Ecuador

Ecuador has faced significant economic challenges since 2014, ranging from its heavy reliance on oil production – the sector represents around one-third of exports – to the climate crisis as it experienced its worst drought in more than 60 years in 2024. The country faced a severe recession in 2020, with GDP contracting by -7.8% due to the pandemic and lower demand for hydrocarbons. The economy returned to around pre-pandemic levels at the end of 2023, with the growth rate falling below the regional average in 2023 and 2024. A path to stability through natural wealth and security crises In 2024, GDP growth is anticipated to stagnate due to a ban on oil and mining, before a modest recovery of +1.2% in 2025, with some uncertainty due to general elections taking place in February.

Ecuador's dependence on revenues in USD across all levels of financial and commercial transactions presents structural liquidity challenges and increases risk premia. The full dollarization since 2000 has helped address some economic imbalances, but high rates of informal employment and limited access to capital markets do not favor government revenues, as evidenced by several instances of sovereign default. On the other hand, inflation has been historically low compared to other Latin American countries. Average inflation peaked at 3.5% in 2022 and stood below 2.5% in the first nine months of 2024.

President Noboa has extended the state of emergency he declared in January due to an "internal armed conflict" following the escape of the leader of one of Ecuador's most prominent criminal groups from prison. Riots broke out in several prisons throughout Ecuador and mass armed attacks occurred throughout the country. Transnational organized criminal groups have historically taken advantage of coastal municipalities in Ecuador as a logistical haven and drug transshipment hub due to the country's location and other environmental factors. The state of emergency includes eight provinces and the capital Quito, while a curfew has been imposed on the other 20 zones of the country.

Ecuador ranked 115th out of 184 countries in the 2024 Heritage Foundation's Index of Economic Freedom, gaining 11 places in the past two years but still slightly below the regional average. The country's strengths include monetary freedom and a relatively low tax burden, but it scores poorly in rule of law, property rights, judicial effectiveness and government integrity.

Overall, while Ecuador has made some economic progress, significant challenges remain, including political instability, structural weaknesses and dependence on commodity exports. The country's ability to implement further fiscal consolidation, improve social cohesion and attract foreign investment will be crucial for its long-term economic stability and growth.