor.
USA +1 202 473-1000
1818 H Street NW, Washington, DC 20433