{
  "title": "Public Information Notice: IMF Executive Board Concludes 2007 Article IV Consultation with Ecuador",
  "publication": "IMF News, February 28, 2008",
  "sourceUrl": "https://www.imf.org/en/news/articles/2015/09/28/04/53/pn0827",
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  "summary": "Each Public Information Notice contains a background section, a table of selected economic indicators, and an Executive Board assessment.",
  "publishDate": "2008-02-28",
  "sections": [
    {
      "heading": "Background",
      "content": "- Date: January 25, 2008 — the Executive Board concluded the Article IV consultation with Ecuador.\n- Macroeconomic performance in recent years was strong, supported by favorable global conditions.\n- 2007 developments:\n  - Growth is estimated to have declined, owing mainly to a decline in oil output from long-standing underinvestment at the state oil company and a tapering off in non-oil growth.\n  - The decline in non-oil growth was driven by a decline in business confidence due to uncertainties over the new constitution and pending decisions on key policy issues.\n  - Inflation remained low at international levels, with a slight pick up in the last part of the year.\n- External and fiscal positions:\n  - Supported by higher oil prices, both the external and fiscal positions continued to be healthy.\n  - For 2007, the external current account surplus is estimated to have been roughly unchanged from the previous year.\n  - The non-financial public sector primary surplus weakened significantly, mainly due to a strong increase in capital spending.\n  - Public debt to GDP ratio has declined dramatically with sustained primary surpluses and robust growth in recent years.\n- Financial sector:\n  - Banking system soundness indicators remained generally positive.\n  - Deposits and credit to the private sector continued to grow but at a slower pace than in 2006.\n  - Sovereign spread (EMBI) spiked at the beginning of the year on concerns over the authorities' debt service policies, then declined significantly but remained the highest in the region.\n- Government objectives: comprehensive political and economic changes to reduce poverty and promote equity-enhancing growth by improving infrastructure and the efficiency of the financial system.\n- Discussions covered fiscal and financial vulnerabilities, fiscal space for investment and social spending, and lowering the cost and increasing the availability of credit.\n- It is expected that the next Article IV consultation with Ecuador will be held on the standard 12-month cycle."
    },
    {
      "heading": "Executive Board Assessment — key findings",
      "content": "- Directors welcomed Ecuador's broadly positive macroeconomic performance:\n  - High oil prices and a depreciating U.S. dollar supported robust growth over the last five years.\n  - Inflation declined to international levels.\n  - External current account has been in surplus since 2005.\n  - Public debt ratio has declined significantly.\n  - Government accumulated large deposits in the oil funds.\n- Concerns and constraints:\n  - Recent sharp deceleration of growth due to a drop in business confidence and private investment.\n  - Investment and production trends have lagged behind other economies in the region, in particular in the oil sector.\n- Competitiveness:\n  - The real effective exchange rate has been broadly in line with macroeconomic fundamentals.\n  - Other indicators, including the healthy performance of non-oil exports, do not point to competitiveness problems under dollarization.\n- Fiscal area:\n  - Directors welcomed plans to tackle structural weaknesses in the fiscal area.\n  - Recent legislation aimed at improving tax administration and reducing exemptions will help lessen oil revenue dependence.\n- Spending quality and subsidies:\n  - Directors welcomed improvements in public financial management and public investment capacity upgrades.\n  - Plans to introduce comprehensive reforms in the state-owned oil and electricity companies were viewed positively.\n  - Making the budget cost of fuel subsidies transparent was seen as a step toward developing a strategy and timetable for elimination of these subsidies.\n  - Directors recommended addressing social needs through carefully targeted income transfer measures rather than generalized subsidies.\n- Financial system:\n  - Directors agreed the financial system is liquid and bank soundness is largely well secured.\n  - Need to improve efficiency by lowering the cost of credit and improving access to credit.\n  - Welcomed plans to establish an augmented liquidity fund, a strengthened deposit insurance scheme, and reform the bank resolution framework.\n  - Cautioned that the new tax on foreign exchange remittances abroad could have negative effects on financial system intermediation.\n  - Called for improvements in supervision, including ensuring autonomy of the supervising agency; strengthening legal protection for supervisors; and implementing an appropriate supervisory framework for small financial cooperatives not under the superintendent of banks."
    },
    {
      "heading": "Policy recommendations and priorities",
      "content": "- Implement promptly the envisaged reform measures to reduce macroeconomic and financial vulnerabilities and reduce uncertainties.\n- Improve the business climate, maintain sound fiscal policies, and continue structural reforms to reinforce long-run sustainability.\n- Combine fiscal measures with spending policies that safeguard macroeconomic stability.\n  - Support for increasing social and infrastructure spending, while keeping non-priority spending under control to avoid inflationary pressures and preserve fiscal space for priority projects given volatile oil prices.\n- Formally approve a medium-term fiscal framework to reduce risks of procyclical and unsustainable policies and to transparently identify the path to achieve the authorities' medium-term rule of a zero non-oil current deficit.\n- Ensure spending is of high quality through public financial management improvements and public investment system upgrades.\n- Develop a strategy and timetable for elimination of fuel subsidies to make space for better-targeted poverty-reduction spending.\n- Improve financial system efficiency and access to credit; strengthen supervision and legal protections for supervisors; implement supervisory framework for small cooperatives."
