## 1ecuea2021001

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### Executive summary — context, outlook, and program objectives
- Program: continuation of the Fund-supported Extended Fund Facility (EFF) of SDR 4,615 million (661 percent of quota, about $6.5 billion) approved September 30, 2020; upon completion of the Second and Third Reviews an additional SDR $568 million would be made available.
- Authorities’ objectives:
  - ensure an environmental-friendly growth with high quality jobs;
  - promote a transparent management of public resources;
  - ensure equity in the conduct of fiscally sustainable policies.
- Fiscal reorientation requested: narrower consolidation path to better support recovery; reduce size of the public sector more than originally envisaged; raise revenues with a smaller albeit progressive tax reform coupled with administrative measures.
- Program recalibration: support timid economic recovery; enhance structural agenda on social safety nets, public financial management (PFM), transparency in public resources, and anti-corruption.

### Recent economic developments and near-term outlook
- COVID-19 and vaccination:
  - Over 9 million people have received at least one dose as of September 5; close to 8 million (50 percent of the population) fully vaccinated.
- Output and activity:
  - GDP in 2020: contracted by 7.8 percent y/y.
  - GDP 2021:Q1: expanded by 0.7 percent q/q (5.6 percent y/y).
  - High-frequency indicators: wholesale and retail sales up by 30 percent (y/y) in June 2021.
- Inflation and labor:
  - CPI inflation averaged -0.3 for 2020; inflation 1 percent (y/y) in July 2021.
  - Share of adequate employment: 31.3 percent in June 2021 (pre-pandemic around 40 percent).
- External sector and reserves:
  - Current account: surplus of 2.5 percent of GDP in 2020.
  - End-2020 gross international reserves (GIR): $7.2 billion.
  - International reserves declined by $1.4 billion in 2021:H1 due to external public debt repayment and recovering imports.
- Financial sector:
  - Liquid assets to short-term liabilities about 30 percent at end-July 2021.
  - Reported NPLs: 2.5 percent at end-July 2021 (down from 4 percent in Sept. 2020).
  - Private deposits up 14.2 percent at end-July 2021 (y/y).
  - Private credit recovery: 6.4 percent at end-July 2021 (y/y).

### Fiscal outturns, 2020 and Jan–Apr 2021
- 2020 fiscal outturns:
  - Overall balance of PGE+CFDD: deficit about $7.1 billion, $554 million better than programmed.
  - NFPS over-performance driven by revenues (~$900 million) and spending restraint (~$350 million).
  - COVID-related spending: $410 million (below expected by $622 million).
  - NFPS deposit accumulation end-2020 higher by $1 billion.
  - Public debt ended 2020 at 61.2 percent of GDP (about 5 ppt lower than expected).
- Jan–Apr 2021 fiscal outturns (US$ millions unless stated):
  - PGE+CFDD: revenues 7,578 (prog. 6,999); expenditures 7,762 (prog. 7,239); overall balance -184 (prog. -241).
  - NFPS: revenues 11,501 (prog. 10,222); expenditures 10,659 (prog. 10,495); overall balance 842 (prog. -273).
  - Change in deposits at the BCE: -55 (prog. -47).
  - Revenues above expected at PGE+CFDD and NFPS by $580 million and about $1.3 billion, reflecting oil prices.
  - Higher CFDD expenses due to higher oil prices (about $550 million).
  - NFPS deposit accumulation slightly lower than expected due to IFI financing shortfalls ($534 million) and higher repayment of other accounts payable plus statistical discrepancy ($666 million).

### Program implementation and performance criteria
- QPCs and ITs:
  - All quantitative performance criteria (QPCs) for end-December 2020 met; all but one for end-April 2021 met; all indicative targets (ITs) met.
  - NFPS deposit accumulation end-April QPC missed by $77 million (deposits declined by $55 million while adjusted QPC required increase of at least $22 million). Authorities request waiver of nonobservance and will prepare a cash plan (prior action).
  - Continuous PCs on no new gross credit from central bank and on non-accumulation of external payment arrears met.
  - Central government balance end-December 2020 QPC met with margin $238 million; end-April 2021 QPC met (actual deficit $184 million vs. adjusted QPC of $305 billion after adjustments).
  - Social assistance coverage: 271,000 additional families brought into programs in 2020:H2 (46,000 above end-December 2020 IT); end-April 2021 IT exceeded by about 59,000 families.
  - NIR: change in NIR end-December 2020 negative $2,357 billion, above adjusted IT of about negative $4,041 billion; NIR IT met at end-April 2021 ($542 million vs. adjusted target negative $110 million).

### Policy discussions and medium-term fiscal strategy
- Recalibrated fiscal strategy:
  - Aim: strengthen fiscal sustainability with equity while supporting recovery in 2021.
  - Updated context: stronger 2020 fiscal performance, lower outturn debt (61 percent of GDP), higher oil prices (by $20/barrel in 2021 and around $10/barrel over medium term).
  - Consolidation path: proposed consolidation in the NOPBS of 4.5 ppts of GDP over 2019–2025 (improvement in NFPS overall balance 4.1 ppts). This is a 1 percentage point reduction in total consolidation vs. First Review.
- 2021 fiscal stance:
  - 2021 total expenditure planned: 35.5 percent of GDP (First Review: 34.3 percent; 2020 outturn 35.9 percent).
  - Nonoil primary deficit relaxes to 4.4 percent of GDP (from 3.8 percent).
  - NOPBS deficit to 5.8 percent (from 4.9 percent).
  - Central government negotiating payment to Perenco: $374 million indemnification (outside central government budget but adds to NFPS deficit in 2021).
  - Increase in oil prices expected net additional revenues of $1.6 billion in 2021 after costs, and $3.9 billion cumulatively over 2021–25 vs. First Review.
  - Additional oil windfall saved in Treasury deposits relative to First Review: $400 million (beyond the SDR allocation).
- One-off central government expenditures in 2021 (US$ millions):
  - Increase in social spending (bonos): 125
  - Vaccines and vaccination-related expenses: 293
  - Additional spending on health care workers: 25
  - Refurbishing schools and education expenses: 121
  - Expenses related to termination of employment: 135
  - Expenses for elections: 21
  - Overdue VAT payment to local governments: 300
  - Total: 1,020
- 2022 and medium-term strategy:
  - Expenditure-led consolidation supplemented by progressive tax reform.
  - Tax reform components: policy measures 0.7 percent of GDP; administrative measures 0.3 percent of GDP; transitory measures 0.5 percent of GDP.
  - Required cumulative primary spending reduction: 4.2 ppts of GDP over 2022–25 (assuming permanent tax yield 1 ppt of GDP).
  - Expenditure rationalization breakdown (percent of GDP, cumulative 2022-25 totals): Total Expenditure Rationalization 4.2; Identified policies and measures 4.1; Wage bill measures 0.7; Procurement efficiency 1.5; Fuel subsidy reform 0.9; Rollback of 2021 one-off spending 0.9; Measures to be identified 0.2.

### Structural reforms, transparency, and anti-corruption
- PFM reforms anchored by amended COPLAFIP:
  - Develop and implement fiscal risk strategy and fiscal risk statement annexed to the budget;
  - Introduce MTFF with budget documents (October 2021 and April 2022);
  - Issue regulation putting budget ceilings as part of expenditure growth rule;
  - Establish NFCC (proposed structural benchmark end-November 2021).
- Procurement and beneficiary transparency:
  - September 2020 SERCOP resolution: publish procurement contracts above $962,410 including available UBO info (prior action); remaining contracts to be published with UBO by end-November (proposed SB).
  - Proposed establishment of Subsistema Nacional de Control (SNC) and SERCOP procurement guidelines with benchmarks in Oct–Nov 2021.
- Arrears management and systems:
  - Staff estimate of central government (PGE) arrears: $967 million as of end-June 2021.
  - PGE arrears increased 48 percent since Dec-2020 under COPLAFIP definition; 69 percent of arrears with local governments and Social Security; 21 percent with private sector.
  - Planned real-time arrears tracking system (SINAFIP) delayed to at least 2023; interim measures and methodology publication proposed end-November 2021.
- Governance and AML/CFT:
  - IMF TA to UAFE and Superintendency of Banks to align AML/CFT with international standards.
  - Enactment of new AML/CFT legislation in line with FATF standards proposed structural benchmark end-March 2022.
  - Legislation to strengthen conflicts of interest and asset declaration regime proposed end-August 2022.

### Social assistance and targeting
- Coverage expansion:
  - 271,000 additional families into social assistance in 2020:H2; cumulative 443,619 by end-April 2021.
  - Authorities plan to achieve at least 80 percent coverage of families in bottom three deciles by no later than mid-April 2022 (revised structural benchmark).
  - Commitment to cover at least 70 percent of first three deciles by province and at least 65 percent of first decile nationwide by end-December 2022 (proposed new SB).
- Challenges to expansion: change in beneficiary survey operator, lack of vaccination of social workers, lack of census data in Social Registry; authorities to utilize pre-census work and recalibrated Social Registry algorithm.

### Financial sector, public banks, and crisis measures
- Central bank and COMYF:
  - Amendments to central bank legal framework (COMYF) enacted April 22, 2021, strengthening dollarization and BCE autonomy.
  - Transfer of about $2.4 billion in shares of three public financial institutions from BCE back to MEF; MEF to repay BCE in equal annual installments during 2027–35.
- Public banks and AQRs:
  - NPL ratios: BanEcuador about 16 percent; CFN about 19 percent.
  - Independent AQRs for all four public banks proposed (initiate Nov. 2021; finalize June 2022).
- Crisis measures:
  - Crisis measures for banks expire in December 2021; for cooperatives extended until December 2022.
  - Staff: unwinding crisis measures end-2021 envisaged, with targeted supervisory discretion for under-provisioned banks.
- Liquidity and contingency:
  - Liquidity fund about $2.7 billion as of June 2021; BIS swap facility increased to $840 million.
  - Private deposits increased; system appears resilient and liquid.

### External sector assessment and competitiveness
- External position:
  - ESA suggests external position in 2020 moderately weaker than implied by fundamentals but much improved from 2019.
  - REER estimated overvalued by about 9 percent in 2020 (improved from 30 percent overvaluation in 2019).
- Current account and trade:
  - Current account surplus 2.5 percent of GDP in 2020.
  - 2021: Current account expected to contract by 0.8 ppt to 1.7 percent of GDP as imports recover.
- Competitiveness constraints and reforms:
  - Key bottlenecks: policy uncertainty and high borrowing costs; labor market rigidities and high minimum wages relative to productivity.
  - Recommended reforms: sound macro anchors, strengthen digital infrastructure, foster capital market development, labor market reform, improve access to finance.
  - Estimated growth dividends: reforms could add 1.5-2 percentage points to baseline potential growth in 5–10 years.

### Debt sustainability, exceptional access, and stress tests
- Exceptional access and financing:
  - Financing gap estimated at $2.5 billion over 2021-22 after factoring in consolidation, SDR allocation, and IFI support.
  - Program judged to meet exceptional access criteria; capacity to repay adequate conditional on implementation and creditor support.
- DSA baseline:
  - Public debt (NFPS gross) end-2020: 61.2 percent of GDP; projected to decline to 49.6 percent of GDP by end-2026 under baseline.
  - Debt anchors in COPLAFIP: 57 percent of GDP by end-2025 and 40 percent of GDP from 2032 onwards.
- Key fiscal projections (selected, US$ millions or percent of GDP as in source):
  - Revenue: 2020: 28,505; 2021: 31,248; 2025: 40,428.
  - Expenditure: 2020: 35,830; 2021: 34,062; 2025: 38,730.
  - Primary balance (US$ millions): 2020: -4,456; 2021: -1,364; 2026: 3,930.
  - Public debt (gross consolidated NFPS, US$ millions): 2020: 62,629; 2021: 65,692; 2026: 63,577.
  - Selected fiscal ratios (% of GDP): Overall balance 2020: -7.8; 2021: -2.8; 2025: 1.4. Public Debt 2020: 66.4; 2021: 66.2; 2026: 49.6.
- Stress tests:
  - Baseline: debt-to-GDP ratio reaches 72 percent in 2023 before declining to 64.8 percent in 2026.
  - Contingent liability shock (increase expenditures about $6.5 billion in 2022): debt-to-GDP rises to 72.8 percent before reaching 65.1 percent in 2026.
  - Under shocks considered, critical threshold of 70 percent may be breached in some scenarios; gross financing threshold of 15 percent of GDP not breached.

### Program monitoring, conditionality, and PAs/SBs
- QPCs/ITs: Tables and TMU define adjustors (oil price, multilateral disbursements, China disbursements) and monitoring.
- Prior Actions (selected, status):
  - Publication of procurement contracts exceeding US$962,410 with ownership info — Prior action (implemented).
  - Consolidate COVID-19 audit work on dedicated webpage — Prior action (implemented).
  - Prepare and present central government financial plan for remainder of 2021 — Prior action (implemented).
- Structural Benchmarks (selected, due dates/status):
  - Enact anticorruption legislation — Due end-Dec. 2020 — Met.
  - Publish MTDS — Due end-Feb. 2021 — Met.
  - Enact amendments to Central Bank legal framework (COMYF) — Due end-Jan. 2021 — Implemented with delay (April 2021).
  - Independent audit of COVID-19 spending — Due end-Jun. 2021 — Not met (reset as PA).
  - New/Proposed SBs: SNC operational (Oct. 2021), procurement contracts with UBO by end-Nov. 2021, initiate AQRs and audits of Petro entities by end-Nov. 2021, publish arrears methodology by end-Nov. 2021, expand social registry and coverage by mid-Apr. 2022, enact AML/CFT legislation by end-Mar. 2022, strengthen asset declaration regime by end-Aug. 2022.

