Ecuador Country Risk Report Q4 2018
Ecuadorian real GDP growth will slow in 2018 and 2019, as President Lenin Moreno pulls back on spending amid an ongoing fiscal crisis.
We expect a gradual acceleration in growth from 2020, as rising oil prices support exports. However, structural weaknesses will continue to present headwinds with growth to remain muted over the medium term.
Moreno will pursue fiscal consolidation and orthodox economic reforms over the coming quarters, a departure from the leftist policies of his predecessor Rafael Correa.
However, austerity measures will weigh on public support for Moreno, limiting his ability to pass legislation.
Amid a dire fiscal situation, a financing agreement with the International Monetary Fund (IMF) is a possibility, which would likely invoke an even more abrupt shift in policy direction.
Ecuador's new economic plan will likely fall short of solving the country's fiscal problems in the near term, as the government's revised fiscal deficit forecast of 5.6% of GDP in 2018 suggests a more dire fiscal situation than previously reported.
We maintain our view that Ecuador's current account will enter into surplus in 2018, buoyed by rising oil exports.
Should oil prices average lower than we anticipate, economic growth, the current account and government revenues would be eroded to an even greater extent.
The Ecuadorian government may be forced into a position to request IMF assistance or restructure its debt should its fiscal position deteriorate further.
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