Carpe diem, President Noboa!
Depending on the source, Ecuador’s GDP growth for 2025 is placed between 1.5% and 1.8% (Central Bank), with an average of 1.7% (IMF). We lean towards the 1.5% y/y change that, albeit a significant recovery from the negative 2% of 2024, is still well below the vigorous economic dynamics the country needs to reduce debt and create employment.
The global context does not help, but domestic limitations amidst challenging environmental crises have crippled our economy. Political risk has decreased with the election of President Noboa and the official majority in congress, but violence and criminality persist, and so does the lack of strong domestic and foreign investment, alongside inefficient current expenditure that has eaten up resources for public investment, as well.
Gross capital formation averaged $542 million between 2020 and 2024, and in 2024 it was a weak 0.4% of GDP. Also, in 2024 the Social Security and Public Enterprises contributed less than $40m each, and while the $1371 million injected by local governments might seem significant, much of that amount is not really investment but current expenditure. Investment, domestic or foreign, will not increase if the executive does not propose important changes and/or amendments to our short-sighted constitution, which precludes inflows into the strategic oil, mining and electricity sectors. Hence, President Noboa's campaign pillar offer was to go for a Constitutional Assembly to change the 2008 constitution. But after the election, silence has followed that announcement.
The government currently has a well-based majority of 77 to 78 legislators, and the majority in 13 of the 15 working committees within the Assembly. Even though this is not enough to make all constitutional changes (some require 102 votes, or even a referendum), important changes could be approved by an absolute majority. So far, the executive has sent three urgent economic bills to congress. One aims at attacking criminal rackets, the second seeks to change the obsolete and corrupt public purchasing system, and the third could open paths for private domestic and foreign investment in protected natural areas. All are important and necessary, but much more is needed.
President Noboa also announced the elimination of subsidies to big tuna-fishing companies, an adjustment of electricity tariffs for large corporations, an inspection tariff on mining companies, and a trade tariff on personal packages below $400 that had been tax-free. The government expects to raise close to $700 million per year with these adjustments. These are also a major step in the right direction. But the government has to move much faster into deeper changes in the legal status of strategic sectors, a reform of the social security system, and labor bills to create jobs. Sadly, Noboa has declared that there won’t be changes in these two last areas during the first year of his mandate because “there are other priorities”.
Majorities in congress do not last in Ecuador, so, President Noboa, carpe diem!
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