### Letter of Intent (Appendix I) — authorities’ commitments and requests
- Date: Quito, September 16, 2021. Signatories: Simón Cueva Armijos (Minister of Economy and Finance) and Guillermo Avellán Solines (General Manager, Central Bank of Ecuador).
- Requests to IMF:
  - Continue EFF arrangement and request completion of combined Second and Third Reviews and disbursement of SDR 568 million (about US$800 million).
  - Request waiver for missed NFPS deposits QPC and prior action on cash plan.
  - Request Board approval to retain for one year the exchange restriction arising from the ISD on balance-of-payments grounds; intention to phase it out gradually.
- Social targets and vaccination objectives:
  - Government initial vaccination target: fully vaccinate 9 million Ecuadorians (51 percent) within 100 days — to be met; continued objective: at least 75 percent coverage of entire population.
  - Social assistance: add cumulative 625,600 beneficiary families relative to July 2020 (target to be achieved by end of Q1, no later than April 2022).

### Staff appraisal and policy recommendations (selected)
- Continuation of EFF-supported program is welcomed; objectives consistent with 27-month arrangement.
- Short run: continue support in 2021 given timid recovery; larger-than-envisaged deficit justified to avoid stifling recovery.
- Medium term: roll back pandemic-related one-off spending starting next year; pursue lower and more gradual consolidation while building buffers.
- Implementation priorities:
  - Strengthen social safety nets and PFM to better target vulnerable groups.
  - Advance transparency, anti-corruption, and SOE audits to contain contingent liabilities.
  - Restore competitiveness via labor and product market reforms, access to finance, and policy predictability.
  - Build contingency plans and financial buffers to hedge oil price and financing risks.

*Source: EXECUTIVE SUMMARY and excerpts from 1ecuea2021001 — Ecuador, IMF staff report (August 2–September 7, 2021; report dated September 20, 2021).*

### EXECUTIVE SUMMARY

### EXECUTIVE SUMMARY

### Context
- The new administration has committed to continue with the Fund-supported Extended Fund Facility (EFF) of SDR 4,615 million (661 percent of quota, about $6.5 billion) approved by the IMF Executive Board on September 30, 2020.
- Upon the completion of the Second and Third Reviews under the EFF, an additional SDR $568 million would be made available.
- Authorities’ objectives under the program:
  - ensure an environmental-friendly growth with high quality jobs;
  - promote a transparent management of public resources;
  - ensure equity in the conduct of fiscally sustainable policies.
- The authorities request a reorientation of fiscal policies to meet program objectives with a somewhat narrower consolidation path that better supports the economic recovery while pursuing a different composition: reduce the size of the public sector more than originally envisaged and raise revenues with a smaller albeit progressive tax reform coupled with administrative measures.
- The program has been flexibly recalibrated to support the timid economic recovery and maximize authorities’ ownership; the structural agenda has been enhanced, including on strengthening social safety nets, public financial management, transparency in the management of public resources, and the anti-corruption agenda.

### Outlook and risks
- The historic downturn in 2020 triggered by the pandemic was milder than originally anticipated, but the recovery has been timid so far in 2021.
- Significant progress in vaccination and an improved global outlook should support the recovery.
- Risks to the outlook remain high, albeit balanced.
- Improving competitiveness and generating environmentally friendly growth with high quality jobs is a key medium term challenge for Ecuador; reducing dependence on oil would strengthen fiscal policy, leave space for other economic sectors to develop, and help prepare Ecuador for the global transition to reduce carbon emissions.

### Recent economic developments
- COVID-19 and vaccination:
  - Over 9 million people have received at least one dose of a COVID-19 vaccine as of September 5, with close to 8 million (50 percent of the population) fully vaccinated.
- Output and activity:
  - GDP in 2020 contracted by 7.8 percent y/y (milder than the 9.5 percent in the First Review).
  - GDP expanded in 2021:Q1 by 0.7 percent q/q (5.6 percent y/y), driven by private consumption and investment.
  - High frequency indicators: wholesale and retail sales up by 30 percent (y/y) in June 2021 (reflecting a base effect); business confidence and economic activity indices recovered somewhat after April.
- Inflation:
  - CPI inflation averaged -0.3 for 2020; inflation turned positive (1 percent, y/y) in July 2021.
- Labor market:
  - Share of adequate employment (full time workers earning at least the minimum wage) stood at 31.3 percent in June 2021, below pre-pandemic level of around 40 percent.
  - Recovery in formal employment has been timid; labor outcomes uneven across groups.
- External sector and reserves:
  - Current account posted a surplus of 2.5 percent of GDP in 2020 (vs. forecasted deficit of 0.6 percent).
  - End-2020 gross international reserves (GIR) were $7.2 billion.
  - Current account recorded a surplus of $0.7 billion in Q1:2021; exports increased by 30 percent in Q1:2021, imports increased by 30 percent (y/y).
  - International reserves declined by $1.4 billion in 2021:H1 on account of external public debt repayment and gradual recovery in imports; the December Fund disbursement was utilized.
- Financial sector:
  - Ratio of liquid assets to short-term liabilities about 30 percent at end-July 2021.
  - Reported non-performing loans (NPLs) dropped to 2.5 percent at end-July 2021, down from a peak of 4 percent in September 2020 (low levels reflect crisis measures that delay classifying loans as past due).
  - Crisis measures for banks expire in December 2021; for the cooperative sector extended until December 2022.
  - Private deposits up 14.2 percent at end-July 2021 (y/y).
  - Private credit recovery: 6.4 percent at end-July 2021 (y/y).

### Fiscal performance and recent outturns
- 2020 fiscal outturns:
  - Overall balance of the budgetary central government (PGE) and the domestic derivatives financing account (CFDD) recorded a deficit of about $7.1 billion, $554 million better than programmed.
  - NFPS level over-performance driven by better-than-expected revenues (~$900 million) and spending restraint (~$350 million).
  - COVID-related spending was $410 million, below expected by $622 million.
  - NFPS deposit accumulation at end-2020 higher by $1 billion.
  - Public debt ended 2020 at 61.2 percent of GDP, about 5 ppt lower than expected (largely owing to denominator effect).
- Jan–Apr 2021 fiscal outturns:
  - PGE+CFDD: revenues of 7,578 (prog. 6,999); expenditures of 7,762 (prog. 7,239); overall balance -184 (prog. -241).
  - NFPS: revenues of 11,501 (prog. 10,222); expenditures of 10,659 (prog. 10,495); overall balance 842 (prog. -273).
  - Change in deposits at the BCE: -55 (prog. -47).
  - Revenues well above expected at both PGE+CFDD and NFPS levels by $580 million and about $1.3 billion, respectively, reflecting a substantial increase in oil prices.
  - Higher CFDD expenses caused by higher oil prices (about $550 million).
  - NFPS deposit accumulation slightly lower than expected due to IFI financing shortfalls ($534 million) and higher-than-envisaged repayment of other accounts payable plus a statistical discrepancy ($666 million).

### Program implementation and performance criteria
- Overall implementation:
  - All quantitative performance criteria (QPCs) for end-December 2020, and all but one for end-April 2021, as well as all indicative targets (ITs) were met.
  - Progress on the structural reform agenda has been good, including amendments to the central bank legal framework, notwithstanding some delays relative to the timetable under the program.
- Specific QPC and IT outcomes:
  - NFPS deposit accumulation: end-April QPC missed by $77 million (deposits declined by $55 million while adjusted QPC required an increase of at least $22 million). Unadjusted QPC (drawdown of at most $47 million) was adjusted up for oil prices (by $119 million) and down for IFIs disbursements (by $50 million). Authorities request a waiver of nonobservance; they will prepare a cash plan for the rest of the year with analysis of arrears, fiscal risks, and deviations from earlier cash plans (prior action, MEFP ¶22).
  - Central government balance: end-December 2020 QPC met with a margin of $238 million. End-April 2021 QPC met—the actual deficit was $184 million compared to the adjusted QPC of $305 billion (QPC adjustments: down for oil prices $119 million; up for unplanned loans from China $183 million in budget support from CDB).
  - Continuous performance criteria on no new gross credit to government from the central bank and on non-accumulation of external payment arrears were met.
  - NFPS non-oil primary balance with fuel subsidies (NOPBS) and overall balance: end-December 2020 IT on the NOPBS met with a margin of $1,282 billion; end-April IT met with margin of $1,405 billion. IT on NFPS overall balance end-2020 overperformance margin $1,449 billion; end-April IT met with a margin of $843 million.
  - Net international reserves (NIR): change in NIR at end-December 2020 evaluated at program exchange rates was negative $2,357 billion, well-above the program IT adjusted for oil prices of about negative $4,041 billion (mainly on account of higher-than-expected NFPS deposits). NIR IT met at end-April 2021 ($542 million at end-April 2021 compared to the adjusted target of negative $110 million).
  - Social assistance coverage: 271,000 additional families were brought into social assistance programs in 2020:H2, 46,000 above the end-December 2020 IT. The end-April 2021 IT was exceeded by about 59,000 families.

### Policy discussions and priorities (high level)
- Strengthen fiscal sustainability with equity while supporting recovery in 2021 through a recalibrated consolidation path that emphasizes reducing the size of the public sector and a smaller progressive tax reform.
- Improve transparency and management of public resources and advance anti-corruption reforms.
- Strengthen social safety nets and public financial management.
- Restore competitiveness, reform the labor market, and boost growth potential through a comprehensive structural reform agenda informed by national dialogue and measures to reduce dependence on oil.

*Source: EXECUTIVE SUMMARY (1ecuea2021001) — Ecuador, IMF staff report (August 2–September 7, 2021; report dated September 20, 2021).*

### 1. Overall balance of the budgetary central government and CFDD (

### 1ecuea2021001 - 1. Overall balance of the budgetary central government and CFDD

### Program performance on quantitative targets (selected)
- Structural/continuous PCs and indicative targets (as reported):
  - 1. Overall balance of the budgetary central government and CFDD (floor)
    - End-Dec. 2020: -4,005
    - End-Apr. 2021: -3,893
    - Target: -3,655
    - Status: Met
    - Cumulative changes/details row: -241, -305, -184 — Met
  - 2. Accumulation of NFPS deposits at the central bank (floor)
    - End-Dec. 2020: 300
    - End-Apr. 2021: 487
    - Target: 1,293
    - Status: Met
    - Cumulative changes/details row: -47, 22, -55 — Not Met
  - 3. Non-accumulation of external payments arrears (continuous PC)
    - Values: 0, 0, 0
    - Status: Met
    - Cumulative changes/details row: 0, 0, 0 — Met
  - 4. (No new) Net credit to government from the central bank (continuous PC)
    - Values: 0, 0, 0
    - Status: Met
    - Cumulative changes/details row: 0, 0, 0 — Met
- Indicative targets:
  - 5. Non-oil primary balance of the NFPS (including fuel subsidies) (floor)
    - End-Dec. 2020: -5,467
    - End-Apr. 2021: -5,355
    - Target: -4,072
    - Status: Met
    - Cumulative row: -572, -636, -90 — Met
  - 6. Overall balance of the NFPS (floor)
    - End-Dec. 2020: -5,656
    - End-Apr. 2021: -5,544
    - Target: -4,334
    - Status: Met
    - Cumulative row: -273, -337, 842 — Met
  - 7. Change in the stock of NIR - program definition (floor)
    - End-Dec. 2020: -4,228
    - End-Apr. 2021: -4,041
    - Target: -2,357
    - Status: Met
    - Cumulative row: -579, -110, 542 — Met
  - 8. Coverage of the cash transfer programs for lower income families - number of families (floor)
    - End-Dec. 2020: 225,600
    - End-Apr. 2021: 225,600
    - Target: 271,668
    - Status: Met
    - Cumulative row: 384,600, 384,600, 443,619 — Met

(Note: Aggregates and adjustors as defined in the Technical Memorandum of Understanding (TMU). Cumulative change from July 1, 2020 for the end-December 2020 target, and from January 1, 2021 for the end-April 2021 target. Coverage of cash transfer programs: Cumulative change from July 1, 2020.)

### Progress on structural reform agenda (summary)
- General assessment: Progress described as "good, notwithstanding some delays relative to the timetable under the program."
- Specific items:
  - Central bank law (COMYF)
    - Benchmark: end-January (Not met; Implemented with delay).
    - Action: Authorities amended the central bank legal framework on April 22, 2021 within the Organic Monetary and Financial Code (COMYF).
    - Effect: Enacted amendments were comprehensive revisions that significantly strengthened the basis for dollarization and the autonomy of the central bank.
  - MTDS (end-February benchmark – Met)
    - Authorities produced and published a MTDS.
    - Observations: Strategy would be stronger with a clearer roadmap on transforming current debt portfolio into a future portfolio based on issuance choices; authorities building capacity to strengthen investor relations and will update the strategy.
  - Arrears clearance strategy (end-April benchmark – Not met)
    - Authorities prepared an arrears strategy in April that summarized how to clear and prevent arrears accumulation at the central government level.
    - Gaps: Did not provide an estimate of the arrears stock or cover the NFPS as stipulated.
    - Next steps: Authorities advancing on estimating arrears and strengthening the strategy with assistance from the Fund LTX; MEF to issue methodology and reporting template (proposed structural benchmark for end-November 2021).
  - GFS benchmarks (end-May benchmarks – one met, one not met; implemented with delay)
    - GFS compilation guide finalized and disseminated by end-May.
    - Revised historical revenues and expenditures data for NFPS sectors published in August.
  - Audit of COVID-related spending (end-June benchmark—Not met)
    - Office of the Comptroller General conducted close to 400 special examinations; 268 approved audit reports; 128 reports indicating potential criminal responsibility forwarded to the public prosecutor’s office.
    - Impediment: Criminal investigation and resignation of the Comptroller General impeded progress.
    - Actions: Approved audit reports published on a dedicated website; 128 audit reports not published due to confidentiality arising from ongoing investigations and legal proceedings.
    - Note: Legal timeline suggests a new Comptroller General could be named in six months.

