Sustainability of the Ecuadorian Public Finance and Public Heritage, 1972-2015

Abstract

This article presents a review of the empirical literature on the sustainability of Ecuador's public finances, as well as a review of the country's experience with fiscal rules. The empirical evidence found in the literature, for different periods, shows that the country's public finances have been at the most weakly sustainable. Aiming at updating the existing empirical evidence, this article additionally offers an estimate indicator of the public net wealth for 1972-2015. The behavior of the indicator shows that Ecuador's public net wealth has eroded over the period assessed in this study, confirming the findings by other studies that the country's public finances have not been sustainable in the past. Ecuador's recent erosion in its net wealth seems to take place despite Constitutional mandates that the public finances must capitalize on the existing public wealth. The policy recommendations in this study ratify the recommendations made by other studies on countries that are dependent on nonrenewable resources. Namely, besides the commitment to fiscal rules, it is highlighted the need of oil stabilization funds that would allow the country to absorb external shocks.