Impact of Oil Price Volatility on Fiscal Revenues and Public Expenditure in Ecuador (2018–2024)

Abstract

Context: The sharp volatility of oil prices between 2018 and 2024 posed a major challenge to Ecuador’s fiscal stability, generating variability in both revenue collection and public spending programming. This article empirically examines the impact of international oil quotations (WTI) and the local crude (Napo-Oriente) on fiscal oil revenues, as well as their influence on the distribution and
execution of public expenditure. Methodology: Monthly time series were employed to identify seasonal patterns and extreme shocks, complemented by annual price averages correlated with revenues reported by the Ministry of Finance. Pearson correlation coefficients and simple linear regressions were applied to assess the strength of association between prices and revenues. Results: The local average price Napo_avg explained oil revenue variations more accurately (r = 0.905, R2 = 0.82) than WTI (r = 0.883, R2 = 0.78). The share of oil revenues in the General State Budget ranged from 0.21% to 0.54%, showing a moderate correlation with Napo_avg (r ≈ 0.73). Sectoral analysis revealed positive associations with social welfare spending (r = 0.528) and health (r = 0.337),
while public investment (r = −0.291) and housing development (r = −0.700) displayed countercyclical behavior. Conclusions: The findings highlight Ecuador’s fiscal dependence on oil cycles and underscore the need to establish stabilization funds and fiscal rules to mitigate the effects of crude price volatility on long-term fiscal sustainability.