### Outlook and risks
- Macroeconomic projections and assessment:
  - 2021:
    - Projected economic activity growth: 2.8 percent in 2021.
    - Revision: 0.7 ppts below the forecast at the time of the First Review.
    - Drivers: Weaker recovery relative to peers; downward revision reflects a stronger base from 2020 (lowering growth rate) while global demand expected to be stronger, oil prices higher (by about $23 per barrel in 2021 alone), and fiscal policy more supportive; net effect: baseline weaker.
    - Current account: Expected to contract by 0.8 ppt to 1.7 percent of GDP in 2021 as imports recover.
    - Upward revision of current account relative to First Review reflects higher oil exports and continued buoyancy in non-oil exports.
  - Medium-term:
    - Growth outlook slightly improved owing to less fiscal consolidation compared to the First Review, higher oil prices, and stronger recovery in trading partners.
    - Recovery relative to peers: Ecuador would have a relatively weak recovery among regional peers.
    - Contact-intensive sectors: about 43 percent of 2019 GDP assumed to permanently lose about 5 percent of output relative to pre-pandemic levels.
    - Potential scarring could be larger absent structural reforms in labor and product markets, access to finance, and governance.
    - Inflation: Would remain subdued relative to trading partners.
    - Current account: Expected to stabilize toward around 2 percent of GDP.
- Risks (broadly balanced):
  - Downside risks:
    - Subsequent waves of the pandemic and slowdown in vaccinations could prompt renewed closures, worsen labor markets, increase extreme poverty, and fuel social unrest.
    - Weak policy action by the new administration could erode confidence and complicate securing political/social support for expenditure rationalization under the revised fiscal strategy.
    - Abrupt tightening in global financing conditions or significant downgrade of oil price outlook could reduce fiscal and external buffers or stifle recovery if policies adjust abruptly.
  - Upside risks:
    - Resolution of election uncertainty and strong program implementation could lower sovereign risk and allow re-access to international capital markets.
    - Progress on policy agenda to restore fiscal sustainability, improve competitiveness, and liberalize/develop the private sector could boost investment and potential growth.
    - Stronger recovery in trading partners and large fiscal stimulus in the US could boost exports, oil prices, and remittances beyond current projections.

### Policy discussions — Fiscal strategy and reforms
- Overarching aim:
  - Reorient policies to improve fiscal sustainability with equity, manage public resources transparently, restore confidence in institutions, and generate environmentally friendly, job-rich, private sector-led growth.
- Recalibrated fiscal strategy (summary):
  - Rationale: Provide more support to the economy and build more buffers while preserving medium-term sustainability.
  - Context at program approval and First Review:
    - Oil prices assumed around $40/barrel through the medium term.
    - Debt projected to peak above 66 percent of GDP at end-2020.
    - Required: Large, front-loaded fiscal consolidation to attain COPLAFIP debt targets, reorient budget deficits to surpluses, and build Treasury liquidity buffers.
  - Updated context (as of this report):
    - Stronger-than-anticipated fiscal performance in 2020.
    - Lower outturn debt of 61 percent of GDP.
    - Higher oil prices (by $20/barrel in 2021 and around $10/barrel over the medium-term).
    - Implication: A smaller (but still ambitious) consolidation can achieve COPLAFIP debt target of 57 percent of GDP by 2025, attain a nonoil primary surplus over the medium term, and build liquidity buffers.
  - Consolidation path:
    - Proposed consolidation in the nonoil primary balance with subsidies (NOPBS) of 4.5 ppts of GDP over 2019-2025.
    - Corresponds to improvement in the NFPS overall balance (OB) of 4.1 ppts of GDP.
    - This represents a 1 percentage point reduction in total consolidation over the medium term relative to the First Review.
- 2021 fiscal stance and figures:
  - 2021 fiscal targets envisage higher expenditures and a larger nonoil primary deficit relative to the First Review to accommodate pandemic-related spending while saving more of the oil windfall.
  - Notable figures and items:
    - Central government negotiating payment to Perenco: $374 million indemnification (outside central government budget but adds to NFPS deficit in 2021).
    - Increase in oil prices expected net additional revenues of $1.6 billion in 2021 after costs, and $3.9 billion cumulatively over 2021–25 compared to the First Review.
    - 2021 total expenditure planned: 35.5 percent of GDP (higher than 34.3 percent in First Review; lower than 2020 outturn of 35.9 percent).
    - Under this plan, nonoil primary deficit relaxes to 4.4 percent of GDP (from 3.8 percent last year) and NOPBS deficit to 5.8 percent (from 4.9 percent last year).
    - Additional oil windfall saved in Treasury deposits relative to First Review: $400 million (beyond the SDR allocation).
  - One-off central government expenditures in 2021 (in US$ millions):
    - Increase in social spending (bonos): 125
    - Vaccines and vaccination-related expenses: 293
    - Additional spending on health care workers: 25
    - Refurbishing schools and education expenses: 121
    - Expenses related to termination of employment: 135
    - Expenses for elections: 21
    - Overdue VAT payment to local governments: 300
    - Total: 1,020
- 2022 and medium-term strategy:
  - Expenditure-led consolidation path supplemented by progressive tax reform.
  - Tax reform components:
    - Policy measures (0.7 percent of GDP): changes to personal income tax deductions, change deductions application to a tax credit with quota, narrow income brackets for higher tax brackets while leaving marginal rates unchanged; corporate income tax measures to eliminate credits and deductions.
    - Administrative measures (0.3 percent of GDP): improvements in collection via Large Contributors Unit, enhanced customs tariff collection, improved VAT compliance.
    - Transitory measures (0.5 percent of GDP): special contribution from corporations with net worth over $1 million whose 2020 sales exceeded 2019; special contribution of high-net-worth individuals with rates progressively increasing from 0.5 percent to 1.5 percent; disclosure of foreign investments/assets previously not reported, allowing a one-time tax.
  - Expenditure prioritization to achieve medium-term targets:
    - Required cumulative primary spending reduction: 4.2 ppts of GDP over 2022–25 (given expected permanent yield from tax bill of 1 ppt of GDP).
    - Diversified approach to savings:
      - Roll back one-off 2021 spending: 0.9 ppt of GDP.
      - Procurement efficiency/guidelines and capital investment efficiency: 1.5 ppt.
      - Spending rationalization through multi-year and budget ceilings: 0.9 ppt.
      - Fuel subsidy reform: 0.9 ppt.
    - Expenditure rationalization table (In percent of GDP) — cumulative and annual:
      - Total Expenditure Rationalization 2022-25: 2.3, 1.0, 0.6, 0.4 — Total 4.2
      - Identified policies and measures: 2.6, 0.8, 0.4, 0.2 — Total 4.1
      - Wage bill measures: 0.2, 0.3, 0.1, 0.1 — Total 0.7
      - Procurement efficiency measures: 0.6, 0.5, 0.3, 0.1 — Total 1.5
      - Implementing fuel subsidy reform: 0.9, 0.0, 0.0, 0.0 — Total 0.9
      - Rollback of 2021 one off spending: 0.9 (assumed in 2022)
      - Measures to be identified: -0.4, 0.2, 0.2, 0.1 — Total 0.2
  - Wage bill:
    - Plan: slower nominal growth in wage bill than GDP growth.
    - Target: reduce total wage bill from 9.1 percent of GDP to 8.2 percent by 2025.
    - Means: roll back one-off crisis measures, allow wages to grow with inflation, partially replace retiring staff and expiring fixed-term contracts.
  - Procurement:
    - Target reductions: goods and services from 4 percent of GDP in 2021 to 3 percent by 2025; capital expenditure from 7.3 percent in 2021 to 6.1 percent in 2025.
    - Measures: bulk/standardized purchases, competitive bidding, process simplification, suppliers’ pre-qualification, better project management, catalog purchases.
    - Estimated cumulative savings from these measures: 1.5 percent of GDP over 2022–25.
    - Institutional arrangements: Establish Subsistema Nacional de Control (SNC) comprising MEF, SERCOP, UAFE, tax administration, Office of the Comptroller, State Attorney’s Office, and financial regulators (proposed structural benchmark for October 2021).
    - SERCOP to issue and enforce procurement guidelines (proposed structural benchmark for November 2021) for central government and social security administration by end of year; for local governments and SOEs by first quarter 2022.
  - Capital expenditure:
    - Plan to roll back one-off 2021 spending and strategically select growth-enhancing projects.
    - Authorities plan a Public Investment Management Assessment (PIMA) in 2022:Q1 (IMF technical support).
  - SDR allocation:
    - New SDRs equivalent for Ecuador: $940 million.
    - Authorities reflected SDRs on the central government balance sheet.
    - MOU between MEF and BCE enables BCE to conduct operation as government fiscal agent; MEF responsible for interest and exchange rate risks.
    - Operation reflected in net international reserves and central government deposits at the BCE; program targets updated to include allocation.
  - Contingency planning:
    - Authorities developed contingent policies to hedge against oil price shocks, contingent liabilities, and financial shortfalls.
    - Low oil price assumptions and a fiscal risk report included in 2022 and medium-term budgets as per COPLAFIP.
    - Contingent fiscal measures identified with spending adjustment as first port of call; if transitory tax measures yield less than planned, additional revenue measures to be implemented in 2022.

*IMF staff report excerpts as presented in the source content.*

### 19.      While coverage of social assistance programs had been expanding ahead of schedule,

### 19.      While coverage of social assistance programs had been expanding ahead of schedule, progress is now slowing.

### Social assistance coverage: status and targets
- Authorities exceeded past targets towards the year-end goal of covering at least 80 percent of the low-income families (lowest 3 deciles of the income distribution).
- Progress plateaued in May for reasons including:
  - change in the operator to survey poor families;
  - lack of vaccination of social workers;
  - lack of census data in the Social Registry to identify vulnerable families (MEFP ¶9).
- Authorities plan to utilize pre-census work and aim to achieve the 80 percent target by no later than mid-April 2022 (proposed revision to structural benchmark).
- Geographic and income-group coverage challenges:
  - Recent speedy increase concentrated in the second and third income deciles with uneven geographical coverage.
  - Authorities commit to cover at least 70 percent of the first three income deciles in each province and at least 65 percent of the first income decile nationwide by end-December 2022 (proposed new structural benchmark, MEFP ¶10).
- Vulnerability overlap: economic, climate, and social challenges increase urgency to cover bottom-income groups across provinces (SIP #7).

### Strengthening public financial management (PFM)
- PFM reforms anchored by amended COPLAFIP include:
  - development and implementation of a fiscal risk strategy and a fiscal risk statement annexed to the budget (including PPP risks);
  - introduction of a medium-term fiscal framework (MTFF) to be presented with the budget documents in October 2021 and in April 2022 to guide a top-down budget process;
  - issuance of a regulation putting budget ceilings at institutional, group and sub-sector levels as part of the expenditure growth rule under COPLAFIP;
  - enhanced intra-NFPS coordination and establishment of a National Fiscal Coordination Committee (NFCC) (proposed structural benchmark end-November 2021).
- Planned complementary reviews and assessments:
  - public expenditure review to identify options for expenditure-led consolidation (MEFP ¶18);
  - Fiscal Transparency Evaluation (FTE) to inform next transparency reforms;
  - Public Investment Management Assessment (PIMA) to prioritize spending on public investment and improve efficiency.

### Arrears: measurement, estimates, and system reforms
- Current financial information system (e-SIGEF) limitations:
  - does not include due date of payment obligations, precluding direct arrears data collection.
  - data reporting from other NFPS institutions is irregular (Box 1).
- Staff estimate of central government (PGE) arrears: $967 million as of end-June 2021, mostly to other public institutions.
- Arrears composition and changes:
  - Using COPLAFIP definition (approximate accrual date + 90 days), PGE arrears increased 48 percent since December 2020.
  - As of June 2021: 69 percent of arrears were with local governments (GADs) and Social Security; 21 percent were with the private sector.
- Table excerpts (preserve source figures):
  - Estimated PGE Arrears (in US$ million):
    - Dec-2020: Private Sector 348; Total 655
    - Jun-2021: Private Sector 201; Total 967
  - PGE Arrears by Creditor (in US$ million, as of June 2021):
    - GAD: From current 24; From previous years 174; Total 199 (21%)
    - Social Security: From current 375; From previous years 96; Total 471 (49%)
    - Devel. Bank of ECU (BEDE): From previous years 56; Total 56 (6%)
    - Private Sector: From current 36; From previous years 165; Total 201 (21%)
    - Others: From current 3; From previous years 37; Total 40 (4%)
    - Total: From current 438; From previous years 529; Total 967
- GAD accounts payable dynamics and estimates:
  - Table 3. Accounts Payable in the GADs (in US$ million):
    - Dec-20: From previous years 374; From 2021 360
    - Jan-21: From previous years 660; From 2021 75
    - Feb-21: From previous years 615; From 2021 117
    - Mar-21: From previous years 567; From 2021 129
    - Abr-21: From previous years 547; From 2021 169
    - May-21: From previous years 508; From 2021 181
  - Using a 90-day arrears assumption, arrears estimated at $622 million in April 2021 and $550 million in May 2021.
- Systems and timelines:
  - Planned real-time arrears tracking system (SINAFIP) delayed to at least 2023 due to technical issues.
  - Interim measures: publish templates for reporting arrears, develop methodology to estimate arrears stock (proposed structural benchmark end-November 2021), use short-term securities for temporary liquidity gaps, keep Financial Plan up to date, and put partial tracking systems in place at start of 2022.

### Pension system
- Diagnostic by MEF and the World Bank: system is overly generous in payouts compared to contributions.
- Pressures: persistently weak formal employment due to the pandemic and central government arrears.
- Reform work: authorities, with World Bank support, are working on reforms to adjust key parameters such as retirement age and payout rate to prevent large medium-term imbalances without creating additional fiscal needs (MEFP ¶18).

### Governance, transparency, and anti-corruption measures
- Public procurement and UBO transparency:
  - September 2020 resolution allows SERCOP to request and publish ultimate beneficial ownership (UBO) information in public procurement contracts.
  - All contracts above $962,410 awarded since September 2020 will be published including available UBO information (prior action); remaining contracts to be published with UBO information by end-November (proposed structural benchmark).
  - Full compliance with UBO requirement expected for all new contracts after November when procurement application procedures are revised.
- Tax expenditure governance:
  - Independent audit of the 100 largest public procurement contracts awarded over 2020-21 to assess tax expenditures (new structural benchmark end-September 2022).
- Debt transparency:
  - Regular publication of statistical public debt information bulletin and sovereign debt and crude oil pre-sale contracts as legally permissible.
  - Produced debt holder profile information in line with Debt Limits Policy (Annex I); will seek additional improvements and technical assistance as needed.
- AML/CFT and anti-corruption:
  - IMF TA to UAFE and Superintendency of Banks to align AML/CFT legislation with international standards (GAFILAT/FATF commitments).
  - Assistance focuses on legal drafting and strengthening supervisory capacity via a risk-based approach (RBA).
  - Enactment of new AML/CFT legislation in line with FATF standards is a proposed structural benchmark for end-March 2022 ahead of the GAFILAT assessment in 2022.
  - Work on legislation to strengthen conflict of interest and asset declaration regime delayed; proposed completion by end-August 2022 with Fund TA (structural benchmark end-August 2022).

### Central bank, public banks, and financial stability measures
- Central bank law implementation:
  - Transfer of about $2.4 billion in shares of three public financial institutions from BCE back to MEF, with MEF committing to repay BCE in equal annual installments during 2027–35 (MEFP ¶23).
  - Decree initiated to remove legacy assets from the BCE balance sheet.
  - Nominations for Financial Policy Board and BCE Board sent to National Assembly in August.
  - Ministry and BCE collaborating on long-term reserve projections to meet four reserve balances legislated in COMYF.
- Public banks and asset quality:
  - NPL ratios: BanEcuador about 16 percent; Corporacion Financiera Nacional (CFN) about 19 percent.
  - Authorities will conduct independent third-party asset quality reviews (AQRs) for all four public banks (proposed structural benchmarks for November 2021 to initiate reviews, and for June 2022 to finalize them) to ascertain provisioning and/or capitalization needs (MEFP ¶33).
  - Authorities encouraged to identify governance issues, consider revising business models, and strengthen corporate governance.
- Lending rate caps and supervision:
  - BCE proposal to revise interest rate caps methodology to bands reflecting market conditions, expected to be approved by the Financial Policy and Regulation Board by end of the year (MEFP ¶35).
  - Staff stress that widening lending to new borrowers must be coupled with higher provisioning requirements and enhanced supervision.
- Crisis measures unwinding:
  - Crisis measures (loan restructurings, reduced liquidity fund contributions, extended NPL classification, reduced provisioning) sheltered institutions and borrowers.
  - With the economic recovery underway, system appears ready for crisis measures to expire at the end of this year as planned, subject to supervisory discretion for under-provisioned banks with conditional time extensions.
- Cooperatives supervision:
  - Crisis measures for cooperatives extended to December 2022.
  - Supervisory authorities plan to examine regulatory arbitrage and expand regulation for larger cooperatives; a proposal to close the regulatory gap vis-à-vis banks on NPL classification and provisioning is planned by end-2022 (MEFP ¶30).

*Source: 1ecuea2021001 - 19. While coverage of social assistance programs had been expanding ahead of schedule,*

### 34.      The External Sector Assessment (ESA) suggests that the external position in 2020 was

### 1ecuea2021001 - 34.      The External Sector Assessment (ESA) suggests that the external position in 2020 was

### External position and competitiveness
- The External Sector Assessment (ESA) suggests that the external position in 2020 was moderately weaker than implied by fundamentals, although much improved from the 2019 assessment (Annex 2).
- The REER is estimated to be overvalued by about 9 percent, albeit significantly improved compared with the 30 percent overvaluation estimated in the 2019 ESA.
- The improvement reflects the strengthening of the current account in 2020 and a depreciation in the REER (by 3.8 percent).

### Restoring competitiveness — findings and policy directions
- Key longstanding bottlenecks: policy uncertainty and high borrowing costs are recurrently listed among the main impediments to growth in Ecuador.
- Recommended macro policy anchors and expected effects:
  - Sound macroeconomic management with clearly established policy anchors would improve policy predictability, further reduce Ecuador’s sovereign risk, and lower local private borrowing costs (SIP #3).
  - These pull factors are expected to stimulate domestic investment and attract FDI.
- Supported measures:
  - Strengthening the country’s digital infrastructure.
  - Fostering capital market development (MEFP ¶36).

### State-owned enterprises (SOEs) governance and related actions
- Aligning governance and operations of SOEs to private company standards will improve efficiency and limit contingent liabilities.
- Institutional actions and requirements:
  - National Assembly is overhauling the SOE law to promote corporate governance practices and strengthen transparency in SOE operations.
  - Seven SOEs are in the process of liquidation.
  - Critical need to reconcile the data of PetroAmazonas and PetroEcuador for the merged entity (Petroecuador) in line with GFS improvements.
- Audit and transparency benchmarks (new structural benchmarks):
  - Conduct independent audits of the individual 2019 and 2020 financial statements of PetroEcuador and PetroAmozonas — begin the audits by end-Nov. 2021 and complete the audits by end-April 2022.
  - Audit the 2020 financial statement of the merged entity — new structural benchmark by end-October 2022.
- Private sector participation and PPPs:
  - Recent executive decree aims to increase private sector participation in extractive sectors.
  - PPP Committee developing guidelines with help from the IDB and US Treasury as follow up to the PPP decree of November 2020.
  - MEF should assess fiscal risks from PPPs on an ongoing basis as part of enhanced fiscal risk monitoring (MEFP ¶22, 42).
  - Greater transparency in foreign investment contracts is essential.

### Labor market reforms and social policies
- COVID-19 heightened the need to reduce labor market rigidities: high separation costs and high minimum wages affect competitiveness and equity.
- Recommended measures:
  - Implement the newly established formula-based minimum wage setting mechanism to avoid widening the wage-productivity gap (Annex II).
  - Labor market reform to promote flexible work arrangements and reduce rigidities in part-time employment to help lower informal employment over time.
  - Expand quality education for all to level the playing field among labor market participants (SIP #2).

### Growth dividends from structural reforms — staff estimates
- Priority reform areas:
  - Improve labor market flexibility and link wage growth to productivity.
  - Increase access to finance, including reducing domestic lending rates.
  - Enhance business climate by streamlining regulations and licenses.
  - Improve governance by raising transparency and accountability of public spending.
  - Liberalize external trade and external finance, better integrate into global value chains, and gradually eliminate the tax on transfers abroad (ISD).
- Estimated impact:
  - These reforms could add 1.5-2 percentage points to baseline potential growth in the 5 to 10-year horizon from implementation, through higher capital accumulation and TFP growth (SIP #1).

### Climate, natural disaster resilience, and oil dependence
- Rationale:
  - Reducing dependence on oil and ensuring resilience to natural disasters is a double climate and macro imperative for Ecuador.
  - Medium- to long-term risks: potential decline in oil prices as global demand shifts to cleaner sources — a permanent hit to fiscal revenues.
- Institutional and financing needs:
  - Ecuador has a relatively adequate institutional setup for climate action that needs full implementation with development partner support (SIP #5).
  - Additional data (e.g., costing of adaptation and mitigation plans) and multilateral considerations are critical (SIP #6).
- Saving oil windfalls:
  - Savings from oil windfall, governed by a sound fiscal framework, would reduce fiscal procyclicality, build buffers, fund environmental reforms, and improve inter-generational equity.
  - Ecuador will likely need substantial resources to finance climate and natural disaster mitigation policies (SIP #5, 7).
  - Scale-up of natural resource governance framework is essential to ringfence savings and support investment capacities.
  - Capacity to appraise, select, and implement strategic public investment projects must be established.

### Authorities’ stance on climate and oil-related policy
- Authorities affirm commitment to advance the climate agenda and reduce oil dependence.
- Noted elements:
  - Carry-forward arrangements with oil companies and import of fuel derivatives act as natural hedges against oil price procyclicality.
  - Regional variation in climate vulnerability; international financing could support adaptation.
  - Presidential decree plan to establish a small fund to tackle child malnutrition funded by oil revenues.
  - COPLAFIP requires setting up a sovereign wealth fund (SWF) for oil once debt reached the long-term target of 40 percent of GDP; authorities expressed interest in establishing such a fund ahead of schedule if possible.

### Program issues — monitoring, conditionality, and financing
- Program monitoring and fiscal quantitative conditionality:
  - Delay in concluding the Second Review requires revising the disbursement schedule for 2021.
  - Staff propose moving the end-August test date and set QPCs for end-September 2021, while maintaining the end-December 2021 test date; set fiscal balance QPC targets on PGE+CFDD for both test dates.
  - Test dates and phasing for 2022 remain unchanged; QPCs set on the NFPS balance on a 4-monthly cycle.
- Waiver request:
  - Authorities request a waiver of nonobservance from the Executive Board for the missed NFPS deposits QPC (missed April QPC); prior action on a cash plan prepared with Fund support will help.
- Financing assurances:
  - Staff obtained assurances from all creditors; program fully financed with firm commitments for next 12 months and good prospects for remainder.
  - Contribution of other multilaterals important for burden sharing.
  - Financing post program partly predicated on reasonable market access assumptions.
  - Authorities consider asset monetization and contingency measures; BCE increased contingency liquidity line with the BIS (MEFP ¶34).
- Exceptional access / capacity to repay:
  - Staff judge exceptional access criteria continue to be met (Box 3).
  - Ecuador’s capacity to repay Fund disbursements remains adequate and has improved since the First Review due to improvements in global oil price outlook and fiscal outturns.
  - Capacity to repay remains contingent on steadfast program implementation and creditor support; risks include sharp oil price deterioration or large contingent liabilities (¶¶15-17).
- Safeguards and statistics:
  - Fiscal safeguards review in February 2021; authorities plan a risk-based approach to audits, internal working group for COPLAFIP reforms, and transition to SINAFIP.
  - COMYF enacted to pave way for BCE governance reforms (¶29).
  - BCE implementing safeguards recommendations, adopting IFRS, making Audit Committee operational, and intends to publish audit opinion starting with 2021 report (MEFP ¶26).
  - Ecuador to align GFS to international standards with STA support; oil company financial data and MEF reporting system critical.
  - Local government fiscal data transmission lag currently 90 days — needs to be reduced to 60 days per COPLAFIP regulation.
  - Mission will follow up with BCE on GDP rebasing project.
- ISD (tax on transfers abroad) and Article VIII/CFM:
  - Authorities plan to gradually phase out the ISD once macro stability restored and reserves strengthened.
  - Executive Decree in September 2021 lowered the tax rate to zero for foreign airline companies operating in Ecuador, entering into force upon publication in the official gazette, with an annual fiscal cost of less than $10 million (0.01 percent of GDP).
  - Staff recommended any reduction be gradual and properly calibrated to avoid undue BOP pressures.
  - ISD constitutes both an exchange restriction under Article VIII, Section 2(a), and a capital flow management measure (CFM); authorities requested temporary Fund approval for maintaining the exchange restriction for one year for balance-of-payments reasons (see LOI).
- Lending into arrears:
  - Residual arrears to international private bond holders from 2008/2009: US$52 million remain outstanding in hands of individual creditors.
  - Authorities established a public procedure for liquidation requests; staff judge good faith efforts have been made and policy requirements met.
  - Authorities indicate no outstanding arrears to bilateral or multilateral creditors.

### Staff appraisal and policy recommendations
- Program continuation:
  - New administration’s decision to continue with the EFF-supported program is welcomed.
  - Objectives: environmentally friendly growth with high quality jobs, transparent public resource management, and equity in fiscally sustainable policies — consistent with 27-month EFF objectives.
  - Policy continuity and predictability will cement macro gains and institutional reforms and support private sector development.
- Social safety nets and pandemic response:
  - Further strengthening social safety nets will allow continued support to vulnerable groups; the pandemic increased poverty and reaffirmed need for strong social programs.
  - Authorities should intensify efforts to reach lowest-income families and underserved locations, improve Social Registry institutional capacity, and use new technologies to identify low-income households.
  - Greater access to quality education and health will promote job opportunities and limit long-term pandemic effects on the workforce.
- Fiscal stance and consolidation:
  - Ongoing pandemic and timid recovery warrant continuing support this year; a larger-than-envisaged deficit would be justified to avoid stifling recovery and meet urgent pandemic spending needs.
  - Starting next year, roll back pandemic-related one-off spending to make progress toward restoring fiscal sustainability.
  - Over the medium term, a lower and more gradual pace of consolidation can restore sustainability while building buffers:
    - Under improved outlook, less consolidation of the NOPBS over 2019–25 by 1 ppt of GDP (4.5 vs. 5.5 percent) can achieve same fiscal objectives while saving part of oil windfall.
    - Authorities prefer a progressive tax bill smaller than earlier envisaged; consolidation strategy would rely more on expenditure rationalization.
    - Larger tax reform would have provided more balanced consolidation and reduced reliance on oil revenues.
    - Implementation must be coordinated with subsectors of the nonfinancial public sector and executed timely and sustainably.
    - Contingency measures and financial planning critical to handle unexpected developments, including oil prices or financing.

*Source: Content unit 1ecuea2021001.*

### 55.      Operationalizing the landmark COPLAFIP and COMYF laws would support the

### 1ecuea2021001 - 55.      Operationalizing the landmark COPLAFIP and COMYF laws would support the

### Fiscal framework, COPLAFIP and COMYF
- Operationalizing COPLAFIP and COMYF will support the sustainability of public finances and fortify the foundations of dollarization.
- Key reforms to implement:
  - medium-term fiscal framework,
  - fiscal risk management,
  - expenditure ceilings.
- Coordinating across subsectors of the nonfinancial public sector is crucial; the NFCC would be instrumental if well operated.
- Enforcing COPLAFIP timelines for data submission is critical to improve timeliness and quality of fiscal data and to implement Ecuador’s fiscal targets.
- On the central bank (BCE) side:
  - resolve to clean up the BCE balance sheet from legacy assets,
  - diligently build reserves over the coming years to fulfil COMYF amendments.

### Transparency, governance, and COVID-related issues
- Strengthening transparency and governance in management of public resources, including COVID-related, will improve trust in public institutions.
- Recent steps and outstanding actions:
  - Regulation passed to collect and publish ultimate beneficial owners of public procurement contracts is important but not yet fully implemented.
  - Ensuring full compliance and easy accessibility of procurement beneficiary information is a priority.
  - A third of the COVID-related audits leading to legal proceedings indicates the need to strengthen governance in the use of public funds.
  - Work plans include improving asset declarations of politically exposed people, overhauling the AML/CFT framework, and conducting audits of taxes.

