Ecuador commits to IMF to reduce public spending by 3.5% of GDP

RIO DE JANEIRO, BRAZIL – The International Monetary Fund (IMF) made public this Thursday, October 7, the technical report on the economic situation of the country, known as Staff Report, and the renegotiated financial support agreement.

This is after the technical agreement reached with Ecuador in early September to deliver US$2.5 billion between 2021 and 2022. The document establishes a series of commitments that the government made as part of the financing.

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Among them is the commitment to stabilize public finances. The most significant effort for this will come from public spending, accounting for 3.5% of GDP, and only 1% of GDP will come from tax revenues.

REDUCTION OF PUBLIC SPENDING

The Ministry of Economy and Finance stated that the reduction in spending would come from the following items:

— 1.5% of GDP due to improvements in the public procurement process, through the revision of procedures, greater transparency, and the fight against corruption.

— 0.9% of GDP from lower pandemic-related expenditures, considering that during 2020 and 2021, resources have already been used for various support programs and the vaccination process.

— 0.9% of GDP in rationalizing current spending, taking care of essential services such as health, education, and support to the most vulnerable.

Revisions to capital expenditures (investment) and general expenses with international support. Reduction in spending associated with fuel subsidies and improvements in arrears management.

DEPENDENCE ON OIL

On the oil issue, the report notes that Ecuador needs to reduce the dependence of public accounts on oil revenues and mitigate climate risks. It is recognized that the country already has a legal framework that allows it to save extraordinary oil revenues due to the increase in its price as soon as it has a solid fiscal situation.

Regarding the national financial system, the IMF highlights its solidity due to its high liquidity, adequate capital, savings growth, and high levels of international reserves.

In addition, the report projects a higher growth of the national economy (average of 2.8% between 2022 and 2026) compared to the previous scenario.

However, it states that the economy’s improvement could be accelerated based on the promotion of structural reforms in labor, goods markets, financial markets (ensuring better access), and in the State’s corporate governance practices to make it more efficient and transparent.

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