Previous Quarterly Editions
Expropriation Risk: 63 64 64 65 ►Political Violence Risk:51 51 50 51 ►Terrorism Risk:59 59 64 68 ▲Exchange Transfer and Trade Sanction Risk: 45 55 55 54 ►Sovereign Default Risk:57 65 65 65 ►
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Protest intensity in 2022 and Q1 2023* 2022 Q1 2023Cost of living : Very High LowAll protest: Medium Low
Cost-of-living protest risk in 2023*Wage protest: Low Food/fuel policy protests: High
*Note: Protest intensity is calculated based on ACLED. Risk levels are calculated by WTW. Where data are missing no risk level will be displayed. For details of calculations, see the introductory essay.
Ecuador has not been as badly affected by inflation as other Latin American countries due to a combination of factors. First, Ecuador uses the U.S. dollar as its national currency, limiting the circulation of money in the economy and contains inflationary pressures. Second, the recent strength of the U.S. dollar has put downward pressure on inflation by reducing the price of imports. Third, relatively weak economic growth, lower public spending, and widespread labour informality have further limited inflation.
Having experienced a period of moderate deflation between 2018 and 2021, inflation started to increase in 2022 but has remained contained, rising to a peak of 2.9% in February 2023. Although headline inflation has remained low, food prices have increased at a faster rate, which has placed pressure on low-income consumers. One in four Ecuadorians live on less than USD88 a month – the national poverty line - so relatively small price increases can have a large impact on household budgets.
Transport prices have also contributed to inflation, largely because of lower state subsidies on fuel. Fuel subsidies are a politically contentious issue and reducing them provoked powerful social mobilizations in 2019 and 2022.
Efforts to lower fuel subsidies are part of the Government of President Guillermo Lasso’s drive to reduce public spending and comply with the terms of the USD6.5 billion loan the Moreno government (2017-21) agreed with the IMF. The Lasso government has improved the public finances, with the central government budget deficit falling from -5.5% of GDP in 2020 to -0.9% in 2022. However, this has come at heavy political cost and generated significant instability.
Violence and insecurity have increased alarmingly in recent years. A series of prison revolts have resulted in the deaths of hundreds of prisoners and a wave of violence has swept across the coastal region and penetrated the Andean and Amazonian regions. Migration has surged as violence and poverty have spread and COVID-19 pandemic restrictions have been relaxed. Every month, thousands of Ecuadorian migrants attempt to cross overland to the U.S. via Colombia and Panama; record numbers have attempted this dangerous crossing in the opening months of 2023.
Lasso has been punished at the polls for rising violence, poverty, and instability. His political reforms were rejected by voters in a national referendum in February and correístas – the left-wing political movement linked to the former president, Rafael Correa (2007-17) – made strong gains across the country in the local elections held at the same time as the referendum.
Shortly after the local elections, the National Assembly formalized efforts to remove Lasso from office for alleged corruption charges. The demand was sent to Constitutional Court for scrutiny at the end of March and, if approved, Lasso could be removed and replaced by his vice-president, Alfredo Borrero.
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While Lasso’s liberal economic agenda buoyed international investors and lowered the risk of expropriation, the opposition his government has faced has dampened initial optimism and raised serious concerns about the sustainability of his presidency.
Last June, the indigenous movement CONAIE (the Confederation of Indigenous Nationalities of Ecuador) spearheaded a national strike which lasted for eighteen days and caused significant economic disruption. The protests involved occupying public spaces and blocking roads, especially in the Andean region.
Since then, opposition to Lasso has remained intense and his failure to win support for his political reforms in February, the resurgence of correístas at the local elections, and ongoing efforts to remove him from office have rattled investors and increased expropriation risks.
The local elections in February were marked by violence, including the assassination of candidates in the coastal region and the intimidation of many others. Drug cartels and street gangs – which are vying for control of lucrative drug networks in the coastal region – have attempted to infiltrate local governments and security forces.
The corruption charges Lasso faces are also linked to drug trafficking, suggesting drug cartels might have penetrated the state at multiple levels. The political environment is extremely tense and volatile, and the possibility of Lasso being removed from office is increasing.
Faced with this threat, the President may opt to dissolve parliament and trigger new presidential and legislative elections. However, CONAIE has announced it will call another national mobilization if Lasso follows this path, which will create more political uncertainty.
Criminal networks connected to international drug trafficking remain very active in Ecuador and the insecurity has continued to deteriorate. Homicide and crime rates are rising, and drug cartels and street gangs are resorting to more extreme forms of violence, including the use of explosive devices and political assassinations.
The coastal region and the Colombia-Ecuador border are hotspots for organised crime and gang activity but there are signs that it is spreading throughout the country.
The investigation that has resulted in Lasso being charged with corruption and threatened with removal from office has also implicated high-ranking police officials, potentially questioning the capacity of the police forces to deal with the growing threat of international criminal networks.
Lasso is a staunch defender of dollarization and will support measures to retain the monetary policy, which has been in place since 2000. However, doubts about his presidency have raised concerns about long-term commitments to the policy. A future correísta government might, for example, consider abandoning dollarisation if economic conditions deteriorate significantly. However, any changes are unlikely in the short to medium-term.
The Lasso government concluded negotiations over a bilateral Ecuador-China trade deal in December 2022 and hopes to finalize the agreement in 2023 and sign further trade deals, including with South Korea.
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The Lasso government’s efforts to reduce the budget deficit and limit borrowing have been overshadowed by his failure to win support for his political reforms and ongoing efforts to remove him from office. Ecuador’s risk profile among international investors has worsened in the wake of the referendum and local elections, complicating the government’s efforts to secure external funding on international bond markets.
Lower oil prices have reduced government revenues while widespread flooding has increased borrowing needs. An earthquake in March also caused significant infrastructure damage in the coastal region. The government received the last instalment of the USD6.5 billion IMF loan in December and might turn to the organization for further credit lines in 2023.
