Ecuador is an upper-middle-income country currently facing a financial crisis. During the period 2007-2017, Ecuador experienced economic and social progress, partly thanks to the reduction of its external debt after a debt audit, but during the last few years, the situation has taken a sharp turn in a negative direction. The country was already experiencing a recession prior to the Covid-19 pandemic and, despite a mild post-pandemical bounce-back, the negative developments have continued. As a result, inequalities, poverty-levels and violence have sky-rocketed. Severe debt distress and harsh austerity programmes, linked to an IMF reform programme, are central elements of the recent social and economic developments in Ecuador.
Ecuador
The problem
Debt management
Debt management
In 2017, a new government adopted a set of austerity measures and in 2019 returned to the IMF for financial assistance, which was renewed after completion in 2022. When the Covid-19 pandemic hit, Ecuador was already in crisis, a situation that has worsened since then. Jake Johnston and Ivana Vasic-Lalovic from CEPR highlight: “In early 2020, Ecuador became one of the global hotspots of the outbreak, experiencing one of the highest per capita death rates in the world. That year, poverty and inequality reached their highest levels in a decade.” Public debt had increased from 30.9 to 68.9 per cent of GDP between 2015 and 2020. As a result, the country allocated 29 per cent of government revenues to meet creditor claims in 2019. This figure is equivalent to 2.3 times the public health budget of the country or 1.9 times its education budget.
The increases in food and energy prices, rising interest rates and the appreciation of the dollar are causing an intensification of a new debt crisis in Ecuador. In April 2020 Ecuador defaulted temporarily on payments of external bonds. This eventually led to a debt restructuring process, which was completed on 1 September 2020.
Despite the different debt restructuring efforts, according to World Bank data, Ecuador will be paying more than US$35 billion in external debt service between 2024 and 2030, an average of US$5 billion per year. Adding external and domestic debt payments, total debt service in Ecuador is at 17.7 per cent of public revenue and 18.53 per cent of public expenditure. Given the dire social situation and recent security conflicts in Ecuador, its high debt levels and increasing debt service will hamper the ability of the Ecuadorian government to provide basic public goods to its citizens. Therefore, the expected impact of the weight of debt service on public investment and social spending threatens the essence of the human rights of Ecuadorians.
Tax and illicit financial flows
Domestic resource mobilisation
For the fiscal year 2021, the tax revenue of Ecuador amounted to 19.4 per cent of GDP. This was slightly below the average for the Latin American and Caribbean Region, which amounted to 21.7 per cent of GDP in the same year.
In terms of the source of tax revenue, Ecuador relies heavily on consumption tax (value added taxes/goods and services tax), which made up 32 per cent of the tax revenue in 2021.
Illicit financial flows
In the report State of Tax Justice 2023, Tax Justice Network has estimated that cross-border tax abuse is costing Ecuador a total of US$140.5 million annually, corresponding to roughly 3 per cent of the country’s health expenditures. Of this loss, it is estimated that US$23.2 million stems from corporate tax abuse and the remaining US$117.3 million from offshore wealth.
Global tax governance
Within the UN system, one of the 25 members of a UN Expert Committee on International Cooperation in Tax Matters is appointed by Ecuador. In recent years the Ecuadorian expert has been leading a subcommittee on wealth tax.
In November 2023, when the Africa Group tabled a resolution in favour of negotiating a UN Framework Convention on Tax, Ecuador voted in favour of the resolution.
Taking action
Civil Society Organisations involved in the tax justice movement in Kenya are intervening at various levels:
Capacity development and mobilization
We inform and strengthen the capacity of vulnerable groups in the face of fiscal and financial measures taken during fiscal austerity, particularly of indigenous peoples and unions.
Advocacy at the global level and regional level
We engage with international actors and actively participate in regional forums to send strong messages about the importance of rights-based economy.
Advocacy at the national level
We hold national institutions such as the National Assembly, the tax authority, the Central Bank, the Executive and the national courts accountable for their actions
Awareness-raising
We lead the campaigns informing public about the obligations of the State and international financial institutions, especially in regards to protection of human rights
Research and analysis
We monitor and document the impact of foreign debt and unfair fiscal policy on the lives of ordinary people and develop proposals to counter balance the negative effects
The movement
Within this project, 1 partner works on advancing the objectives of the debt justice movement:
Center for Economic and Social Rights of Ecuador (CDES)
CDES is focused on advocating for ‘rights-based economy’ by improving tax justice, sustainable external debt management and combating illicit financial flows that undermine already limited and valuable fiscal resources much needed to invest in public services.
The partners in this project work within broader networks that bring together a wide range of CSO voices in the fights against unfair fiscal policies:
