Ecuador: Fiscal Stabilization Funds and Prospects

Sep 2008
Amongst a favorable economic environment, Ecuador's exceptional oil revenues have bolstered fiscal accounts. Several legal changes have created or modified funds or accounts aimed at saving, earmarking, or using oil-related revenues. This paper discusses oil-related fiscal policies, stabilization funds, and options in Ecuador. It reviews existing schemes, describes fiscal trends and underlying vulnerabilities, and offers trends and prospects for the oil-related funds and fiscal accounts. Assessing the weaknesses of the fiscal stabilization framework, it offers suggestions for improving efficiency in the use of exceptional fiscal revenues. It calls for enforceable fiscal responsibility rules, an enhanced accountability for oil revenues and the budget process, market mechanisms to hedge against oil price volatility, and a strengthened planning and prioritization of public investment.