    },
    {
      "heading": "Selected Economic and Financial Indicators (Annual percentage changes; unless otherwise indicated)",
      "content": "- Table years: 2003, 2004, 2005, 2006, 2007 (Proj.)\n- National income and prices:\n  - Real GDP: 3.6, 8.0, 6.0, 3.9, 1.8\n  - Real GDP per capita: 2.1, 6.5, 4.5, 2.4, 0.3\n  - Consumer price index end-of-period: 6.1, 2.0, 3.1, 2.9, 3.3\n  - Real effective exchange rate (avg.; depreciation -) 1/: -4.9, -4.3, -0.5, -5.6, (November data for 2007)\n- Banking system:\n  - Liabilities to the private sector: 18.7, 27.1, 21.1, 16.8, 14.3\n  - Credit to the private sector: 28.6, 25.9, 19.1, 15.2\n  - EMBI Ecuador (bps, end of period): 799, 690, 669, 920, 614\n- Public finances (In percent of GDP):\n  - Revenue: 24.1, 25.1, 24.2, 27.4, 28.8\n  - Non-interest expenditure: 20.1, 20.4, 21.4, 21.7, 25.0\n  - Primary balance (deficit -): 4.4, 4.6, 5.8, 3.8\n  - Overall balance (deficit -): 1.6, 2.2, 0.7, 3.7\n  - Total public debt: 49.9, 43.1, 38.5, 33.9, 32.0\n    - Domestic: 9.7, 9.2, 9.3, 8.4\n    - External: 40.2, 29.2, 24.7, 23.5\n- Saving investment balance:\n  - National saving: 20.0, 24.6, 26.7, 27.2\n  - Gross investment: 21.5, 23.4, 23.8, 23.1, 24.0\n  - Foreign saving = - external current account balance: 1.5, 1.7, -0.8, -3.6, -3.3\n- Sources cited in table: Central Bank of Ecuador; Ministry of Finance; and IMF staff estimates and projections.\n\nPublic Information Notice (PIN) No. 08/27 — February 28, 2008 — Executive Board conclusions on the 2007 Article IV consultation with Ecuador.\n\n---\n\n\n References\n\n- Ecuador and the IMF\n- Public Information Notices\n- https://www.imf.org/en/home\n\nSource: https://www.imf.org/en/news/articles/2015/09/28/04/53/pn0827"
    }
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    "Published: February 28, 2008",
    "Date: January 25, 2008 — the Executive Board concluded the Article IV consultation with Ecuador.",
    "Macroeconomic performance in recent years was strong, supported by favorable global conditions.",
    "2007 developments:",
    "External and fiscal positions:",
    "Financial sector:",
    "Government objectives: comprehensive political and economic changes to reduce poverty and promote equity-enhancing growth by improving infrastructure and the efficiency of the financial system.",
    "Discussions covered fiscal and financial vulnerabilities, fiscal space for investment and social spending, and lowering the cost and increasing the availability of credit.",
    "It is expected that the next Article IV consultation with Ecuador will be held on the standard 12-month cycle.",
    "Directors welcomed Ecuador's broadly positive macroeconomic performance:",
    "Concerns and constraints:",
    "Competitiveness:",
    "Fiscal area:",
    "Spending quality and subsidies:",
    "Financial system:",
    "Implement promptly the envisaged reform measures to reduce macroeconomic and financial vulnerabilities and reduce uncertainties.",
    "Improve the business climate, maintain sound fiscal policies, and continue structural reforms to reinforce long-run sustainability.",
    "Combine fiscal measures with spending policies that safeguard macroeconomic stability.",
    "Formally approve a medium-term fiscal framework to reduce risks of procyclical and unsustainable policies and to transparently identify the path to achieve the authorities' medium-term rule of a zero non-oil current deficit.",
    "Ensure spending is of high quality through public financial management improvements and public investment system upgrades.",
    "Develop a strategy and timetable for elimination of fuel subsidies to make space for better-targeted poverty-reduction spending.",
    "Improve financial system efficiency and access to credit; strengthen supervision and legal protections for supervisors; implement supervisory framework for small cooperatives.",
    "Table years: 2003, 2004, 2005, 2006, 2007 (Proj.)",
    "National income and prices:",
    "Banking system:",
    "Public finances (In percent of GDP):",
    "Saving investment balance:",
    "Sources cited in table: Central Bank of Ecuador; Ministry of Finance; and IMF staff estimates and projections.",
    "[Ecuador and the IMF](http://www.imf.org/external/country/ECU/index.htm)",
    "[Public Information Notices](https://www.imf.org/en/news/searchnews)",
    "[https://www.imf.org/en/home](https://www.imf.org/en/home)"
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