Economic activity contracted by about 2.5 percent in 2024, against a backdrop of energy shortages, high rates of violence, and political uncertainty. The worst drought in 60 years led to blackouts and electricity rationing nationwide, and, despite the decline in the homicide rate, violence remained at historically high levels. These factors drove down private consumption and investment, resulting in a contraction in manufacturing and services activity. However, exports expanded, driven by increased shipments of agricultural and fisheries products. In this context, labor income declined by 3 percent in real terms, increasing poverty to 31.9 percent (US$6.85/day, 2017 PPP).
The fiscal deficit narrowed significantly from 3.5 percent in 2023 to 1.4 percent in 2024, thanks in large part to revenue-increasing measures. In particular, tax revenue grew by 13 percent in real terms, driven by an increase in the VAT rate from 12 percent to 15 percent, the introduction of temporary taxes, and higher income tax withholdings. In addition, in May 2024, the International Monetary Fund approved a 48-month, US$4 billion Extended Fund Facility (EFF) arrangement, which included a disbursement of US$1.5 billion that year. Higher tax collections and loans from multilateral organizations helped cover the financing needs for the year. However, declining output and a negative fiscal balance pushed the public debt-to-GDP ratio up to 56 percent. International reserves increased by $2.4 billion to $6.9 billion, which represented 5.7 percent of GDP and was equivalent to 2.2 months of imports by end-2024, levels that nevertheless remain low by international standards.
GDP is expected to rebound and grow by an estimated 1.9 percent in 2025, driven by a more stable energy supply and less political uncertainty following the April elections. Assuming normal climatic conditions, agricultural and fisheries exports should maintain an upward trend, sustaining a medium-term growth rate of approximately 2 percent. However, limited economic growth would restrict household income growth, keeping poverty above 30 percent until 2027. A weaker external outlook could depress oil prices this year and temporarily cause the fiscal deficit to widen. It is expected that fiscal consolidation will resume next year and be enough to bring the fiscal deficit to about 1 percent of GDP in 2027, thereby stabilizing the public debt ratio.
Today, about one in four Ecuadorans lives in poverty, while one in 10 lives in extreme poverty. Inequality has remained virtually unchanged over the past decade. Overcoming short-term challenges and removing structural constraints to investment are key to reinvigorating economic growth and reducing poverty. In the short term, improving citizen security and ensuring energy availability are crucial. Moreover, in the last 10 years, productivity growth has been hindered by structural challenges related to rigid labor regulations, gaps in educational achievement, price distortions, trade and investment barriers, among others. As a result of these issues, coupled with climate crises and the global COVID-19 pandemic, estimated growth between 2015 and 2024 averaged just over 1 percent. Reforms should focus on generating quality jobs, thereby stimulating firm growth, as more than half of the workforce is in the informal sector and 97 percent of formal firms are micro or small enterprises. It is also important to address gender inequality in the labor market, where women are disproportionately employed in low-quality jobs, accounting for 67 percent of part-time and below-minimum-wage jobs.
Last Updated: Apr 23, 2025
