Ecuador’s Economic Situation: An IMF Report

Overview

The International Monetary Fund (IMF) has released a report detailing Ecuador’s economic performance under an IMF program. This article summarizes the key findings from the report, highlighting areas of improvement and ongoing challenges.

Economic Recovery

• In 2021:Q3, Ecuador’s economy showed signs of mild improvement, with wholesale and retail sales increasing by 30% year-on-year.
• The growth was driven by a base effect, indicating that the economy is slowly recovering from previous downturns.

Inflation

• CPI inflation was subdued in 2020, averaging -0.3% for the year, but turned positive (1%) in July 2021.
• Price increases were observed in food, transport, and utilities, contributing to the uptick in inflation.

Labor Market

• The labor market remains weak, with less educated workers, minority groups, and women with children hit hardest by the pandemic.
• Despite some recent improvements, the share of adequate employment stood at 31.3% in June 2021, still below its pre-pandemic level of around 40%.

Fiscal Performance

• The overall balance of the budgetary central government (PGE) and domestic derivatives financing account (CFDD) recorded a deficit of about $7.1 billion in 2020.
• In 2021:Q1, fiscal balances at the NFPS level significantly overperformed due to better revenues and expenditure restraint.

External Position

• Ecuador’s external position was stronger than anticipated in 2020 and in 2021 year-to-date, with a current account surplus of 2.5% of GDP in 2020.
• A $0.7 billion surplus was recorded in Q1:2021.

Financial Sector

• The financial sector remains liquid, with a ratio of liquid assets to short-term liabilities standing at about 30% at end-July 2021.

Conclusion

While Ecuador’s economy has shown some signs of improvement, it still faces challenges related to its labor market and fiscal sustainability. Addressing these issues will be crucial for the country’s continued economic growth and stability.