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- GDP (PPP):
- $180.2 billion
- 3.6% growth
- 5.0% 5-year compound annual growth
- $11,244 per capita
- Inflation (CPI):
- FDI Inflow:
Economic freedom is at grave risk in Ecuador. The government’s reach has expanded beyond petroleum and mining, and a restrictive entrepreneurial environment has marginalized the private sector. The underdeveloped financial sector, often subjected to state-directed allocation of credit, limits access to financing and adds to business costs.
Economic Freedom Snapshot
- 2016 Economic Freedom Score: 48.6 (down 0.6 point)
- Economic Freedom Status: Repressed
- Global Ranking: 159th
- Regional Ranking: 25th in the South and Central America/Caribbean Region
- Notable Successes: Trade Freedom
- Concerns: Rule of Law, Regulatory Efficiency, Investment Freedom
- Overall Score Change Since 2012: +0.3
Ecuador’s repressive political environment makes investment increasingly risky. By controlling trade and investment, the government is forcing closer economic ties with Venezuela and China. The judicial system remains vulnerable to political interference.
President Rafael Correa, reelected to an unprecedented third term in 2013, is laying the groundwork to run again in 2017. Ecuador is part of the Bolivarian Alliance for the Peoples of Our America (ALBA), led by socialist Venezuela, and has strengthened its relations with Iran and Russia and with China, the major buyer of its oil exports. The judiciary is not independent, and the Inter-American Human Rights Commission has criticized Ecuador for restricting freedom of the press. Correa relies on heavy public-sector spending to reward his core supporters, but government revenues have fallen as world oil prices have dropped. In March 2015, the government imposed tariff surcharges ranging from 5 percent to 45 percent on some imports for 15 months. It is also rumored that the government would like to abandon use of the dollar as legal tender. Approximately one-third of the population lives below the poverty line.
Persistent corruption is fueled by cronyism, excessive judicial discretion, fragmented anti-corruption policies, incongruities between offenses and sanctions, and collusion. A weak judiciary and lack of investigative capacity contribute to an environment of impunity. In 2015, the government closed Fundamedios, an NGO that had openly criticized it. Ecuador decriminalized intellectual property rights violations in 2014.
The top personal income tax rate is 35 percent, and the corporate tax rate is 22 percent. Profits reinvested in capital purchases are subject to a special 15 percent rate. Other taxes include a value-added tax and an inheritance tax. The overall tax burden equals 19.3 percent of GDP. Government spending amounts to 44 percent of total domestic output. Public debt is about 30 percent of GDP.
Regulatory efficiency remains poor, and application of regulations is inconsistent and non-transparent. The labor market lacks flexibility and hinders job growth. Although dollarization generates a modicum of monetary stability, the government makes extensive use of price controls and subsidies. The IMF has urged a carefully planned overhaul of very high fuel subsidies to reduce the drain on the budget.
Ecuador’s average tariff rate is 4.3 percent. The government’s import substitution strategy interferes with trade. Investment in some “strategic” sectors including telecommunications and electricity is restricted. Although the banking sector has grown, the state’s interventionist policy stance constrains overall growth in financial services. The number of non-performing loans has been increasing.