### Banking system measures and unwinding crisis support
- Unwinding crisis measures in the banking system at the end of the year as envisaged would preserve financial system health and avoid distortions.
- System readiness:
  - After more than a year into the pandemic, the system appears ready to move from blanket measures to targeted ones.
  - Authorities are assessing the impact of reverting to pre-crisis regulations to prepare the system.
  - Coordination across supervisory and policy agencies to close regulatory gaps will level the playing field and strengthen the financial system.

### Publicly-owned institutions: assessments
- Authorities plan to conduct:
  - AQRs for all public banks,
  - audits of the financial statements of the oil companies.
- These assessments will clarify contingent liabilities and inform fiscal and financial planning.

### Structural reforms, competitiveness, and climate considerations
- Under dollarization, fiscal prudence and structural reforms are key drivers of competitiveness.
- Ongoing efforts to regain competitiveness include:
  - forging new international trade ties,
  - reforming the labor market,
  - bringing policy continuity and predictability,
  - creating a more conducive environment for private sector growth and FDI.
- Reducing dependence on oil would:
  - strengthen fiscal policy,
  - allow space for other sectors,
  - prepare Ecuador for the global transition to reduce carbon emissions.
- Ecuador’s vulnerability to climate events increases the need for preparation and adaptation and for enhancing national dialogue to make reforms durable.

### Program support, waivers, and conditionality
- Staff supports:
  - waiver of nonobservance of the NFPS deposits QPC and completion by the Executive Board of the combined Second and Third Reviews under the EFF arrangement.
    - Waiver supported because the nature of the nonobservance was minor and authorities are taking corrective action (cash plan) as a prior action.
  - changes to the structural conditionality and completion of the financing assurances review.
  - Board approval to retain for a one-year period the exchange restriction arising from the tax on transfers abroad (ISD) on BOP grounds; it is temporary and non-discriminatory.
    - Authorities intend to phase it out once macroeconomic stability is restored and the reserve position is strengthened; phase-out already started and will be gradual and calibrated.
- Recommendation:
  - Next Article IV consultation to take place on a 24-month cycle.

### SDR allocation recording and use (Box 2 — operational details)
- Authorities recorded the new SDR allocation directly on the central government balance sheet.
  - BCE served as intermediary and registered allocation in the Treasury Single Account (TSA), for which the BCE is custodian.
- Accounting entries recorded:
  - Central government (MEF): (i) increase of deposits at the central bank (TSA deposits); (ii) increase in external debt liabilities.
  - BCE: (i) increase in external financial assets (increase in GIR/NIR); (ii) increase in its liabilities with the central government (deposits in the TSA).
- All interest costs and exchange rate risks lie with the central government (MEF); MEF responsible for interest on the SDR allocation and repayment (at SDR terms).
- Legal and operational arrangements:
  - BCE and MEF signed a Memorandum of Understanding for this arrangement.
  - Legal opinion: operation is in line with domestic legislation; COMYF indicates the State is the legal owner of international reserves and the BCE holds and manages reserves; COMYF explicitly defines SDR holdings as part of Ecuador’s international reserves (Article 137).
- MEF intends to use SDRs to address immediate cash flow deficiencies but build treasury deposits back up by the end of the year by more than the new allocation.
  - Authorities converted SDRs to freely usable currencies and will use a new budget code to transparently reflect SDR proceeds spending.
  - Deposit targets under the Fund program would ensure reserves will be built back up to cover the new allocation by the end of the year.
- Impact on international reserves:
  - If SDR proceeds (USD) are used for purely domestic payments, there would be a reallocation of central bank liabilities but no immediate change in international reserves at the time of transactions.
  - International reserves would decline over time if resources were used for external payments (imports or external debt repayment).
  - As MEF builds treasury deposits at the BCE using inflows from anticipated external financing (including from the Fund), international reserves would rise.
  - Changes in international reserves depend on how the use of proceeds affects the balance of payments.

### Exceptional access assessment (Box 3 — key points and figures)
- Criterion 1:
  - Ecuador continues to experience exceptional BOP pressures from the deepest recession on record and a loss of market access.
  - Financing gap estimated at $2.5 billion over 2021-22, after factoring in fiscal consolidation, the new SDR allocation, and IFI support.
- Criterion 2:
  - Public debt was assessed sustainable with high probability at program approval based on successful debt exchange, credible financing assurances, and commitment to medium-term fiscal consolidation.
  - Less severe downturn and tight fiscal management in 2020 resulted in lower debt and a smaller deficit (¶7).
  - Gross financing needs remain around 4-5.5 percent of GDP over the medium term.
  - Stress tests show debt trajectory sensitive to shocks to contingent liabilities and growth (Annex I).
  - Debt anchors in COPLAFIP: 57 percent of GDP by end-2025 and 40 percent of GDP from 2032 onwards.
- Criterion 3:
  - Historically, Ecuador had long-term global bond issuances of around $3-5 billion per year over the last four years.
  - Historical evidence: Ecuador has regained access to international capital markets within 24-36 months following a debt restructuring.
  - Markets have hovered around 750-800 bps; staff assumptions on market re-access starting in 2022 at US$1 billion are broadly unchanged.
  - Re-access supported by market-friendly debt exchange and pro-market stance of the new administration.
- Criterion 4:
  - The policy program provides a reasonably strong prospect of success, contingent on adjustment plans and institutional and political capacity to deliver.

*Source: 1ecuea2021001 — IMF Ecuador report excerpt.*

### Box 3. Assessment of Exceptional Access Criteria (concluded)

### Box 3. Assessment of Exceptional Access Criteria (concluded)

### Program implementation and political context
- Ecuadorian authorities have been steadily implementing the policies of the program and remain fully committed to take the needed steps to ensure its success.
- The Moreno administration (under Minister Pozo) enacted two milestone structural reforms since the First Review: the anticorruption and the central bank laws; these reforms "meaningfully strengthened Ecuador’s institutions" and demonstrated political capacity to carry the program forward.
- The Lasso administration assumed office in May with Minister Cueva leading the economic team; the outgoing and incoming Ministers worked closely through the transition. The new administration requested the IMF Executive Board to consider the combined Second and Third Reviews and the 2021 Article IV in the coming months, evidencing intent to continue the EFF-supported program.
- Political risks:
  - The National Assembly elected in February is fragmented with no clear majority for any party.
  - All reforms will need cross-spectrum legislative support.
  - The new Assembly’s July legislative agenda includes key reforms aligned with the program.
  - The authorities’ focus on consensus building and Minister Cueva’s attention to communication are seen as supportive of garnering needed broad support and buy-in.

### Institutional and technical capacity improvements
- Tangible improvements noted:
  - Publication of corrected historical fiscal data.
  - A newly minted fiscal data compilation guide prepared with NFPS subsector representatives under STA and a Fund short-term expert (STX).
  - Continued work with a Fund long-term expert (LTX) in cash management to improve financial planning and advance the arrears clearance strategy.
- The new administration has put in place a strong economic team and continues to receive extensive capacity development from the Fund and other development partners.
- The authorities requested further technical assistance support from the Fund and other IFIs to keep improving technical and institutional capacity.

### Prospects of success and principal caveat
- The assessment: "The strong program performance to date, including the progress towards fiscal sustainability, the commitment of the new administration to the key objectives of the program and to implement the policies needed to attain those objectives, their focus on building consensus and buy in across the political spectrum, tangible improvements in capacity all provide a reasonably strong prospect of success."
- Ultimate determinant: "Successful implementation of the reform agenda will hinge on the buy-in and political will of the legislators and the executive."

### Key fiscal and macro-fiscal figures (selected, in millions of US dollars, unless otherwise indicated)
- Revenue:
  - 2018: 38,290
  - 2019: 36,389
  - 2020: 28,505 (1st Rev. 2020: 29,408)
  - 2021: 31,248 (1st Rev. 2021: 34,689)
  - 2022: 37,223
  - 2023: 38,521
  - 2024: 39,423
  - 2025: 40,428
  - 2026: 41,637
- Expenditure:
  - 2018: 40,500
  - 2019: 39,354
  - 2020: 35,830 (1st Rev. 2020: 35,476)
  - 2021: 34,062 (1st Rev. 2021: 37,111)
  - 2022: 37,138
  - 2023: 37,148
  - 2024: 37,732
  - 2025: 38,730
  - 2026: 40,301
- Primary expenditure:
  - 2018: 37,882
  - 2019: 36,434
  - 2020: 32,962 (1st Rev. 2020: 32,692)
  - 2021: 32,612 (1st Rev. 2021: 35,839)
  - 2022: 35,636
  - 2023: 35,455
  - 2024: 35,789
  - 2025: 36,448
  - 2026: 37,707
- Primary balance:
  - 2018: 408
  - 2019: -45
  - 2020: -4,456 (1st Rev. 2020: -3,283)
  - 2021: -1,364 (1st Rev. 2021: -1,150)
  - 2022: 1,587
  - 2023: 3,066
  - 2024: 3,634
  - 2025: 3,980
  - 2026: 3,930
- Interest (total / O/w external):
  - 2018: 2,618 (O/w external: 2,340)
  - 2019: 2,920 (O/w external: 2,627)
  - 2020: 2,868 (1st Rev. 2020: 2,785) (O/w external: 2,505 / 2,453)
  - 2021: 1,450 (1st Rev. 2021: 1,272) (O/w external: 1,166 / 999)
  - 2022: 1,502 (O/w external: 1,164)
  - 2023: 1,693 (O/w external: 1,357)
  - 2024: 1,944 (O/w external: 1,617)
  - 2025: 2,281 (O/w external: 1,979)
  - 2026: 2,594 (O/w external: 2,350)
- Overall balance:
  - 2018: -2,210
  - 2019: -2,965
  - 2020: -7,324 (1st Rev. 2020: -6,068)
  - 2021: -2,813 (1st Rev. 2021: -2,422)
  - 2022: 85
  - 2023: 1,373
  - 2024: 1,690
  - 2025: 1,699
  - 2026: 1,337
- Public Debt (gross consolidated at NFPS level):
  - 2018: 52,799
  - 2019: 55,580
  - 2020: 62,629 (1st Rev. 2020: 60,458)
  - 2021: 65,692 (1st Rev. 2021: 63,687)
  - 2022: 65,894
  - 2023: 66,040
  - 2024: 66,583
  - 2025: 65,124
  - 2026: 63,577

### Selected fiscal ratios (in percent of GDP, selected lines)
- Revenue:
  - 2018: 35.6
  - 2019: 33.7
  - 2020: 30.2 (1st Rev. 2020: 29.8)
  - 2021: 31.5 (1st Rev. 2021: 33.2)
  - 2022: 33.8
  - 2023: 33.8
  - 2024: 33.3
  - 2025: 32.8
  - 2026: 32.5
- Expenditure:
  - 2018: 37.7
  - 2019: 36.4
  - 2020: 38.0 (1st Rev. 2020: 35.9)
  - 2021: 34.3 (1st Rev. 2021: 35.5)
  - 2022: 33.8
  - 2023: 32.6
  - 2024: 31.8
  - 2025: 31.4
  - 2026: 31.5
- Primary balance (% of GDP):
  - 2018: 0.4
  - 2019: 0.0
  - 2020: -4.7 (1st Rev. 2020: -3.3)
  - 2021: -1.4 (1st Rev. 2021: -1.1)
  - 2022: 1.4
  - 2023: 2.7
  - 2024: 3.1
  - 2025: 3.2
  - 2026: 3.1
- Overall balance (% of GDP):
  - 2018: -2.1
  - 2019: -2.7
  - 2020: -7.8 (1st Rev. 2020: -6.1)
  - 2021: -2.8 (1st Rev. 2021: -2.3)
  - 2022: 0.1
  - 2023: 1.2
  - 2024: 1.4
  - 2025: 1.4
  - 2026: 1.0
- Public Debt (percent of GDP):
  - 2018: 49.1
  - 2019: 51.4
  - 2020: 66.4 (1st Rev. 2020: 61.2)
  - 2021: 66.2 (1st Rev. 2021: 61.0)
  - 2022: 59.9
  - 2023: 57.9
  - 2024: 56.2
  - 2025: 52.9
  - 2026: 49.6

### External sector (selected, in millions of US dollars unless otherwise indicated)
- Current account:
  - 2018: -1,333
  - 2019: -61
  - 2020: -563 (1st Rev. 2020: 2,469)
  - 2021: 969 (1st Rev. 2021: 1,786)
  - 2022: 1,906
  - 2023: 2,222
  - 2024: 2,318
  - 2025: 2,628
  - 2026: 2,602
- Exports, f.o.b.:
  - 2018: 22,133
  - 2019: 22,774
  - 2020: 19,129 (1st Rev. 2020: 20,461)
  - 2021: 19,999 (1st Rev. 2021: 23,993)
  - 2022: 25,410
  - 2023: 25,909
  - 2024: 26,528
  - 2025: 27,395
  - 2026: 28,168
- Imports, f.o.b.:
  - 2018: 22,359
  - 2019: 21,749
  - 2020: 17,105 (1st Rev. 2020: 17,131)
  - 2021: 18,193 (1st Rev. 2021: 22,579)
  - 2022: 23,926
  - 2023: 24,326
  - 2024: 25,063
  - 2025: 25,729
  - 2026: 26,238
- Trade balance:
  - 2018: -226
  - 2019: 1,025
  - 2020: 2,024 (1st Rev. 2020: 3,331)
  - 2021: 1,807 (1st Rev. 2021: 1,415)
  - 2022: 1,485
  - 2023: 1,582
  - 2024: 1,464
  - 2025: 1,666
  - 2026: 1,930

### External financing and IMF engagement (selected)
- Identified external financing (selected years, in millions):
  - 2018: 9,286
  - 2019: 9,917
  - 2020: 10,806
  - 2020 (1st Rev.): 8,660
  - 2021: 6,673 (1st Rev. 2021: 5,948)
  - 2022: 6,553
  - 2023: 6,860
- IMF exceptional financing under the EFF (as shown in external financing tables):
  - 2019: 1,403
  - 2020: 4,000
  - 2020 (1st Rev.): 4,683
  - 2021: 1,500 (1st Rev. 2021: 1,500)
  - 2022: 1,000
- Table 8, Fund credit projections (stock of existing and prospective Fund credit, millions of SDRs / US$ equivalents indicated in table):
  - Stock of existing and prospective Fund credit (US$ millions): 4,419 (2020), 5,386 (2021), 6,096 (2022), 5,925 (2023), 5,521 (2024), 4,762 (2025), 3,925 (2026), 2,987 (2027), 2,049 (2028), 1,166 (2029), 396 (2030)
  - Disbursements (selected): 3,310 (2020), 1,065 (2021), 710 (2022)
  - Obligations (selected): Charges/interest and principal schedules presented through 2030 in Table 8.

