The reformist administration completely eliminated the state’s fiscal deficit in record time, and Ecuador now has a comfortable primary surplus of more than 2 points of GDP.
Revenues are recovering and public spending is being reduced.
President Guillermo Lasso commits to Ecuador’s economic reform and consolidates fiscal responsibility in the country.
The consolidated result of the general government marked a rather modest deficit of only 0.12% of GDP at the end of the second quarter of the year, almost eliminating 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 administration.
Such a fiscal adjustment had not been observed since the dollarization process in 2000.
Like Brazil under the Bolsonaro administration, albeit in less time and with a country in a worse economic situation, Lasso put the public accounts in order and recovered Ecuador from a decade of wasteful public spending.
The International Monetary Fund (IMF) estimates that Ecuador will achieve a consolidated financial surplus of 0.87% of GDP by December 2022 and almost 2 points of GDP by December next year.
On this reduction path, country risk stopped increasing and stabilized at 1,446 basis points.
The government aims to regain credibility in the country and continue reducing the risk premium.
Excluding public debt service payments, Ecuador recorded a solid primary surplus of 2% of GDP at the end of the first half of the year, and the IMF expects it to reach 2.32% by December, 3.4% by 2023 and 3.5% until 2024.
Fiscal solvency is the cornerstone of the country’s financial stability and the preservation of the dollarized monetary regime.
Total general government spending decreased from 36.54% of GDP in 2020 to 35.18% for the 2022 forecast.
At the same time, total revenue collection recovered to pre-pandemic levels.
The Lasso administration announced a mixed tax package consisting of tax cuts on particularly skewed rates and compensatory increases in other, more conventional taxes.
A gradual reduction of the Excise Tax (ISD) of 0.25% per quarter until its complete elimination by 2023 was determined.
The special tax on the profits of micro-enterprises, which had a rate of 2% and was created by former president Lenin Moreno, has been abolished, and the possibility of eliminating the inheritance tax in the country is being studied.
In compensation, Lasso’s government raised the top marginal income tax rate for individuals from 35% to 37%, which applies to individuals with annual incomes above USD 25,000.
