Oil, infra, fiscal deficit: The issues Ecuador's Noboa will face during his second term

Ecuador's President Daniel Noboa was reelected on Sunday and will start a new term on May 24. During this term, he will have to solve fiscal problems, advance the PPP agenda and develop mining policies.

According to the latest data from the country's electoral council, Noboa won 56% of the vote, compared with 44% for Luisa González, an ally of leftist former president Rafael Correa.

González said she will not recognize the results, but considering the wide margin, Noboa is expected to start his four-year term as planned. 

Moreover, even leftist allies like Guayaquil mayor Aquiles Álvarez congratulated Noboa and said that the voters' decision must be respected.

On the economic front, Noboa will have to deal with a fiscal deficit of 3-4% of GDP, financing needs of US$12bn, low foreign direct investment, labor laws that impede job creation, and a high level of informality, among other issues.

"Ecuador has several structural problems, including excessively high current spending and a ticking time bomb in its social security system," economic analyst Oswaldo Landázuri told BNamericas. "If these structural problems aren't addressed, the country will continue as it is."

According to official data, the pension and health systems are facing growing deficits, amid a state debt of US$24bn.

Noboa has not presented a government plan, so the details of his economic program remain under wraps, likely until inauguration day.

Issues such as subsidies and tax exemptions will have to be discussed with IMF officials to maintain an existing agreement and ensure the disbursement of funds, Landázuri said.

Noboa, the 37-year-old heir of a banana empire, is generally seen as pro-business.

Noboa, whose current term began in November 2023 after Guillermo Lasso called early elections, has maintained good relations with multilateral lenders, including the IMF, the World Bank and the IDB. However, to keep IMF funds flowing, Noboa will have to implement reforms.

His next administration should largely follow the path of the current one.

"I don't see a very different year from the previous one, but we'll have to see which team will accompany him in his new term in office to have a little more certainty. Hopefully, it will be a team with concrete strategies, and we can see an economic plan, a development model, a production plan," Landázuri said.

Key sectors

The oil, mining, electricity and infrastructure sectors will require special attention.

Noboa will have to continue closing oil block 43, as determined by a public referendum in August 2023, but also halt declining output, currently at 473,000b/d.

Landázuri said a concession for the Sacha block would help production and alleviate fiscal restrictions.

On February 28, the Sinopetrol consortium, composed of Amodami, a subsidiary of the Chinese state company Sinopec and Petrolia, a unit of New Stratus Energy, was awarded the Sacha contract and offered US$1.5bn to the State upon contract signing. However, the transaction fell through due to criticism surrounding the direct award, as Noboa brought forward the deadline to March 11.

Noboa is likely to seek more private participation in the oil and gas and electric power sectors.

Progress is expected in bidding processes for PPP road projects.

More PPP projects should also be added to the national agenda, especially those related to water infrastructure. Currently, the PPP agenda involves 12 initiatives and investments of US$13bn.

The mining sector has benefited from Noboa's policies, particularly the streamlining of backlogged procedures at the environment ministry.

Construction of the US$250mn Curipamba medium-scale copper and silver mine, the country's third industrial-scale operation, is expected to begin soon. Works at the US$100mn La Plata gold mine should start late next year or early 2027.

Advances are also expected for the Cascabel, Warintza and Cangrejos large-scale copper and gold operations.

Noboa will have to secure national assembly approval for the prior consultation and environmental consultation laws to improve legal certainty in the mining sector.

His coalition has 66 of 151 assembly seats, while Correa's allies have 67, so Noboa must demonstrate political skill in attracting pragmatic minorities.