### Financial sector indicators (selected)
- Regulatory capital to risk-weighted assets (CAR):
  - Q2 2015: 14.4
  - 2016: 13.9
  - 2017: 13.7
  - 2018: 13.4
  - 2019: 13.5
  - 2020: 14.5
  - 2021: 14.5
- Nonperforming loans to gross loans:
  - Q2 2015: 3.7
  - 2016: 3.5
  - 2017: 3.0
  - 2018: 2.6
  - 2019: 2.7
  - 2020: 2.6
  - 2021: 2.8
- Return on average assets (ROA):
  - Q2 2015: 0.9
  - 2016: 0.6
  - 2017: 1.0
  - 2018: 1.4
  - 2019: 1.4
  - 2020: 0.5
  - 2021: 0.7

*Source: Box 3 and associated tables from the Ecuador country report chapter.*

### 1. Overall balance of the budgetary central government and CFDD (floor)1/

### 1. Overall balance of the budgetary central government and CFDD (floor)1/

### Quantitative performance criteria (selected observations and outcomes)
- Overall balance of the budgetary central government and CFDD (floor) — reported sequence:
  - -4,005
  - -3,893
  - -3,655
  - Met
  - -241
  - -305
  - -184
  - Met
  - -2,301
  - -4,188
- Accumulation of NFPS deposits at the central bank (floor) — reported sequence and status:
  - 300
  - 487
  - 1,293
  - Met
  - -47
  - 22
  - -55
  - Not Met
  - 899
  - 1,527
- Non-accumulation of external payments arrears (continuous PC):
  - 0
  - 0
  - 0
  - Met
  - 0
  - 0
  - 0
  - Met
  - 0
  - 0
- (No new) Net credit to government from the central bank (continuous PC):
  - 0
  - 0
  - 0
  - Met
  - 0
  - 0
  - 0
  - Met
  - 0
  - 0

### Indicative targets (selected observations and outcomes)
- Non-oil primary balance of the NFPS (including fuel subsidies) (floor):
  - -5,467
  - -5,355
  - -4,072
  - Met
  - -572
  - -636
  - -90
  - Met
  - -3,368
  - -6,030
- Overall balance of the NFPS (floor):
  - -5,656
  - -5,544
  - -4,334
  - Met
  - -273
  - -337
  - 842
  - Met
  - -513
  - -2,422
- Change in the stock of NIR - program definition (floor):
  - -4,228
  - -4,041
  - -2,357
  - Met
  - -579
  - -110
  - 542
  - Met
  - 38
  - 717
- Coverage of the cash transfer programs for lower income families - number of families (floor) — cumulative:
  - 2/ 226,000 (baseline)
  - 226,000
  - 271,668
  - Met
  - 384,600
  - 384,600
  - 443,619
  - Met
  - 453,700
  - 514,000

- Notes:
  - Aggregates and adjustors as defined in the Technical Memorandum of Understanding (TMU).
  - 1/ Cumulative change from January 1, 2021.
  - 2/ Cumulative change from July 1, 2020.
  - 3/ Adjusted for oil prices (and for disbursements from multilateral institutions and China for NFPS deposits) as per the TMU.

### Proposed Quantitative Performance Criteria and Indicative Targets for 2021 (table summary lines)
- Table header context: "Table 9a. Ecuador—Proposed Quantitative Performance Criteria and Indicative Targets for 2021 (In million USD, unless specified otherwise)"
- End-Dec. 2020 / End-Apr. 2021 / End-Apr. 2022 / End-Aug. 2022 — entries given (condensed):
  - Quantitative performance criteria:
    - 1. Overall balance of the NFPS (floor)1/ 713 1,117
    - 2. Accumulation of NFPS deposits at the central bank (floor)1/ 678 1,135
    - 3. Non-accumulation of external payments arrears (continuous PC) 0 0
    - 4. (No new) Net credit to government from the central bank (continuous PC) 0 0
  - Indicative targets:
    - 5. Non-oil primary balance of the NFPS (including fuel subsidies) (floor) -76 -99 1
    - 6. Change in the stock of NIR - program definition (floor)1/ 432 693
    - 7. Coverage of cash transfer programs for families in the bottom three income deciles - percent of families in each province (floor) 60.0 65.0
    - 8. Coverage of cash transfer programs for families in the first income decile - percent of families in the first income decile (floor) 50.0 57.5
    - 9. Coverage of cash transfer programs for families in the first income decile - number of families in the first income decile (floor) 2/ 625,600 Ⲻ
  - Notes:
    - 1/ Cumulative change from January 1, 2022.
    - 2/ Cumulative change from July 1, 2020.

### IMF financing under the Extended Fund Facility (Table 10) — access and phasing (selected lines)
- Table title: "Table 10. Ecuador: Original Access and Phasing Under the Extended Fund Facility (EFF) 1/"
- Review / Availability Date / Action / SDR million / US$ million 3/ / Disbursement / Cumulative
  - September 30, 2020 — Board approval of EFF — 1420.0 SDR million — 2000.0 US$ million — 203.5 disbursed — 203.5 cumulative
  - First Review — December 15, 2020 — Observance of continuous and end-September 2020 performance criteria, completion of first review — 1420.0 SDR million — 2000.0 US$ million — 203.5 disbursed — 407.1 cumulative
  - Second Review — April 15, 2021 — Observance of continuous and end-December 2020 performance criteria, completion of second review — 284.0 SDR million — 400.0 US$ million — 40.7 disbursed — 447.8 cumulative
  - Third Review — August 15, 2021 — ... — 284.0 SDR million — 400.0 US$ million — 40.7 disbursed — 488.5 cumulative
  - Fourth Review — December 15, 2021 — ... — 497.0 SDR million — 700.0 US$ million — 71.2 disbursed — 559.7 cumulative
  - Fifth Review — April 15, 2022 — ... — 213.0 SDR million — 300.0 US$ million — 30.5 disbursed — 590.2 cumulative
  - Sixth Review — August 15, 2022 — ... — 213.0 SDR million — 300.0 US$ million — 30.5 disbursed — 620.8 cumulative
  - Seventh Review — December 1, 2022 — ... — 284.0 SDR million — 400.0 US$ million — 40.7 disbursed — 661.5 cumulative
  - Total: 4615.0 SDR million — 6500.0 US$ million — 661.5 total disbursed
- Additional notes:
  - Ecuador's quota is SDR 697.7 million.
  - The Executive Board completed the First Review on December 21, 2020.
  - Based on the program exchange rate.

### Structural conditionality: Prior Actions (PAs) and Structural Benchmarks (SBs) — key items and status
- Prior Actions (selected):
  - Transparency and AML/CFT: Pursuant to SERCOP regulation (September 2020), make procurement contracts exceeding US$962,410 awarded since September 2020, including legal ownership and, when available, beneficial ownership information of legal entities participating in public procurement, available to the public on the procurement website in a directly and freely accessible and user-friendly manner. — Objective: Strengthen anticorruption and AML/CFT and protect the public purse — Status: Prior action
  - Transparency: Consolidate COVID-19 audit work in a dedicated webpage within the Comptroller General Office website, providing easy access to all published independent audit reports of COVID-19-related spending with corresponding links; inform public of other COVID-19 related audit reports that cannot be published due to confidentiality and provide summaries. — Objective: Improve expenditure control, including COVID related spending, and governance — Status: Prior action
  - Cash management: Prepare and present to IMF staff a central government financial plan for the remaining of year 2021 approved by the Financial Committee, including detailed monthly cash flow, arrears as of July 2021 verified by MEF following COPLAFIP definition by sector, 2021 clearance estimate and monthly accumulation data, potential risks and mitigating measures, and explanation of deviations of the 2021 Financial Plan delivered in December 2020. — Objective: Improve institutional capacity and identify early warning signs of impending liquidity constraints — Status: Prior action

- Structural Benchmarks (selected, with due dates and status):
  - Fiscal framework: Adopt a regulation, in consultation with Fund staff, to implement the July 2020 amendments to COPLAFIP covering public debt, MTFF, budget preparation and expenditure ceilings, fiscal strategy document publication, budget execution, cash management and arrears, budget modification procedures, fiscal risk management framework, corrective measures regime, and fiscal rules framework. — Due: End-Nov. 2020 — Status: Implemented with delay
  - BCE internal audit charter: JPRF to approve an internal audit charter prepared by the BCE Audit Committee aligned with international standards covering mandate, independence, coverage, risk-based approach, quality assessment program, regular reporting to independent oversight body. — Due: End-Nov. 2020 — Status: Met
  - Enhance online publication of asset declarations: Improve existing online publication ensuring easy, searchable, and timely access to declarations of high-level public officials and/or PEPs, publishing additional information including itemized incomes, assets and liabilities per General Comptroller regulations. — Due: End-Nov. 2020 — Status: Partially implemented. Proposed new Structural benchmark to advance the reform
  - Deliver PGE financial plan for 2021 approved by Financial Committee to IMF staff. — Due: Dec. 16, 2020 — Status: Met
  - Enact anticorruption legislation approved by National Assembly criminalizing acts of corruption in line with Articles 15 to 30 of the United Nations Convention Against Corruption. — Due: End-Dec. 2020 — Status: Met
  - Enactment of amendments to the Central Bank’s legal framework (COMYF reform) elaborated in consultation with Fund staff as committed under the 2019 EFF. — Due: End-Jan. 2021 — Status: Not met. Implemented with delay in April
  - Publish a Medium-Term Debt Management Strategy (MTDS), prepared with IMF TA support. — Due: End-Feb. 2021 — Status: Met
  - Share updated arrears’ clearance strategy with IMF staff with updated info on stock of arrears as of end 2020. — Due: End-Apr. 2021 — Status: Not met. Converted to new benchmark
  - Correct and publish historical NFPS data back to 2012. — Due: End-May 2021 — Status: Not met. Implemented with delay in August
  - Prepare a compilation guide, in consultation with IMF TA, and disseminate to data providers across the NFPS through a workshop. — Due: End-May 2021 — Status: Met
  - Independent audit of COVID-19-related spending by the Office of the Comptroller General and publish results on a government website. — Due: End-Jun. 2021 — Status: Not met. Reset as PA
  - Enactment of a tax reform elaborated with Fund staff aimed at generating revenue and improving tax efficiency. — Due: End-Sep. 2021 — Status: New deadline of end-Oct. 2021
  - Establish and start operating the National Control Subsystem (SNC) to fight corruption in procurement. — Due: End-Oct. 2021 — Status: Newly proposed
  - Make all procurement contracts awarded since September 2020 available online including ownership information. — Due: End-Nov. 2021 — Status: Newly proposed
  - SERCOP to issue procurement guidelines to increase reliance on catalog purchases, improve procurement processes, and enforce bulk and standardized purchases; phased enforcement end-2021 to Q1 2022. — Due: End-Nov. 2021 — Status: Newly proposed
  - Initiate independent audits of the 2019 and 2020 financial statements of Petroecuador and Petroamazonas by agreeing terms of reference and timeline. — Due: End-Nov. 2021 — Status: Newly proposed
  - Initiate independent third-party asset quality reviews of the 2019 and 2020 balance sheets of all public banks by selecting third-party firm and agreeing terms of reference. — Due: End-Nov. 2021 — Status: Newly proposed
  - MEF to publish methodology to estimate arrears’ stock and templates for reporting on arrears to be used by public sector entities. — Due: End-Nov. 2021 — Status: Newly proposed
  - Establish the National Fiscal Coordination Committee (NFCC) as set out in COPLAFIP. — Due: End-Nov. 2021 — Status: Newly proposed
  - Complete upgrade of social registry and expand coverage of social assistance program to at least 80 percent of families in bottom three deciles. — Due: Dec. 16, 2021 — Status: New deadline of mid-Apr. 2022
  - Enact legislation to strengthen conflicts of interest framework, broaden asset declaration system to include incomes and interests of high-level public officials and PEPs, and ensure online publication in line with UNCAC articles 7 and 8. — Due: End-Jan. 2022 — Status: New deadline of end-Aug. 2022
  - Enact new AML/CFT legislation in line with FATF standards. — Due: End-Mar. 2022 — Status: Newly proposed
  - Share completed independent audits of the 2019 and 2020 individual financial statements of Petroecuador and Petroamazonas with IMF staff. — Due: End-Apr. 2022 — Status: Newly proposed
  - Share completed independent third-party asset quality reviews of the 2019 and 2020 balance sheets of all public banks with IMF staff. — Due: End-June 2022 — Status: Newly proposed
  - Share results of independent audits by the Office of the Comptroller General on tax expenditures of the largest 100 public procurement contracts awarded over 2020-2021. — Due: End-Sep. 2022 — Status: Newly proposed
  - Share completed independent audits of the 2020 financial statements of the merged entity Petroecuador and Petroamazonas (joint entity audits to accommodate IFRS requirements). — Due: End-Oct. 2022 — Status: Newly proposed
  - Expand coverage of the social assistance program to no less than 70 percent coverage of the bottom three income deciles by province and no less than 65 percent of the first income decile nationwide. — Due: End-Dec. 2022 — Status: Newly proposed

### Annex I. Debt Sustainability Analysis — key findings and projections
- Baseline assessment summary:
  - Under the baseline projection, Ecuador’s public debt remains sustainable with high probability, in line with assessment at program approval and the First Review, owing to the successful debt restructuring operation and envisaged fiscal consolidation.
  - Debt is expected to decline gradually from its end-2020 peak of 61.2 percent of GDP to 49.6 percent of GDP by end-2026.
  - Debt is projected at 52.8 percent of GDP in 2025 and 39.6 percent in 2030 under the baseline.
  - Gross financing needs are estimated to decline from the 2020 peak over the next decade, reaching 5.6 percent of GDP in 2026 and 4.7 percent in 2030.
  - The debt profile is vulnerable to a growth shock and to a contingent liability shock, but its trajectory is expected to be below the critical threshold by the end of the forecasting period.

