Creating Fiscal Space for Poverty Reduction in Ecuador: A Fiscal Management and Public Expenditure Review

by World Bank Group

Ecuador¡¦s impressive fiscal performance of 2003 is encouraging, but fragile. Several structural bottlenecks could impede fiscal discipline and recovery, which is a pre-condition to develop a poverty reduction agenda. Tax earmarkings and exemptions and an expansive payroll and pensions bill have reduced to a minimum the available fiscal space for development needs. Reversing poverty trends is critical for the country¡¦s stability, and this can only be achieved with well-targeted, effective and efficient pro-poor programs. The status quo is not an option for poverty reduction. Preserving a sound fiscal position and deepening positive social outcomes is well within reach. Among the country¡¦s many strengths a prolonged oil windfall; the existence of and compliance with fiscal rules; decreasing arrears that should fully disappear in 2004, substantive progress on social outcomes despite decreasing budgets; and a series of on-going reforms on budget management. If reforms are to succeed, they have to be pro-poor. Ecuador¡¦s fiscal stress and poor budget management is deeply rooted in a governance system benefiting the elites, be it reflected on pro-rich subsidies, especially on basic infrastructure; off-budget operations that prevent transparency and foster corruption, or regressive transfers to subnational governments explained by party politics. The challenge for the Government is to provide more effective, efficient, sustainable and equitable assistance to the poor.

278 pages, Paperback

First published June 1, 2005

About the author

The World Bank Group (WBG) is a family of five international organizations that make leveraged loans to developing countries. It is the largest and most famous development bank in the world and is an observer at the United Nations Development Group. The bank is based in Washington, D.C. and provided around $61 billion in loans and assistance to "developing" and transition countries in the 2014 fiscal year. The bank's stated mission is to achieve the twin goals of ending extreme poverty and building shared prosperity. Its five organizations are the International Bank for Reconstruction and Development (IBRD), the International Development Association (IDA), the International Finance Corporation (IFC), the Multilateral Investment Guarantee Agency (MIGA) and the International Centre for Settlement of Investment Disputes (ICSID).

The World Bank's (the IBRD and IDA's) activities are focused on developing countries, in fields such as human development (e.g. education, health), agriculture and rural development (e.g. irrigation and rural services), environmental protection (e.g. pollution reduction, establishing and enforcing regulations), infrastructure (e.g. roads, urban regeneration, and electricity), large industrial construction projects, and governance (e.g. anti-corruption, legal institutions development). The IBRD and IDA provide loans at preferential rates to member countries, as well as grants to the poorest countries. Loans or grants for specific projects are often linked to wider policy changes in the sector or the country's economy as a whole. For example, a loan to improve coastal environmental management may be linked to development of new environmental institutions at national and local levels and the implementation of new regulations to limit pollution, or not, such as in the World Bank financed constructions of paper mills along the Rio Uruguay in 2006.