## Public Information Notice: IMF Executive Board Concludes 2007 Article IV Consultation with Ecuador _IMF News, February 28, 2008_ ## Source details **Canonical URL:** [Public Information Notice: IMF Executive Board Concludes 2007 Article IV Consultation with Ecuador](https://www.imf.org/en/news/articles/2015/09/28/04/53/pn0827) ## Other formats - [Markdown version](/en/news/articles/2015/09/28/04/53/pn0827/index.md) - [Structured JSON version](/en/news/articles/2015/09/28/04/53/pn0827/index.json) - [Bundle manifest](/en/news/articles/2015/09/28/04/53/pn0827/bundle-manifest.json) ## Bibliographic details - Published: February 28, 2008 --- ### Background - 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: - 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. - 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. - Inflation remained low at international levels, with a slight pick up in the last part of the year. - External and fiscal positions: - Supported by higher oil prices, both the external and fiscal positions continued to be healthy. - For 2007, the external current account surplus is estimated to have been roughly unchanged from the previous year. - The non-financial public sector primary surplus weakened significantly, mainly due to a strong increase in capital spending. - Public debt to GDP ratio has declined dramatically with sustained primary surpluses and robust growth in recent years. - Financial sector: - Banking system soundness indicators remained generally positive. - Deposits and credit to the private sector continued to grow but at a slower pace than in 2006. - 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. - 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. ### Executive Board Assessment — key findings - Directors welcomed Ecuador's broadly positive macroeconomic performance: - High oil prices and a depreciating U.S. dollar supported robust growth over the last five years. - Inflation declined to international levels. - External current account has been in surplus since 2005. - Public debt ratio has declined significantly. - Government accumulated large deposits in the oil funds. - Concerns and constraints: - Recent sharp deceleration of growth due to a drop in business confidence and private investment. - Investment and production trends have lagged behind other economies in the region, in particular in the oil sector. - Competitiveness: - The real effective exchange rate has been broadly in line with macroeconomic fundamentals. - Other indicators, including the healthy performance of non-oil exports, do not point to competitiveness problems under dollarization. - Fiscal area: - Directors welcomed plans to tackle structural weaknesses in the fiscal area. - Recent legislation aimed at improving tax administration and reducing exemptions will help lessen oil revenue dependence. - Spending quality and subsidies: - Directors welcomed improvements in public financial management and public investment capacity upgrades. - Plans to introduce comprehensive reforms in the state-owned oil and electricity companies were viewed positively. - Making the budget cost of fuel subsidies transparent was seen as a step toward developing a strategy and timetable for elimination of these subsidies. - Directors recommended addressing social needs through carefully targeted income transfer measures rather than generalized subsidies. - Financial system: - Directors agreed the financial system is liquid and bank soundness is largely well secured. - Need to improve efficiency by lowering the cost of credit and improving access to credit. - Welcomed plans to establish an augmented liquidity fund, a strengthened deposit insurance scheme, and reform the bank resolution framework. - Cautioned that the new tax on foreign exchange remittances abroad could have negative effects on financial system intermediation. - 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. ### Policy recommendations and priorities - 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. - 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. - 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. ### Selected Economic and Financial Indicators (Annual percentage changes; unless otherwise indicated) - Table years: 2003, 2004, 2005, 2006, 2007 (Proj.) - National income and prices: - Real GDP: 3.6, 8.0, 6.0, 3.9, 1.8 - Real GDP per capita: 2.1, 6.5, 4.5, 2.4, 0.3 - Consumer price index end-of-period: 6.1, 2.0, 3.1, 2.9, 3.3 - Real effective exchange rate (avg.; depreciation -) 1/: -4.9, -4.3, -0.5, -5.6, (November data for 2007) - Banking system: - Liabilities to the private sector: 18.7, 27.1, 21.1, 16.8, 14.3 - Credit to the private sector: 28.6, 25.9, 19.1, 15.2 - EMBI Ecuador (bps, end of period): 799, 690, 669, 920, 614 - Public finances (In percent of GDP): - Revenue: 24.1, 25.1, 24.2, 27.4, 28.8 - Non-interest expenditure: 20.1, 20.4, 21.4, 21.7, 25.0 - Primary balance (deficit -): 4.4, 4.6, 5.8, 3.8 - Overall balance (deficit -): 1.6, 2.2, 0.7, 3.7 - Total public debt: 49.9, 43.1, 38.5, 33.9, 32.0 - Domestic: 9.7, 9.2, 9.3, 8.4 - External: 40.2, 29.2, 24.7, 23.5 - Saving investment balance: - National saving: 20.0, 24.6, 26.7, 27.2 - Gross investment: 21.5, 23.4, 23.8, 23.1, 24.0 - Foreign saving = - external current account balance: 1.5, 1.7, -0.8, -3.6, -3.3 - Sources cited in table: Central Bank of Ecuador; Ministry of Finance; and IMF staff estimates and projections. *Public Information Notice (PIN) No. 08/27 — February 28, 2008 — Executive Board conclusions on the 2007 Article IV consultation with Ecuador.* --- ## References - [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) _Source: https://www.imf.org/en/news/articles/2015/09/28/04/53/pn0827_