Introduction/Objective: if any single factor defines Ecuador’s economic trajectory in the first quarter of the 21st century, it is the persistent tension between a restrictive monetary regime—dollarization—and fiscal behavior operating under the expansive logic of a sovereign issuer. This article aims to analyze the sustainability of Ecuador’s public debt and identify the key vulnerability factors associated with the economy’s exposure to external shocks.

Methodology: an explanatory quantitative design was employed using a Vector Error Correction Model (VECM) based on quarterly data (2000–2024) obtained from the Central Bank of Ecuador and the Ministry of Economy. This methodological tool made it possible to filter out short-term noise and calculate long-term structural elasticities.

Results: the economic expansion prior to 2014 is revealed to have been debt-driven growth. As global liquidity receded, the economy was left exposed. The model demonstrates asymmetric pro-cyclicality, wherein expenditure elasticity exceeds revenue elasticity; this keeps debt hovering around the 40% of GDP threshold and renders effective automatic adjustments impossible without contracting real economic activity.

Conclusions: reliance on external borrowing to cover rigid expenditures is unsustainable under dollarization. Unless a macro-prudential institutional framework is established to ensure counter-cyclical savings during periods of expansion or boom, the Ecuadorian economy will remain exposed to recurring vulnerabilities.

---

Keywords:
Fiscal sustainability,
public debt,
macroeconomic vulnerability,
fiscal space,
global instability,
restrictive monetary regime,
dollarization,
fiscal behavior,
economic expansion,
indebtedness,
liquidity.

08_RSN_17(35)_89_Sostenibilidad

Abubakar, A. B., McCausland, W. D., & Theodossiou, I. (2025). Do debt relief and fiscal rules improve public debt sustainability? The experience of sub-Sahara African countries. Journal of Policy Modeling, 47, 166-186. https://doi.org/10.1016/j.jpolmod.2024.06.007

Afonso, A., & Farinha Miranda, C. (2026). Compliance with fiscal sustainability and the euro. Empirica, 53, 285-316. https://doi.org/10.1007/s10663-026-09674-6

Aizenman, J. (2011). Hoarding international reserves versus a Pigouvian tax-cum-subsidy scheme: Reflections on the deleveraging crisis of 2008-2009. Journal of Economic Dynamics and Control, 35(9), 1502-1513.

Aizenman, J., & Jinjarak, Y. (2023). Financial globalization and global imbalances: The role of macroprudential policies. Empirical Economics, 64(1), 1-27. https://doi.org/10.1007/s11079-023-09735-4

Aizenman, J., & Sun, Y. (2010). Globalization and the sustainability of large current account imbalances: Size matters. Journal of Macroeconomics, 32(1), 35-44. https://doi.org/10.1016/j.jmacro.2009.11.001

Azam, W. (2026). Fiscal sustainability and energy transition in advancing long-term sustainable development. Habitable Planet, 2(2), 325-339. https://doi.org/10.63335/j.hp.2026.0041

Banco Central del Ecuador (BCE). (2025). Boletines de Estadísticas Macroeconómicas. https://www.bce.fin.ec

Banco Mundial. (2021). Informe anual 2021: de la crisis a la recuperación verde, resiliente e inclusiva. Banco Mundial. https://documents.worldbank.org/en/publication/documents-reports/documentdetail/567261633068897551

Bellocchi, A., Lodi, C., Marin, G. et al. (2026). Floods, public budgets and fiscal resilience: Evidence from Italian municipalities. Environ Resource Econ., 89, 56. https://doi.org/10.1007/s10640-026-01106-0

Beqiraj, E., Fedeli, S., & Forte, F. (2018). Public debt sustainability: An empirical study on OECD countries. Journal of Macroeconomics, 58, 238-248. https://doi.org/10.1016/j.jmacro.2018.10.002

Blanchard, O. (2019). Public debt and low interest rates. American Economic Review, 109(4), 1197-1229. https://doi.org/10.1257/aer.109.4.1197

Brändle, T., & Elsener, M. (2024). Do fiscal rules matter? A survey of recent evidence. Swiss Journal of Economics and Statistics, 160(1). https://doi.org/10.1186/s41937-024-00128-z

Bruns, M., & Poghosyan, T. (2016). Leading indicators of fiscal distress: Evidence from the extreme bound analysis (IMF Working Paper No. WP/16/28). International Monetary Fund.

Buthelezi, E. M. (2026). Intergenerational burden of debt-financed fiscal expansion: An overlapping generations model with Markov-switching regimes evidence from South Africa. Economics of Governance. Advance online publication. https://doi.org/10.1007/s10101-026-00380-4

Castillo, P., Lama, R., & Medina, J. P. (2024). Escaping the financial dollarization trap: The role of foreign exchange intervention (IMF Working Paper No. 127). International Monetary Fund. https://doi.org/10.5089/9798400280795.001

Claessens, S., Dell’Ariccia, G., Igan, D., & Laeven, L. (2010). Lessons and policy implications from the global financial crisis (IMF Working Paper No. WP/10/44). International Monetary Fund.

