Ecuador: An Overview

Introduction

During 2026, Ecuador continues to navigate an evolving political landscape shaped by security imperatives, fiscal consolidation, and the implementation of reforms advanced since late 2023. Following the May 2025 inauguration of the re-elected administration, the executive has kept public order and institutional strengthening at the centre of its agenda, sustaining co-operation with international partners on anti-crime initiatives. The 2024 security-focused referendum – authorising broader tools to combat organised crime, enhancing co-ordination among security forces and enabling deeper international co-operation – continues to frame legislative and judicial developments. Engagement with the United States on public safety and transnational crime remains active and has supported operational capabilities and training. In the National Assembly, the administration holds a working majority through its own bloc and allied legislators, advancing priority economic and security measures.

Main Legislative Developments Under the Current Government

The government has continued to advance its legislative programme, building on earlier steps in energy reliability, security policy and modernisation of regulatory frameworks. Key developments and proposals have concentrated on:

• national security;
• prevention of money laundering, including modernisation of monitoring systems and enhanced oversight of high-risk sectors and entities;
• energy regulation reforms to ensure larger private participation; and
• access to employment.

In a referendum held in November 2025, voters rejected the government’s proposals to convene a Constituent Assembly, lift the constitutional ban on foreign military bases, reduce the number of legislators and end public financing of political parties. The result preserved the 2008 Constitution and continuity of the existing legal framework – widely read as reducing near-term institutional uncertainty, even as it narrows the government’s room for structural constitutional change.

On fiscal policy, measures aligned with an IMF-supported programme remain in place to address the deficit and reinforce credibility, including:

• maintaining the VAT rate at 15%;
• continuing temporary contributions on extraordinary corporate profits;
• sustaining targeted levies on extraordinary profits in the financial sector; and
• preserving a reduced but still applicable tax on outbound cash remittances, coupled with specific exemptions.

A landmark fiscal measure in late 2025 was the elimination of the diesel subsidy, which had cost the State in excess of one billion dollars a year. The government proved its political capacity and (even with initial opposition) held the measure in place, cushioning the impact through targeted compensation for transport operators and small producers and, from December 2025, a price-band mechanism capping monthly fluctuations. The episode underscored the administration’s commitment to fiscal consolidation.

These steps have supported fiscal discipline, lowered financing risks, and helped maintain access to official and market funding.

Economic Outlook

Ecuador’s 2026 outlook is one of consolidating recovery. The economy grew by around 3.7% in 2025 and expanded a further 2.1% year-on-year in the first quarter of 2026, with multilateral institutions projecting full-year growth of roughly 2.5% – above the regional average. Growth has been led by domestic demand and non-oil exports, with agricultural products – shrimp, bananas, cacao and coffee – remaining the backbone despite global price and sanitary pressures. Mining has emerged as the third-largest export category, and in June 2026 the government narrowed the mining supervision-and-control fee to exclude exploration- and economic-evaluation-stage concessions – cutting its projected take by roughly four fifths – to revive exploration investment; flagship assets continue to advance through permitting, community engagement and construction. The IMF’s four-year Extended Fund Facility, expanded to roughly USD5 billion, underpins fiscal anchors and supports reforms to strengthen revenue administration and public financial management.

A defining development for investors has been the normalisation of sovereign risk. Country risk, which exceeded 2,000 basis points in 2023, fell to around 400 by mid-2026 – its lowest in over a decade – allowing Ecuador to return to the international capital markets in January 2026 for the first time since 2019, with a bond issuance paired with a liability-management buyback and a second, oversubscribed placement in May 2026. International reserves reached record highs and the current account stayed in surplus, reinforcing macroeconomic stability.

Inflation remains low and contained – consistent with dollarisation – supporting purchasing-power stability. Vulnerabilities persist to external shocks, including oil-price volatility and climate-related stress on hydroelectric generation. The severe 2024 drought and power rationing, which caused economic losses estimated near 1.4% of GDP, accelerated efforts to diversify generation, upgrade transmission, and crowd in private capital. The system remained tight through early 2026, with sporadic supply constraints, and large consumers are investing heavily to ensure their own generation; an Organic Law for the Strengthening of the Strategic Mining and Energy Sectors, in force since March 2026, broadens private participation in a sector historically reserved to the State. Cross-border purchases remain a supply buffer.

Public debt remains manageable but constraining, hovering in the mid-40s to low-50s per cent of GDP depending on methodology and valuation. The government has actively pursued liability management and sustainability-linked instruments, including conservation-finance structures that channel resources towards priority environmental areas such as the Amazon and marine reserves, with workstreams to expand these models under evaluation.

Trade and Foreign Investment

Trade policy remains a pillar of the growth strategy. The United States continues as a leading destination for non-oil exports, with efforts focused on market-access predictability and technical co-operation. The economic co-operation agreement with South Korea has continued to diversify destinations for higher-value non-oil goods. The trade agreement with China, now in force, has broadened opportunities for key exports – including shrimp, minerals, bananas, wood products and cocoa – while requiring domestic sectors to adjust to greater competition.

Foreign investment continues to target technology, healthcare, logistics, renewable energy, and financial services. The M&A pipeline remains active, supported by sharply lower sovereign risk, maturing corporate-governance practices, and slow but gradual simplification of regulatory procedures. Policy emphasis on legal certainty, contract enforceability and streamlined approvals has bolstered investor confidence, although execution risks and security costs remain salient considerations in due diligence.

Dispute Resolution

Ecuador remains a party to the New York Convention and maintains a modern arbitration framework. Constitutional recognition of alternative dispute resolution (ADR) supports party autonomy on choice of law and forum, subject to public policy limits. Investment protection agreements and domestic instruments that recognise international arbitration continue to provide additional layers of protection to foreign investors, reinforcing the jurisdiction’s reliability for cross-border contracting and project financing.

Recent and Upcoming Political Events

Following the November 2025 referendum, the government has reoriented its reform agenda towards the legislative route, focusing on consolidating security, anchoring fiscal sustainability, and executing pro-competitiveness measures. Other priorities include energy resilience, faster permitting, and steps to raise productivity and formal employment. With sovereign risk down and capital-market access restored, deal activity and capital deployment have picked up where regulatory clarity has improved. The emphasis on fiscal discipline, energy diversification and openness to investment is expected to support growth through 2026 and into 2027, albeit with ongoing sensitivity to external shocks and domestic security dynamics.

Ecuador’s near-term outlook is one of measured stability and pragmatic reform. Structural challenges – public debt constraints, exposure to commodity and climate shocks, and social inequality – remain, but a combination of fiscal anchors, institutional strengthening and targeted openness to investment provides a credible platform for gradual, sustainable growth.