Stronger public finances, structural reforms are key to Ecuador's growth

• Pages: 84

Page 84

Despite a difficult political environment, Ecuador recorded a generally positive economic performance in 2005, the IMF said in its economic review. The strong growth in the oil sector that followed the completion of a pipeline in 2003 has tapered off, but high oil prices have helped underpin domestic demand.

Employment growth remained sluggish, however, and inflation picked up in the second half of 2005 in the context of significant increases in bank credit and public spending. In addition, while banking intermediation grew strongly, it is still well below precrisis (1997) levels, and the overwhelming majority of deposits are at short maturities.

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The IMF Executive Board expressed particular concern about the widening non-oil fiscal deficit. While welcoming the authorities' plan to strengthen the fiscal policy stance in 2006, Directors stressed the need for a solid institutional framework for promoting fiscal discipline, reduced dependence on oil revenue, greater budget flexibility, and higher-quality government spending. They also urged the authorities to follow through on reforming the tax system and emphasized the need to control civil service wage costs, reform the pension system, reduce highly distortional fuel subsidies, and strengthen the social safety net to help those most vulnerable to subsidy cuts.

Directors welcomed ongoing efforts to improve financial sector supervision...