President Lasso completely eliminated Ecuador’s fiscal deficit in 20 months in office

The Ecuadorian government stabilized public finances and returned to fiscal surplus for the first time since 2012.

With inflation stabilized and unemployment at historic lows, the economy is making way for growth.

The Central Bank of Ecuador announced that the national government’s fiscal deficit was completely eliminated by the second quarter of last year. A financial surplus of 0.1% of GDP was recorded by the third quarter.

The Ecuadorian State is not only solvent enough to finance the bulk of its current expenditures and operating expenses but can also completely cover the cost of public debt services.

The solvency sponsored by the Government allowed the country a gradual but sustained reduction of the Country Risk Index, which fell from 1,945 basis points in November last year to 1,213 in January 2023.

This not only makes the credit available to the State in the international capital market cheaper but also to families and, fundamentally, to companies.

Likewise, fiscal slack made it possible to start 2023 with a reduction in public debt stock in dollars, which was reduced from US$4,388.92 per person to US$4,340.72 between December 2021 and December 2022.

This is the first time there has been a drop in public debt since 2010, after a decade of constant growth during the Correa decade.

According to International Monetary Fund (IMF) statistics, the debt stock was reduced from 62.64% of GDP to 58.9%, and projections indicate that it will continue to fall over the next 5 years.

President Guillermo Lasso took office with a fiscal deficit legacy of around 7.43% of GDP, according to central bank statistics, and in only 20 months of the administration, he eliminated it completely.

The pace of fiscal adjustment averaged almost 1.25 points of GDP per quarter. Public spending was reduced by 1.36 points of GDP since 2021, while total revenue increased by more than 6 points of GDP.

With public finances in order, the stock of debt in decline, and the Country Risk falling, the outlook for Ecuador’s economy becomes more predictable for investment, and growth expectations improved.

This is because the risk of State insolvency is falling, credit to the private sector is becoming cheaper, and confidence in the stability of the game’s rules is consolidating.

Among all of these, dollarization is the most important. After growing 4.2% in 2021 and 2.9% in 2022, the Central Bank of Ecuador estimates that activity will expand to 3% in 2023, while the IMF expects growth to reach 2.7%.

The return to growth is taking place in the context of price stability. Year-on-year inflation reached only 3.74% in December last year, in line with the average of the last 15 years.

The unemployment rate fell below 5%, consolidating at the lowest level in the last 10 years.

With information from Derecha Diario