Over the last decade, Ecuadorexperienced inclusive growth fueled by a favorable externalenvironment that financed a vast expansion of the publicsector. The country is now facing severe external and fiscalchallenges due to the significant extended fall in oilprices and the appreciation of the U.S. dollar. Sincemid-2014, Ecuador has lost almost half of its merchandiseexport income due to the decline in oil prices. Oil revenuesaveraged 13.2 percent of GDP between 2011 and 2014 andone-third of total fiscal revenues. The fall in oil andother commodity prices on global markets has opened broadmacroeconomic imbalances and exposed Ecuador'spre-existing vulnerabilities. As a fully dollarized economywith limited savings from the boom years, Ecuador cannotsoften adjustment via a nominal depreciation or a drawdownof macroeconomic buffers. The strengthening of the U.S.dollar and the major currency depreciations in neighboringtrading partners also place pressures on externalcompetitiveness. Furthermore, access to foreign borrowinghas become more limited. Consequently, the burden of theadjustment falls on fiscal and income policies.
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