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Overview

The health emergency caused by COVID-19 led to a deep recession that had a major impact on growing poverty levels in Ecuador. The crisis widened the macroeconomic imbalances that the country had struggled to overcome since the middle of the last decade. It also highlighted a number of structural weaknesses such as the lack of macroeconomic buffers, limited access to capital markets, a high rate of employment informality, an ill-prepared health system and marked disparities in access to public services.

Since mid-2021, the new government has initiated reforms aimed at returning Ecuador to a path of growth and shared prosperity. Following a successful vaccination campaign and an end to the recession, the current challenge is to focus on vulnerable sectors such as youth, women, indigenous peoples and nationalities, Afro-Ecuadorians and Montubios, and at the same time build up the political and social councils to tackle the immediate collateral effects of the crisis and lay the foundations to promote inclusive and sustainable development in the medium to long term.

These challenges assume even greater urgency against a background of the many risks to the Ecuadorian economy and population arising from external factors such as war, a downturn in the world’s major economies, increased international interest rates, and food price inflation. These risks not only impact the country’s economic performance, but also affect consensus-building efforts to bring about social and political stability.

In this context, the government plan is to create opportunities for the Ecuadorian people by focusing on actions in five key areas: economic, social, comprehensive security, ecological and institutional transition. In the economic sphere, the plan seeks to improve employment opportunities and labor conditions by establishing a better investment and productivity environment, and continuing to improve the sustainability and transparency of public finances. Meanwhile, a wide range of other issues needs to be addressed such as improving access to

health care and education, seriously tackling chronic child malnutrition, upgrading public safety and strengthening the justice system. In environmental terms, there are plans to initiate an ecological transition through better natural resources management, taking steps to mitigate and adapt to climate change, and promoting the integrated management of water resources.

Ecuador continues its efforts to consolidate its macroeconomic stability and avoid an unsustainable increase in the debt. Fiscal discipline will therefore play a critical role in preventing the recent oil price increase from generating a new round of procyclical spending growth leading to a drag on spending efficiency, perpetuating macroeconomic imbalances and preventing the creation of fiscal buffers. Furthermore, since it is highly vulnerable to climate change, Ecuador is striving to mitigate the effects of the global climate challenge and, with private sector assistance, to dissociate the growth of its economy from greenhouse gas emissions.

Ecuador also needs to promote inclusive growth that can be sustained over the medium to long term. This could be achieved by means of systematically improving the investment environment to provide opportunities for resuming a growth path that would be less dependent on oil that, in the medium term, could be displaced by renewable energies. In short, it is essential to adopt measures to boost private investment, attract foreign investment to new sectors, and enable productive factors, especially the workforce, to have the flexibility to gravitate towards the most productive emerging sectors.

Finally, Ecuador is also seeking to improve the efficiency of its public policies to protect its most vulnerable population and provide it with access to better opportunities. In this regard, it is vital to confront long-standing challenges, aggravated by the health crisis, such as the high rates of child malnutrition, the need to improve the quality of public services, improve and step up spending on health care, education and social protection and pay more attention to the needs of the rural population. To achieve this, three things are essential: evidence-based decision

making; more efficient management of public resources; and better coordination between the different levels of government and sectors.

Last Updated: Oct 03, 2022

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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