Economic reform in Ecuador: President Lasso eliminated the fiscal deficit in only 17 months

The reformist administration eliminated the State’s fiscal deficit in record time altogether, and Ecuador already has a comfortable primary surplus of more than 2 points of GDP.

Revenue is recovering, and public spending is decreasing.

President Guillermo Lasso commits to Ecuador’s economic reform and consolidates fiscal responsibility in the country.

The consolidated result of the general Government recorded a very modest deficit of only 0.12% of GDP at the end of the year’s second quarter, thus almost eliminating the imbalances.

In this way, the administration produced a historic reduction of 7.3 points of GDP since it took over the Government in May last year.

Public finances were corrected in record time, only in 17 months of the administration.

Such a fiscal adjustment had not been observed since the dollarization process in 2000.

Just like Brazil under Bolsonaro’s administration, although in less time and with a country in a worse economic situation, Lasso put public accounts in order and recovered Ecuador from a decade of wasteful public spending.

The International Monetary Fund (IMF) estimates that Ecuador will reach a consolidated financial surplus of 0.87% of GDP by December 2022 and almost 2 points of GDP by December next year.

Under this reduction path, the Country Risk stopped increasing and stabilized at 1,446 essential points.

The Government intends to regain credibility in the country and to continue lowering the risk premium.

Discounting public debt service payments, Ecuador recorded a primary solid surplus of 2% of GDP at the end of the year’s first half, and the IMF forecasts that it will reach 2.32% by December, 3.4% by 2023, and 3.5% by 2024.

Fiscal solvency is the cornerstone of the country’s financial stability and the maintenance of the dollarized monetary regime.

Total general government spending decreased from 36.54% of GDP in 2020 to 35.18% for the 2022 projection.

At the same time, total revenue collection recovered to pre-pandemic levels.

The Lasso administration announced a mixed tax package composed of tax reductions on particularly distortionary rates and compensating increases on other, more conventional taxes.

A gradual reduction of the Excise Tax (ISD) of 0.25% per quarter was determined until its complete elimination by 2023.

The special tax on profits of micro-enterprises, which had a 2% rate and was created by former President Lenin Moreno, was eliminated, and the possibility of eliminating the inheritance tax in the country is being studied.

In compensation, Lasso’s Government increased the maximum marginal income tax rate for individuals from 35% to 37%, which reaches individuals with an annual income of over US$ 25,000.

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