Press Release: IMF Executive Board Concludes 2015 Article IV Consultation with Ecuador
IMF News, October 21, 2015
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Bibliographic details
- Published: October 21, 2015
Overview
- Date of conclusion: September 25, 2015.
- Growth averaged 4.5 percent over the past decade, supported by positive terms of trade and large public investments.
- Overall fiscal position of the non-financial public sector (NFPS) deteriorated from balance in 2011 to a deficit of 3.5 percent of GDP in 2012–14, mainly driven by high capital spending.
- Poverty rate fell from 38 percent in 2006 to 22.5 percent in 2014; GINI coefficient fell from 0.54 in 2006 to 0.47 in 2014.
- In 2014, growth moderated to 3.8 percent.
Economic developments and shocks
- Since Q4 2014 the economy has been hit by external shocks and is slowing down.
- International oil price decline: about half for the Ecuadorian mix.
- Real appreciation of the exchange rate: 16 percent year-over-year through June 2015 (eroding competitiveness).
- Non-oil imports have been declining significantly from April 2015.
- Inflation is picking up, reflecting changes in transport tariffs as well as in food prices and utilities.
Policy response and fiscal developments
- Authorities’ responses: cutting public spending, introducing balance of payment safeguards, and containing minimum wage growth.
- 2015 fiscal deficit is expected to be contained to the original budget target despite tightened international access to credit.
- Directors urged development of a contingency plan to address any shortfalls in financing through further cuts in non-priority expenditure while avoiding short-term financing from the central bank.
- Directors recommended: remove distortionary import surcharges as soon as possible and within the announced timeframe; rebuild fiscal buffers over time; sustain efforts to rationalize expenditure; contain public sector wage growth; continue plan to overhaul fuel subsidies while protecting the poor; improve tax collection; continue pension system reform.
Financial sector and regulatory recommendations
- Bank liquidity conditions have tightened, credit growth has slowed, and non-performing loans have risen (albeit from a low level).
- Directors recommended securing adequate liquidity, improving regulation and supervision, and closely monitoring the financial sector.
- Specific recommendations:
- Improve clarity of regulations, strengthen crisis management and supervision, verify the resolution framework.
- If pressures persist, consider relaxing banks’ reserve requirements.
- Progressively lift regulatory restrictions on bank activities—especially interest rate caps, penalties on investing abroad, and domestic liquidity requirements.
- Ensure credibility in the system of electronic money and discontinue directed lending.
- Strengthen the AML/CFT framework.
- Undertake a new financial sector assessment (FSAP) given significant changes since the last assessment.
Outlook and risks
- 2015: economy projected to contract somewhat; external position deteriorates.
- Growth prospects revised down going forward due to need to restore competitiveness and lower oil prices’ effects on investment and production.
- Main risks: availability of external financing; additional softness in oil prices; persistent dollar appreciation; potential domestic financial system pressure; natural disasters.
- Gross financing needs remain large and international access to credit has tightened.
Executive Board assessment
- Executive Directors welcomed resumed on-site Article IV consultations and enhanced collaboration.
- Commended impressive results in economic and social indicators over the past decade.
- Noted vulnerability due to heavy dependence on oil revenues and full dollarization, recently exacerbated by sharply declining commodity prices and real exchange rate appreciation.
- Welcomed authorities’ response to shocks and encouraged further efforts to build policy buffers, preserve financial stability, and strengthen competitiveness.
- Supported reforms to improve productivity, crowd-in the private sector, attract foreign direct investment, diversify the economy, and promote trade integration.
- Emphasized containing wage growth and addressing labor market rigidities.
Selected economic indicators (exact figures from source)
- Social indicators:
- Life expectancy at birth (years): 75.6 (2010), 75.9 (2011), 76.2 (2012), 76.5 (2013).
- Infant mortality (per thousand live births): 20.9 (2010), 20.3 (2011), 19.7 (2012), 19.1 (2013).
- Adult literacy rate: 91.9 (2010), 91.6 (2011), 93.3 (2012).
- Poverty rate (total): 32.8 (2010), 28.6 (2011), 27.3 (2012), 25.6 (2013), 22.5 (2014).
- Unemployment rate: 5.0 (2010), 4.2 (2011), 4.1 (2012), 3.8 (2013).