- Definitions and historical profile:
  - Public-sector debt definition includes consolidated obligations of the non-financial public sector (central government and non-financial sector state-owned enterprises), liabilities under oil related financing, treasury certificates, central bank lending to the government, and other liabilities.
  - Under this measure, public debt almost tripled between 2012 and 2019 (from 17.5 to 51.5 percent of GDP).
  - Debt in 2020 reached 63 percent of GDP as a result of the collapse in economic activity and subsequent borrowing to finance the budget.

- Macroeconomic and fiscal assumptions:
  - Real growth in 2021 is projected at a 2.8 percent.
  - Inflation (GDP deflator) is projected at 1.5 percent in 2021.
  - Over the medium term, growth is forecasted to remain around 2.5–3 percent.
  - Over the medium term, inflation is expected to hover around 1.1 percent.
  - The fiscal position is expected to improve gradually and reach a primary surplus of 3 percent of GDP by 2026, conditional on timely implementation of program measures.
  - Financing assumptions include envisaged support from IFIs of about $4.6 billion in 2021 and about $3.3 billion in 2022, and market access resuming from 2022 with annual access between $1 and $3 billion.

- Baseline scenario specifics:
  - Public debt forecast: decline from 61.2 percent at end-2020 to 49.6 percent of GDP at end-2026.
  - Debt ratio at end-2025: 52.8 percent of GDP, below COPLAFYP law target of 57 percent of GDP.
  - Maintaining a small nonoil primary surplus of 0.4 percent of GDP beyond 2026 keeps debt declining to 39.6 percent of GDP by 2030.
  - Public debt remains below the critical risk threshold of 70 percent of GDP throughout the forecasting period.
  - Gross financing needs decline from 12.7 percent of GDP in 2020 to 5.1 percent in 2026 and to 4.7 percent in 2030, remaining well below the critical threshold of 15 percent of GDP.

*Source: Aggregated material from the provided IMF content unit.*

### 4.      Stress Tests. Despite a significant reduction of the level of debt and gross financing

### 4. Stress Tests. Despite a significant reduction of the level of debt and gross financing needs in the baseline scenario, the debt path is vulnerable to a growth shock

### Stress test findings
- Baseline: debt-to-GDP ratio reaches 72 percent of GDP in 2023 before declining and reaching 64.8 percent of GDP in 2026.
- Contingent liability shock (increases expenditures by about $6.5 billion in 2022; shock size = 10 percent of banking sector assets): debt-to-GDP ratio rises to 72.8 percent of GDP before reaching 65.1 percent of GDP in 2026.
- Under the contingent liability scenario, debt falls below the built-in critical threshold of 70 percent of GDP by the end of the forecasting period but breaches the COPLAFIP target of 57 percent of GDP.
- Under current assumptions, public debt is not vulnerable to:
  - a primary balance shock,
  - a real interest rate shock, or
  - a REER shock,
  meaning the critical threshold of 70 percent of GDP is never crossed under these shocks.
- Gross financing: the critical threshold of 15 percent of GDP is not breached in any of the shocks considered.

### Risks and vulnerabilities (public DSA risk assessment)
- Public debt held by non-residents identified as a high risk for Ecuador.
  - About 73 percent of total debt is held by non-residents (may be higher due to data limitations on secondary market transactions).
- Mitigating factors:
  - About half of external debt is owed to official creditors, with long maturities and relatively low interest rates.
  - 2020 debt restructuring operation limits near-term external debt rollover risks.
- Market perception indicators:
  - EMBIG (bp): 793 (as reported in DSA table).
  - 5Y CDS (bp): n.a.

### Debt transparency
- Authorities committed to debt transparency, including on the debt holder profile in line with new requirements under the Debt Limits Policy (DLP).
- Authorities have agreed to publication of all required elements on Debt Holder Profile.
- Authorities plan to request IMF technical assistance to further improve debt data.

### Key baseline DSA statistics and underlying assumptions (as reported)
- Sovereign spreads: EMBIG (bp) = 793.
- Nominal gross public debt (percent of GDP): 
  - 2019: 30.0
  - 2020: 51.4
  - 2021: 61.2
  - 2022: 61.0
  - 2023: 59.9
  - 2024: 57.9
  - 2025: 56.2
  - 2026: 52.8
  - 2030: 49.6
- Public gross financing needs (percent of GDP):
  - 2019: 9.6
  - 2020: 9.9
  - 2021: 12.7
  - 2022: 7.0
  - 2023: 4.3
  - 2024: 4.0
  - 2025: 3.6
  - 2026: 5.1
  - 2030: 5.6
- Net public debt (percent of GDP): 
  - 2019: 25.0
  - 2020: 44.0
  - 2021: 52.2
  - 2022: 50.9
  - 2023: 48.5
  - 2024: 45.6
  - 2025: 42.5
  - 2026: 39.5
  - 2030: 36.9
- Real GDP growth (in percent):
  - 2019: 3.1
  - 2020: 0.0
  - 2021: -7.8
  - 2022: 2.8
  - 2023: 3.5
  - 2024: 2.5
  - 2025: 2.6
  - 2026: 2.8
  - 2030: 2.8
- Inflation (GDP deflator, in percent):
  - 2019: 3.0
  - 2020: 0.5
  - 2021: -3.3
  - 2022: 1.5
  - 2023: 1.9
  - 2024: 1.1
  - 2025: 1.1
  - 2026: 1.1
  - 2030: 1.1
- Nominal GDP growth (in percent):
  - 2019: 6.3
  - 2020: 0.5
  - 2021: -8.6
  - 2022: 5.7
  - 2023: 5.3
  - 2024: 3.7
  - 2025: 3.9
  - 2026: 4.0
  - 2030: 4.0
- Effective interest rate (in percent):
  - 2019: 5.0
  - 2020: 5.5
  - 2021: 5.0
  - 2022: 2.1
  - 2023: 2.4
  - 2024: 2.6
  - 2025: 2.9
  - 2026: 3.4
  - 2030: 4.0
- Change in gross public sector debt (percent of GDP):
  - 2019: 3.4
  - 2020: 2.3
  - 2021: 9.8
  - 2022: -0.2
  - 2023: -1.0
  - 2024: -2.0
  - 2025: -1.7
  - 2026: -3.3
  - 2030: -3.2
  - cumulative 2021-26: -11.6
- Identified debt-creating flows (percent of GDP):
  - 2019: 2.5
  - 2020: 3.1
  - 2021: 13.3
  - 2022: 1.4
  - 2023: -1.4
  - 2024: -2.1
  - 2025: -1.6
  - 2026: -2.8
  - 2030: -2.7
  - cumulative 2021-26: -9.2
- Primary deficit (percent of GDP):
  - 2019: 2.4
  - 2020: 0.0
  - 2021: 3.3
  - 2022: 1.1
  - 2023: -1.4
  - 2024: -2.7
  - 2025: -3.1
  - 2026: -3.2
  - 2030: -3.1
  - cumulative 2021-26: -12.4
- Primary (noninterest) revenue and grants (percent of GDP):
  - 2019: 35.7
  - 2020: 33.7
  - 2021: 29.8
  - 2022: 33.2
  - 2023: 33.8
  - 2024: 33.8
  - 2025: 33.3
  - 2026: 32.8
  - 2030: 32.5
  - cumulative 2021-26: 199.4
- Primary (noninterest) expenditure (percent of GDP):
  - 2019: 38.1
  - 2020: 33.7
  - 2021: 33.1
  - 2022: 34.3
  - 2023: 32.4
  - 2024: 31.1
  - 2025: 30.2
  - 2026: 29.6
  - 2030: 29.4
  - cumulative 2021-26: 187.0
- Automatic debt dynamics (percent of GDP; contribution):
  - 2019: 0.1
  - 2020: 2.5
  - 2021: 9.1
  - 2022: -1.3
  - 2023: -1.8
  - 2024: -0.6
  - 2025: -0.4
  - 2026: -0.3
  - 2030: 0.0
  - cumulative 2021-26: -4.4
- Of which: real interest rate contribution (percent of GDP):
  - 2019: 0.6
  - 2020: 2.5
  - 2021: 4.7
  - 2022: 0.3
  - 2023: 0.2
  - 2024: 0.8
  - 2025: 1.0
  - 2026: 1.2
  - 2030: 1.4
  - cumulative 2021-26: 5.1
- Of which: real GDP growth contribution (percent of GDP):
  - 2019: -0.6
  - 2020: 0.0
  - 2021: 4.5
  - 2022: -1.6
  - 2023: -2.0
  - 2024: -1.5
  - 2025: -1.4
  - 2026: -1.5
  - 2030: -1.4
  - cumulative 2021-26: -9.5
- Other identified debt-creating flows (percent of GDP):
  - 2019: 0.0
  - 2020: 0.6
  - 2021: 0.9
  - 2022: 1.6
  - 2023: 1.9
  - 2024: 1.2
  - 2025: 1.8
  - 2026: 0.7
  - 2030: 0.3
  - cumulative 2021-26: 7.6
- Residual, including asset changes (percent of GDP):
  - 2019: 0.9
  - 2020: -0.7
  - 2021: -3.6
  - 2022: -1.6
  - 2023: 0.4
  - 2024: 0.0
  - 2025: -0.1
  - 2026: -0.6
  - 2030: -0.5
  - cumulative 2021-26: -2.3

### Stress test scenarios (selected baseline and shocks with reported assumptions)
- Baseline underlying assumptions (selected):
  - Real GDP growth (2021–2026): 2.8; 3.5; 2.5; 2.6; 2.8; 2.8
  - Inflation (2021–2026): 1.5; 1.9; 1.1; 1.1; 1.1; 1.1
  - Primary balance (2021–2026): -1.1; 1.4; 2.7; 3.1; 3.2; 3.1
  - Effective interest rate (2021–2026): 2.1; 2.4; 2.6; 2.9; 3.4; 4.0
- Real GDP growth shock (2022–2023): real GDP growth becomes -0.9 and -1.9 (versus baseline 3.5 and 2.5), with primary balance in 2022 of -0.7 and 2023 of -1.3.
- Real interest rate shock: effective interest rate path rises (examples shown) to 3.3; 4.2; 5.2; 6.3 in later years under that shock.
- Real exchange rate shock: inflation in 2022 spikes to 8.6 (from baseline 1.9).
- Combined macro-fiscal shock: 2022 real GDP growth -0.9; 2023 -1.9; primary balance 2022 -0.7; effective interest rate rises to 3.6; 4.9; 6.0; 7.1 in later years.
- Oil shock scenario: primary balance 2022 -4.6; 2023 -2.3; 2024 0.1; effective interest rate increases modestly to 3.3; 4.0; 4.6; 5.1.

### External sector, NIIP and policy recommendations (Annex II)
- NIIP: deteriorated slightly from -26.0 percent of GDP in 2019 to -27.2 percent of GDP in 2020 (official statistics noted).
- 2020 (% GDP) headline positions (reported):
  - NIIP: -25.6
  - Gross Assets: 57.6
  - Debt Assets: 50.2
  - Gross Liab.: 84.7
  - Debt Liab.: 67.5
- Current account: improved to a surplus of 2.5 percent of GDP in 2020 (from -0.1 percent of GDP in 2019).
- Potential policy responses identified:
  - Continued fiscal adjustment efforts to restore sustainability while supporting the recovery as envisaged under the program.
  - Reduction in labor market rigidities and other structural reforms to strengthen the external position.
  - Greater diversification of the export base to support external sector sustainability.
- Data quality note: further improvements to the quality and coverage of IIP data would be important for better understanding risks.

*Source: IMF staff calculations from Ecuador Public Sector Debt Sustainability Analysis, as reported in the provided chapter.*

### 0.5 percent of GDP over 2015-19. Although oil exports experienced a significant decline (40

### 1ecuea2021001 - 0.5 percent of GDP over 2015-19. Although oil exports experienced a significant decline (40

### Current account, trade, and external position
- Current account is expected to narrow to 1.7 percent of GDP in 2021 as imports rise with the recovering economy, and to strengthen thereafter as non-oil exports continue to grow.
- Trade dynamics 2020:
  - Oil exports declined 40 percent yoy.
  - Imports declined 21 percent yoy (significant import compression).
  - Non-oil exports increased 8 percent yoy (driven by bananas, shrimp, and mining).
- EBA CA model results for 2020:
  - CA-Actual: 2.5 percent of GDP.
  - Cyclical contributions (from model): -0.05 percent of GDP.
  - COVID-19 adjustor (additional cyclical adjustment): 1.2 percent of GDP (oil trade balance 1.0 ppt, tourism 0.2 ppt, remittances -0.1 ppt noted elsewhere).
  - Adjusted CA: 3.7 percent of GDP.
  - CA Norm (from model): 0.7 percent of GDP.
  - CA Gap: 2.9 percent of GDP, including a relative policy gap of 0.7 percent of GDP.
- Consumption-based (EBA Lite) module:
  - CA Norm: 3.6 percent of GDP (medium-term).
  - Implied CA Gap: -1.0 percent of GDP.
- Bottom-line assessment: consumption-based module used given importance of commodity exports; external position assessed as “moderately weaker” than implied by fundamentals, with expected temporary strength in CA.

### Real Effective Exchange Rate (REER) and competitiveness
- REER developments:
  - REER flat on average in 2020 relative to 2019, appreciating in H1 and depreciating in H2 following USD movements.
  - By end-2020, REER had depreciated 3.8 percent y/y.
  - REER further depreciated by 1.2 percent in Jan-May 2021.
  - This depreciation was slightly larger than in other dollarized economies (e.g., El Salvador and Panama).
- Competitiveness constraints:
  - Average and minimum wages have outpaced productivity growth; minimum wage remains high relative to peers.
  - Structural competitiveness weaknesses: labor and product market rigidities and high borrowing costs.
  - World Economic Forum Global Competitiveness Index: Ecuador scored average 55.7 across indicators versus 63.0 for LA6 countries; particularly low in product market and innovation capability.
- REER valuation model results (2020):
  - CA model implies REER undervaluation of 25 percent.
  - EBA REER model suggests REER overvaluation of 12 percent.
  - Consumption model implies 9 percent overvaluation and serves as basis for bottom-line assessment for 2020.
  - Comparison: overall assessment of overvaluation of 30 percent in the 2019 ESA.