Cloyne, J., Kurt, E., & Surico, P. (2022). Who gains from corporate tax cuts? Journal of Monetary Economics, 149, 103722. https://doi.org/10.1016/j.jmoneco.2022.103722

Connolly, M. B. (2025). Dollarization in Ecuador: 2000–2024. Annals of Operations Research, 346(1), 693-701. https://doi.org/10.1007/s10479-024-06365-y

Eichengreen, B. (2011). Exorbitant privilege: The rise and fall of the dollar and the future of the international monetary system. Oxford University Press.

Ekouala Makala, U. (2022). Public debt sustainability based on fiscal fatigue and fiscal space in CEMAC countries. International Studies of Economics, 17(4), 433-449. https://doi.org/10.1002/ise3.7

Engle, R. F., & Granger, C. W. J. (1987). Co-integration and error correction: Representation, estimation, and testing. Econometrica, 55(2), 251-276. https://doi.org/10.2307/1913236

Ferraz, R. (2026). Fiscal sustainability in the world economy: Evidence from panel and time-series analysis of 38 countries over half a century. Applied Economics, 1-15. https://doi.org/10.1080/00036846.2026.2695927

International Monetary Fund (IMF). (2020). Fiscal monitor: Policies for the recovery. International Monetary Fund.

International Monetary Fund (IMF). (2021). Review of the debt sustainability framework for market access countries (IMF Policy Paper). International Monetary Fund.

Londoño, S., Reza, E., León, L., & Morales, A. (2021). La sostenibilidad del endeudamiento público en Ecuador: una visión de mediano plazo. Podium, 40, 59-74. https://doi.org/10.31095/podium.2021.40.4

Marín-Rodríguez, N. J., González-Ruiz, J. D., & Botero, S. (2023). Assessing fiscal sustainability in the landscape of economics research. Economies, 11(12), 300. https://doi.org/10.3390/economies11120300

Nguyen, P. C. (2018). The effectiveness of fiscal policy: Contributions from institutions and external debts. Journal of Asian Business and Economic Studies, 25(1), 50-66. https://doi.org/10.1108/JABES-05-2018-0009

Obstfeld, M., & Rogoff, K. (2009). Global imbalances and the financial crisis: Products of common causes (CEPR Discussion Paper No. 7606). Centre for Economic Policy Research.

Ocampo, J. A. (2017). Resetting the international monetary (non)system. Oxford University Press.

Rodrik, D. (2018). Straight talk on trade: Ideas for a sane world economy. Princeton University Press.

Salamaliki, P. K., & Venetis, I. A. (2023). Fiscal space and policy response to financial crises: Market access and deficit concerns. Open Economies Review, 35, 323-361. https://doi.org/10.1007/s11079-023-09724-7

Sang, B., Zhu, H., Zhang, C., Yin, W., & Guo, L. (2024). Can changes in corporate income tax rate affect corporate innovation? Heliyon, 10, e38457. https://doi.org/10.1016/j.heliyon.2024.e38457

Singh, A., & Dubey, A. (2026). Fiscal shocks and subnational government finances: Evidence from Indian states. Econ. Gov., 27, 15. https://doi.org/10.1007/s10101-026-00350-w

Stiglitz, J. E. (2010). Freefall: America, free markets, and the sinking of the world economy. W. W. Norton & Company.

Tkačevs, O., & Staehr, K. (2026). The effects of macroeconomic and budget balance shocks on public debt trajectories in the euro area. Int. Econ. Econ. Policy., 23, 51. https://doi.org/10.1007/s10368-026-00751-6

Tutiven-Desintonio, C. G. (2025). Dollarization and the macroeconomic and fiscal performance of the dollarized countries of Latin America. In Central Banking, monetary policy and the political economy of dollarization (pp. 49-101). Edward Elgar Publishing. https://www.elgaronline.com/edcollbook/book/9781803925332/9781803925332.xml

Urdaneta, A. J. (2024). Política fiscal y el papel del Estado en la economía: evolución, desafíos y apoyo a las pymes. Editorial Digráfica, S. A.

Varghese, L., & Saxena, S. P. (2025). Assessing the global research landscape on fiscal sustainability (1976–2023): A Scopus-based bibliometric analysis. Asian Journal of Managerial Science, 14(2), 53-65. https://doi.org/10.70112/ajms-2025.14.2.4314

Vera, L., & Pérez, B. (2025). Dollarization and growth: An application of the synthetic control method to the case of Ecuador. World Journal of Applied Economics, 11(1), 17-37. https://www.researchgate.net/publication/392358251_Dollarization_and_Growth_An_Application_of_the_Synthetic_Control_Method_to_the_Case_of_Ecuador

Wu, Z., Zeng, N., & Song, J. (2022). Tax incentives and corporate technological innovation performance: An analysis from the perspective of R&D investment. European Economic Review, 147, 104157. https://doi.org/10.1016/j.euroecorev.2022.104157

Xu, C., & Chao, X. (2025). The role of tax incentives in the alleviation of corporate over-financialization: Evidence from China. International Review of Economics and Finance, 104, 104648. https://doi.org/10.1016/j.iref.2025.104648

Dimensions

PlumX