Recent nationalisation continues to dog the Risk Premia, and with an increasingly hostile investment environment, we continue to maintain a Outlook Negative.
May 18, 2021
Americas - South
Western South America, bordering the Pacific Ocean at the Equator, between Colombia and Peru.
Under Ecuador’s current Participation Contract terms, the contractor is responsible for financing all operations. Production is shared between the State and the Contractor at a rate that is biddable item and usually varies with production levels. The contractor is liable to tax on its net profit. In 2006/2007 Ecuador introduced a Windfall Profits Tax, which currently takes 99% of revenue above a hurdle oil price (specified in each contract). The tax has been introduced as part of the government’s campaign to force participation contractors to replace their concessions with new service contracts.
The Government of Ecuador under President Moreno has taken a distinct path from the policies of his predecessor, focusing on reducing the size of the public sector and its influence on the economy and seeking instead private sector investment to drive economic growth. Facing serious budget deficits, the Moreno Administration is rationalizing the size of government, merging ministries, and planning a reduction in the number of state-owned enterprises. Other cost cutting measures include reducing fuel subsidies and mandatory reductions in the number of public employees. Nevertheless, Ecuador has significant a public sector, and Moreno has committed to continue government spending on social welfare programs, funded by 3 year, $10.2bn IMF loan, received in March 2019. Under this programme, the government undertakes to correct fiscal imbalances and to improve transparency and efficiency in public finance. While the March 2019 IMF program has been cancelled, the Moreno administration has opened negotiations with the IMF for a new agreement, expected to be reached in August 2020.
Source: ESRI, Heritage Index, HMG Foreign & Commonwealth Office, US Department of State, International Trade Administration, International Law Review, Ernst & Young, Wood Makenzie & OGA data.
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