Fiscal deficit, rising crime to keep Ecuador's next president busy

Ecuador’s next president will face a high fiscal deficit and economic slowdown while crime and social instability intensify.

Daniel Noboa, son of banana magnate and five-time presidential candidate Álvaro Noboa, and Luisa González, an ally of former leftist president Rafael Correa, will face off in a runoff on Sunday. González won the first round on August 20, but Noboa is leading the latest polls.

Elections became necessary because President Guillermo Lasso used his constitutional powers to dissolve the national assembly in May to avoid impeachment. The next president will only finish the current term, which ends in 2025.

“Whoever is elected will be on the campaign trail from day one and their only priority will be to win the 2025 elections,” Alberto Acosta, an analyst at consulting firm Grupo Spurrier, told BNamericas.

DEFICIT

The fiscal deficit reached US$2.7bn between January and August, while a US$200mn surplus was recorded in the year-ago period. Acosta said the deficit could reach US$5bn by year-end.

Finances are set to come under further pressure as oil block 43 must be shut down as result of an August referendum. The block produces 59,000b/d.

At a recent energy conference, the business transformation and special projects manager of state oil company Petroecuador, Tomás Márquez, said if oil exploration and drilling won’t intensify, the country could lose annual revenue of US$800mn-1.2bn due to the decision.

The central bank projects 2023 growth of 1.5% and 0.8% for next year, compared to 2.9% growth in 2022. The monetary authority also said the closure of block 43 will shave off 2.9 percentage points of GDP over the next four years. The El Niño phenomenon, whose effects are expected to become visible by the end of the year, will compound this damage.

OIL AND MINING

Acosta highlighted that the next government must unblock oil and mining investment to address the fiscal gap. It should also pursue a tax reform, raise fuel prices and slash public investment.

If the situation doesn’t improve, the government assuming office in 2025 might face large-scale social instability. “We are facing an economy that is losing momentum and behind that is a weakness in investment both for this year and for next,” Acosta said.

Whoever becomes president this month will facilitate oil and mining investment, according to Acosta. The mining sector has been particularly hit by a constitutional court ruling that suspended an executive decree that regulated environmental consultations, which are now being blocked but also necessary to obtain a construction license.

“Oil and mining investment is a very important source of income for the State. The two candidates have given signals and messages that they will seek to unblock it, which is evident because they require resources to spend and win the 2025 elections. The difference will be how effective they will be to achieve it,” Acosta said.