Ecuador’s Finance Minister Fausto Herrera says government spending will be cut by 17% in 2016. “We are preparing a very austere budget for 2016 that reflects the economic realities,” he says.
The announcement was praised by several economists who said the move reflects a responsible approach to the drop in oil prices and a strong U.S. dollars. At the same time, it was opposed by advocates for more social services spending who said it could cause hardship to many Ecuadorians.
The Finance Ministry said that the 2016 budget is projected to be about $30 billion, compared to $36.3 billion for 2015. Herrera said that public works construction projects will feel the brunt of the cuts but said no projects that are currently underway or budgeted will be affected. “There will be hard times in some sectors of the construction industry,” said Herrera. “Our hope is that this will be temporary and will return to our full schedule of projects in 2017.”
In addition to construction, the government payroll and the oil industry will also see major cuts.
Ramiro Crespo, president of Analytica Securities, said that with the announcement of trimmed-down budget sends a positive signal to international lenders and investors. He also said that the government’s decision to strengthen ties to the International Monetary Fund (IMF) is a positive sign. “It means a lower level of risk for international lenders, which means lower borrowing costs to the government,” he said. “It will improve the country’s credibility in the financial markets.”
Mauricio Leon, professor at Universidad Central said that the cuts signal a very difficult year for the economy. “Since so much of Ecuadors’ recent growth and prosperity has been the result of government spending, this budget will mean deepening economic difficulties,” he said.
In his announcement, Herrera said that special care is being taken to protect the most vulnerable segments of the population. “Education, heatlh care and programs that aid the poor and disabled will only be minimally affected,” he said.