- Production and prices (percent change unless otherwise indicated):
- Real GDP: 3.5 (2010), 7.9 (2011), 5.2 (2012), 4.6 (2013), -0.6 (2014), 0.1 (2015 proj.).
- Real domestic demand: 8.0 (2010), 7.5 (2011), 6.1 (2012), -3.1 (2013), 0.3 (2014).
- Consumer price index period average: 3.6 (2010), 4.5 (2011), 5.1 (2012), 2.7 (2013), 2.9 (2014).
- Consumer price index end-of-period: 3.3 (2010), 5.4 (2011), 3.7 (2012), 2.5 (2013).
- External sector:
- Exports: 25.8 (2010), 6.4 (2011), -26.9 (2012), -1.3 (2013).
- Imports: 37.7 (2010), 18.3 (2011), 5.5 (2012), 6.8 (2013), 1.9 (2014), -19.8 (2015), -1.1 (2016).
- Terms of trade, national accounts data (deterioration -): 19.0 (2010), 21.8 (2011), 0.2 (2012), 1.1 (2013), -5.4 (2014), -14.6 (2015), 1.0 (2016).
- Real effective exchange rate (depreciation -): -2.2 (2010), -1.6 (2011), 2.2 (2012), 3.0 (2013).
- Money and credit:
- Broad money: 20.6 (2010), 20.5 (2011), 16.0 (2012), 13.0 (2013), 11.4 (2014).
- Credit to the private sector: 24.4 (2010), 22.6 (2011), 14.7 (2012), 10.5 (2013), 8.7 (2014), 1.4 (2015), 2.0 (2016).
- Public sector (In percent of GDP):
- Revenue: 33.3 (2010), 39.3 (2011), 39.5 (2012), 39.4 (2013), 38.8 (2014), 35.4 (2015), 33.7 (2016).
- Primary expenditure: 34.1 (2010), 38.7 (2011), 39.6 (2012), 43.0 (2013), 43.2 (2014), 39.1 (2015), 35.3 (2016).
- Primary balance: -0.8 (2010), 0.6 (2011), -0.2 (2012), -3.6 (2013), -4.3 (2014), -3.7 (2015).
- Overall balance (deficit -): 0.0 (2010), -0.9 (2011), -4.6 (2012), -5.1 (2013).
- External current account balance: -2.3 (2010), -0.3 (2011), -1.0 (2012), -2.6 (2013), -2.8 (2014).
- Net international reserves (US$ millions): 2,622 (2010), 2,958 (2011), 2,483 (2012), 4,361 (2013), 3,949 (2014), 3,522 (2015), 3,397 (2016).
- Debt:
- Total external debt: 20.4 (2010), 18.7 (2011), 21.5 (2012), 25.4 (2013), 31.9 (2014), 35.9 (2015), 40.4 (2016).
- Total public debt: 19.4 (2010), 21.7 (2011), 26.0 (2012), 31.3 (2013), 37.4 (2014), 40.4 (2015).
- Domestic: 6.7 (2010), 5.7 (2011), 8.9 (2012), 12.5 (2013), 12.9 (2014), 12.2 (2015).
- External: 13.7 (2010), 12.8 (2011), 15.5 (2012), 18.8 (2013), 24.5 (2014), 28.3 (2015).
- Total public debt, official definition 1/: 19.2 (2010), 18.4 (2011), 21.3 (2012), 24.2 (2013), 29.9 (2014), 34.7 (2015), 38.3 (2016).
- Saving-investment balance:
- Gross investment: 28.0 (2010), 28.1 (2011), 27.8 (2012), 28.8 (2013), 24.7 (2014), 23.9 (2015).
- National saving: 27.6 (2010), 27.7 (2011), 27.5 (2012), 22.1 (2013), 21.1 (2014).
- Memorandum items:
- Nominal GDP (US$ millions): 69,555 (2010), 79,277 (2011), 87,623 (2012), 94,473 (2013), 100,543 (2014), 98,925 (2015), 101,698 (2016).
- GDP per capita (US$): 4,633 (2010), 5,193 (2011), 5,645 (2012), 5,989 (2013).
Press Release No. 15/475 — IMF Communications Department, October 21, 2015.