The impact of fiscal austerity on growth and the re-election outlook.
Following a long fiscal expansion, Ecuador is set to enter a period of austerity. The collapse of world oil prices and the deterioration of public finances have forced President Rafael Correa's government to propose a 15% reduction in spending next year. The cut will improve public finances and please international investors, but create political problems for the president and government as the country moves towards elections in 2017.
Lower levels of public spending will decrease domestic demand and place downward pressure on growth.
Oil revenues and savings from public investment in infrastructure will support public finances over the longer term.
These will include revenues from oil fields previously integrated into the Yasuni/ITT environmental programme.
Clashes between the central and local governments will increase as austerity deepens and pre-election political jostling intensifies.
