Ecuador’s Lasso Government Renews Communication Strategy Amidst Indigenous Protests and Economic Reforms
Key Developments in Ecuador’s Economy
As President Guillermo Lasso marks his first anniversary in office, his administration has opted to revamp its communication strategy. The cabinet and general administration have also undergone significant changes.
Economic Achievements
President Lasso highlighted key achievements during his address to the nation:
- A decline in extreme poverty from 15.4% to 10.5%
- Tariff reductions on over 600 items, resulting in substantial savings
- Private investment contracts totaling $5 billion and an identified investment portfolio of $39 billion
- Plans to enter into 10 new trade agreements by 2025, including agreements with Mexico, Israel, and the Pacific Alliance
Indigenous Protests and Economic Reforms
Indigenous groups have mobilized across the country since June, demanding economic reforms and gas price stabilization. The government is engaged in negotiations with these groups, which are expected to result in new economic and social reforms.
Tax Collection Efforts
The Internal Revenue Service (IRS) plays a crucial role in the Ecuadorian economy, as tax collection is a significant component of the 2022 budget. After four years as IRS Director, Marisol Andrade was replaced by Francisco Briones, who has been serving as the Cabinet’s deputy secretary general.
According to official records, between January and May 2022, IRS collections exceeded budgeted amounts:
- Income tax collection reached $2.7 billion
- Value-added tax (VAT) internal operations totaled $2.3 billion
- Import taxes (VAT and excise tax) totaled $1.08 billion, compared to a budgeted amount of $844 million
New Taxes Introduced
The Law for Economic Development and Fiscal Sustainability after the Covid-19 Pandemic was enacted on November 29, 2021, creating new taxes that will contribute to increased tax collection efforts.
- A special tax is payable by individuals with net equity greater than $1 million
- Married couples with net equity equal to or greater than $2 million are also subject to this tax
- Companies domiciled in Ecuador with net equity as of December 31, 2020 equal to or greater than $5 million must pay the special tax at a rate of 0.8%
Electronic Invoicing
Electronic invoicing has been implemented in Ecuador since 2014, initially required for certain taxpayers, with progressive expansion. The new rules set out by Resolution No. NAC-DGERCGC22-00000024 will obligate:
- All taxpayers to issue electronic vouchers
- The number of invoices issued cannot exceed 1% of total sales receipts from the previous fiscal year
Economic Outlook
The Ecuadorian economy has benefited from the significant increase in oil prices. The West Texas Intermediate (WTI) surpassed $120 per barrel during June. According to the National Institute of Statistics, inflation in April 2022 was at 2.89%, compared with -1.47% in the same period in 2021.
During the first quarter of 2022, Ecuador’s debt ratio reached 57.85% of its GDP, compared with 65.50% in the previous fiscal year. This reduction is in line with the agreements reached with the IMF, and subsequent fulfillment of the terms established therein by the Ecuadorian government.
As of May 2022, Ecuador’s international reserves had reached $8.3 billion, a significant improvement over the same period in 2021, when they were $5.7 billion.
Ecuadorian Finance Minister Simón Cueva has noted that economic policies implemented by the government will lead to a reduction in the fiscal deficit, which has gone to 4% in 2021 from a 7.5% deficit two years ago, and this year is expected to close with a 2% deficit.