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Oil prices will increase Ecuador's fiscal pressures

Friday, January 2, 2015

Significance

The collapse of world oil prices has brought fiscal policy sharply into focus in Ecuador. At a time when the budget deficit is widening and the opposition is strengthening, the government faces the prospect of receiving significantly less income from the oil sector than anticipated. The fallout from the plunge of oil prices coincides with the beginning of the constitutional debate that could allow the re-election of President Rafael Correa in 2017.

Impacts

  • The government will intensify efforts to raise oil output in a bid to ease the impact of falling oil prices.
  • Conflicts between central and local government will probably increase as public resources become scarcer.
  • If oil prices remain low, the appeal of exiting dollarisation and establishing full control over monetary policy will rise.
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