2021 Index of Economic Freedom

Ecuador

OVERALL SCORE52.4
WORLD RANK149
Rule of Law

Property Rights39.5

Judicial Effectiveness24.7

Government Integrity38.5

Government Size

Tax Burden77.1

Government Spending58.5

Fiscal Health75.9

Regulatory Efficiency

Business Freedom50.4

Labor Freedom47.9

Monetary Freedom81.7

Open Markets

Trade Freedom59.8

Investment Freedom35.0

Financial Freedom40.0

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Quick Facts
  • Population:
    • 17.4 million
  • GDP (PPP):
    • $203.6 billion
    • 0.1% growth
    • 0.5% 5-year compound annual growth
    • $11,847 per capita
  • Unemployment:
    • 4.0%
  • Inflation (CPI):
    • 0.3%
  • FDI Inflow:
    • $966.2 million

Ecuador’s economic freedom score is 52.4, making its economy the 149th freest in the 2021 Index. Its overall score has increased by 1.1 points, primarily because of an improvement in fiscal health. Ecuador is ranked 27th among 32 countries in the Americas region, and its overall score is below the regional and world averages.

Economic freedom has improved in Ecuador for two years in a row. The economy has climbed a little higher in the mostly unfree category, although there is a long road ahead. To continue this upward trajectory, the government should prioritize the strengthening of the country’s weak rule-of-law indicators: property rights, judicial effectiveness, and government integrity.

IMPACT OF COVID-19: As of December 1, 2020, 13,501 deaths had been attributed to the pandemic in Ecuador, and the economy was forecast to contract by 11.0 percent for the year.

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Background

The “Republic of the Equator” initially gained independence from Spain in 1830. President Lenín Moreno of the center-left Allianza Pais party was elected to a four-year term in 2017. Moreno upended his leftist predecessor’s socialist legacy by adopting a moderate economic and foreign policy agenda, implementing reforms to promote foreign trade and reduce public spending, but violent protests by leftist groups forced the government to retain costly fuel subsidies. The world’s largest banana exporter, Ecuador also remains a major transit country for narco-trafficking. Its dollarized economy is substantially dependent on petroleum, which accounts for more than half of export earnings and approximately 25 percent of public-sector revenues. Budget deficits have been funded by Chinese debt.

Rule of LawView Methodology

Property Rights 39.5 Create a Graph using this measurement

Judicial Effectiveness 24.7 Create a Graph using this measurement

Government Integrity 38.5 Create a Graph using this measurement

Corruption undermines the protection of property rights and enforcement of contracts. The independence of the judiciary has become stronger in recent years despite ongoing systemic weaknesses. In late 2019, a court upheld the conviction of a former vice president involved in the Odebrecht scandal. Corruption remains pervasive, but Ecuador’s score and ranking were nevertheless significantly improved in Transparency International’s 2019 Corruption Perceptions Index.

Government SizeView Methodology

The top individual income tax rate is 35 percent, and the top corporate tax rate is 25 percent. The overall tax burden equals 20.9 percent of total domestic income. Government spending has amounted to 37.2 percent of total output (GDP) over the past three years, and budget deficits have averaged 3.5 percent of GDP. Public debt is equivalent to 49.6 percent of GDP.

Regulatory EfficiencyView Methodology

Ecuador’s business freedom has declined to levels near those of repressed economies. Increased business start-up costs make entrepreneurship difficult. The National Wages Council and Ministry of Labor Relations set private-sector minimum compensation levels annually. To help reduce its debt-to-GDP ratio, the government is gradually lowering expensive fuel subsidies and reducing other untargeted subsidies.

Open MarketsView Methodology

Ecuador has six preferential trade agreements in force. The trade-weighted average tariff rate is 10.1 percent, and 281 nontariff measures are in effect. The overall investment climate remains uncertain. The underdeveloped and state-controlled financial sector limits access to credit. About 50 percent of adult Ecuadorians have access to an account with a formal banking institution.

Country's Score Over Time

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Regional Ranking

RANK COUNTRY OVERALL CHANGE
1Canada77.9-0.3
2Chile75.2-1.6
3United States74.8-1.8
4Uruguay69.30.2
5Jamaica690.5
6Colombia68.1-1.1
7Peru67.7-0.2
8Saint Lucia67.5-0.7
9Saint Vincent and the Grenadines66.3-0.5
10Panama66.2-1.0
11Mexico65.5-0.5
12Barbados653.6
13The Bahamas64.60.1
14Costa Rica64.2-1.6
15Guatemala640.0
16Paraguay62.6-0.4
17Dominican Republic62.11.2
18El Salvador61-0.6
19Honduras59.8-1.3
20Trinidad and Tobago590.7
21Belize57.50.1
22Guyana57.41.2
23Nicaragua56.3-0.9
24Brazil53.4-0.3
25Dominica53-7.8
26Argentina52.7-0.4
27Ecuador52.41.1
28Haiti50.8-1.5
29Suriname46.4-3.1
30Bolivia42.7-0.1
31Cuba28.11.2
32Venezuela24.7-0.5
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