### Capital and financial accounts; private flows and policy measures
- FDI and flows:
  - FDI rose from 0.9 percent of GDP in 2019 to 1 percent of GDP in 2020 (driven by investment in mining).
  - Net public sector inflows narrowed from 4 Percent of GDP in 2019 to 0.5 percent of GDP in 2020 (lower disbursements from bilateral and multilateral creditors other than the IMF).
  - Other private sector flows: outflows increased from 5.8 percent of GDP in 2019 to 6.2 percent of GDP in 2020 (data subject to limitations).
- Bank and deposit flows:
  - BIS reporting: loans and deposits held abroad by Ecuadorian banks increased by 5 percent to $6.7 billion.
  - BCE data: average monthly net private bank outflows in 2020 of $100 million versus $146 million in 2019.
- Policy measures:
  - Ecuador maintains a tax on transfers abroad (Impuesto a la Salida de Divisas, ISD) — constitutes a capital flow measure (CFM) under the Fund’s Institutional View and an exchange restriction subject to Fund approval under Article VIII Section 2(a).
- Assessment: external financing needs fell significantly in 2020 and expected to narrow further in 2021-22 owing to strong CA and lower public debt service aided by 2020 debt restructuring; medium-term reforms expected to build investor confidence and attract private flows.

### Foreign exchange intervention, reserves, and liquidity
- Gross international reserves (GIR):
  - GIR rose by around $4.2 billion to $7.1 billion at end-2020 (supported by strong CA and IMF disbursements).
  - Reserves declined by $1.4 billion in the first half of 2021 (reflecting debt repayment and recovering imports as Fund disbursement was utilized).
- Reserve adequacy metrics (end-2020):
  - 4.3 months of imports (above traditional 3-month metric).
  - 11.1 percent of broad money (below 20 percent metric).
  - 36 percent of the Fund’s risk-weighted ARA metric.
- Policy options and buffers:
  - Continued efforts to build reserves via higher government deposits and higher private inflows recommended.
  - An SDR allocation of US$940 million (equivalent to 12 percent of the 2020 AR metric for Ecuador) could improve reserve adequacy metrics.
  - Liquidity Fund (LF) used to support liquidity: authorities tapped into LF to support financial system by lowering contribution of financial institutions to Fund by 3 ppts to 2 percent; LF outstanding balance about $2 billion; authorities used $950 million in aftermath of COVID-19.

### Fiscal policy, public finances, and structural reforms
- Fiscal adjustment and public savings:
  - Fiscal adjustment over the medium term expected to shift public savings and investment balance from negative to positive.
- Implementation of 2019 Article IV recommendations (select actions and outcomes):
  - Non-oil primary deficit (including fuel subsidies) of the non-financial public sector (NOPBS) tightened by 0.7 ppts of GDP in 2019.
  - Fiscal effort continued in 2020: NOPBS deteriorated by only 0.1 ppt of GDP despite pandemic spending pressures.
  - Tax reform adopted with estimated yields of ½ ppt of GDP at end-2019 (short of envisaged 1½–2 ppts of GDP).
  - Primary spending curtailed by 1.5 ppts of GDP at NFPS level in 2019, including cuts in public employment and capital expenditure.
  - Homegrown fuel subsidy reform implemented to gradually align domestic fuel prices with international levels and reallocate fiscal savings to social assistance and critical outlays.
  - Public Financial Management:
    - Organic Code of Public Finances and Planning (COPLAFIP) amended July 2020; MTFF development and budget ceilings underway.
    - Medium-term Debt Management Strategy (MTDS) prepared and published; MEF revised and published in June 2021 historical fiscal statistics for consolidated NFPS and sub-sectors.
  - Social protection:
    - Coverage expanded by more than 457,000 additional low-income families between January 2020 and July 2021.
    - Targeting improved by removing about 80,000 higher-income families among beneficiaries.
  - Monetary and financial sector:
    - Organic Monetary and Financial Code (COMYF) amended May 3, 2021 to strengthen central bank balance sheet and technical autonomy; permanently prohibit government financing by the central bank.
    - Stress-testing capabilities improved; number of interest rate caps reduced from 23 to 13; BCE revising mechanism for setting caps.
  - Transparency and anti-corruption:
    - Anti-corruption framework (COIP) amended December 2020 to criminalize corruption.
    - Regulations adopted September 2020 to request and publish beneficial ownership in procurement where available; asset declarations published; COVID-related spending audits conducted and published where legally feasible.
  - Labor market:
    - Labor market flexibilization measures adopted under “Ley Humanitaria”.

### Risk Assessment Matrix — key risks, likelihood, impact, and policy responses
- Conjunctural shocks and scenario risks:
  - Uncontrolled Covid-19 local outbreaks:
    - Relative likelihood: High; Possible impact: High.
    - Impact: Massive local disruptions and jeopardize expected economic recovery.
    - Policy response: Re-instate containment if severe third wave; prioritize social and health spending; continue support and maintain clearly anchored policies post-pandemic.
  - Global resurgence of Covid-19:
    - Relative likelihood: Medium; Possible impact: High.
    - Impact: Depress recovery through trade and FDI; widen BOP and fiscal financing gaps.
    - Policy response: Prioritize social and health spending (including vaccines); seek donor funding; strengthen crisis preparedness and management.
  - Rising commodity prices (volatility, especially oil):
    - Relative likelihood: Medium; Possible impact: Medium.
    - Impact: Upside for fiscal and external balances; help reduce BOP and fiscal financing gaps faster.
    - Policy response: Save part of oil proceeds to policy buffers; roll-back crisis-related accommodative policies; stick to planned fiscal consolidation; implement fiscal contingency measures if needed.
  - Lack of social consensus and policy reversal:
    - Relative likelihood: Medium; Possible impact: High.
    - Impact: Raise public and international concerns; reduce market confidence; delay market re-access and financing.
    - Policy response: Engage public, explain reform benefits, and articulate medium-term policy trade-offs given dollarization.
- Structural risks:
  - Intensified geopolitical tensions and security risks:
    - Relative likelihood: High; Possible impact: Medium.
    - Impact for Ecuador: Reduced oil prices could significantly affect fiscal, growth, and BOP; migration shocks could intensify fiscal pressures short-term.
    - Policy response: Remove trade barriers; limit policy uncertainty; implement fiscal contingency measures if oil price shock occurs.
  - Climate-related natural disasters:
    - Relative likelihood: Medium; Possible impact: High.
    - Impact: Severe economic damage to infrastructure and higher volatility in commodity prices.
    - Policy response: Invest to protect critical infrastructure; build precautionary savings buffers.

*Source: 1ecuea2021001 (IMF).*

### Appendix I. Letter of Intent

### Appendix I. Letter of Intent

### Political and program context
- Date and signatories: Quito, September 16, 2021; letter addressed to Ms. Kristalina Georgieva, Managing Director, International Monetary Fund. Signatories: Simón Cueva Armijos (Minister of Economy and Finance) and Guillermo Avellán Solines (General Manager, Central Bank of Ecuador).
- New government took office on May 24, 2021, following Guillermo Lasso’s victory in April 2021.
- Request: continuation of the ongoing Fund-supported Extended Fund Facility (EFF) arrangement approved by the IMF Executive Board on September 30, 2020.
- Program commitment: full adherence to the 27-month extended arrangement under the EFF aimed at stabilizing the economy, expanding social assistance, ensuring fiscal and debt sustainability, and strengthening institutions.

### COVID-19, growth, and vaccination progress
- GDP performance:
  - GDP contracted 7.8 percent in 2020 (year-on-year).
  - GDP is showing only initial signs of recovery in 2021; labor market remains weak.
- Vaccination targets and achievements:
  - President’s initial target: fully vaccinate 9 million Ecuadorians (51 percent of the total population and 73 percent of the population older than 16) within 100 days of the government; this target will be met.
  - Continued objective: achieve at least a 75 percent coverage of the entire population.
  - Vaccination rollout has begun for 12–16-year-old youths.
  - Government reports acquiring and administering vaccines for close to 9 million Ecuadorians since May 24, 2021.
- Pandemic-related spending and pressures:
  - Increased spending needs in 2021 to support recovery and vaccine availability.
  - One-off expenses since taking office include vaccination costs and past contingencies (such as past dues to ISSFA and local governments).

### Social safety nets and targeting
- Social assistance expansion:
  - Number of beneficiary families increased by 443,619 between July 2020 and end-April 2021, meeting related EFF targets.
  - Target: add a cumulative 625,600 beneficiary families relative to July 2020, covering 80 percent of families in the bottom three income deciles (original program target).
  - Revised operational timeline: meeting the 80 percent year-end target is no longer feasible due to pandemic and demographic challenges; target of 625,600 additional families to be achieved by end of the first quarter, and no later than April 2022 (revised structural benchmark).
  - Short-term milestones: expand number of families in the first three deciles who receive social support to 453,700 by the end of September, and to 514,000 by the end of the year.
  - Technical measures: recalibration of the Social Registry algorithm (conclusion of technical work during September) expected to allow adding around 60 thousand beneficiaries between October and December.
- Regional and poverty targeting benchmarks:
  - Structural benchmark for end-December 2022: expand coverage of social assistance programs to no less than 70 percent coverage of the bottom three income deciles by province and no less than 65 percent of the first income decile nationwide.

### Program performance, monitoring, and requests to the Fund
- Performance under the program:
  - Since the First Review concluded in December 2020, all quantitative performance criteria (QPC) for end-December 2020 were met, and all but one for end-April 2021 were met; all Indicative Targets (IT) were met.
  - Request for a waiver of nonobservance of the performance criterion on accumulation of NFPS deposits at the Central Bank. The government describes the macroeconomic impact of the breach as minor but highlights need for better cash management.
  - Plan to prepare and present a central government financial plan for the remainder of 2021 approved by the Financial Committee. The financial plan will include: detailed monthly cash flow; arrears as of July 2021 verified by MEF following the COPLAFIP definition by sector; 2021 clearance estimate and monthly accumulation data; a document with potential risks and mitigating measures; and an explanation of deviations of the 2021 Financial Plan delivered to IMF staff in December 2020.
- Monitoring scope:
  - Not yet ready to move to targeting the nonfinancial public sector (NFPS) as envisaged earlier, due to delays in capacity building, turnover of GFS compilers, and failure to upgrade Treasury accounting software.
  - Commitment to review processes and improve capacities to move to NFPS balances targets for April 2022.
- Specific IMF approvals and disbursement request:
  - Request for the Fund to complete the second and third reviews of the extended arrangement and make the associated disbursement of SDR 568 million (about US$800 million) available for budget support.
  - Purposes of disbursement: contain the pandemic, expand vaccine availability, increase coverage of targeted cash transfers to vulnerable households, support economic recovery, and cover large one-off expenses related to vaccination and past contingencies.
  - Request IMF Executive Board approval to retain the existing exchange restriction arising from the tax on transfers abroad for making payments and transfers on current international transactions on the ground that the measure is maintained for balance of payments purposes; intention to phase out the measure once macroeconomic stability is restored and the reserve position is strengthened.
- Transparency and publication:
  - Government consents to publication of the letter, its attachments, and the Staff Report.
  - Commitment to provide information requested by the Fund and to consult with the Fund on additional measures and before any policy plan changes.

### Fiscal policy, public financial management, and structural reforms
- Fiscal objectives and principles:
  - Core goals: ensure environmentally friendly growth with high quality jobs, transparent management of public resources, and equity in fiscally sustainable policies.
  - Fiscal policy guided by restoring sustainability and reducing public debt, consistent with debt limits and expenditure growth rules in the organic code of public finances and planning (COPLAFIP).
  - Emphasis on equity: those who earn the most should contribute more.
- Tax reform and revenue measures:
  - Plan to undertake an important tax reform focused on equity, including reforming deductions and personal income tax brackets to ensure greater progressivity.
  - Aim to increase the tax base and fight tax evasion by nudging Ecuadorians with income and assets abroad to declare those to the Internal Revenue Service (SRI).
  - Example reform actions already taken: reduction of ISD for the aeronautical sector; Presidential Decrees 68, 95, 123 and 151 to encourage private investment and competitiveness.
- Expenditure policy and PFM:
  - Commitment to prioritize expenditures and protect crucial spending on health and education.
  - Undertake an expenditure review to evaluate further gains.
  - Identify concrete actions to improve efficiency in public procurement and generate fiscal savings to support fiscal consolidation.
  - Continue to improve public financial management (PFM) framework to enable better and more transparent management of public finances.
- State sector and competitiveness reforms:
  - Plans to spur private sector-led recovery through trade agreements, lowering tariffs for capital and intermediate goods in key productive sectors, reforming PPP framework, capital and labor markets, business environment, and SOEs to attract foreign direct investment.
  - Aim to enhance transparency of foreign investments.
  - Measures to strengthen the Central Bank by clearing its balance sheet of legacy assets and supporting auditing capacities to strengthen the dollarization monetary system.

### Key fiscal and program statistics reported
- GDP contracted 7.8 percent in 2020 (year-on-year).
- IMF disbursement requested: SDR 568 million (about US$800 million).
- Social assistance: increased beneficiary families by 443,619 between July 2020 and end-April 2021.
- Social assistance targets: add cumulative 625,600 beneficiary families relative to July 2020 (target to be met by end of Q1 and no later than April 2022); expand to 453,700 by end-September and to 514,000 by end-2021.
- COVID-related spending: planned at $622 million but actual spending in 2020 was $410 million.
- NFPS fiscal outcome 2020: registered a deficit of less than $6 billion for 2020, close to $1.4 billion better than expected.
- Public debt 2020: ended the year just over 61 percent of GDP instead of 63 percent as expected in December 2020.

*Letter of Intent and attached Memorandum of Economic and Financial Policies and Technical Memorandum of Understanding (Appendix I and Attachments) submitted to the IMF on September 16, 2021.*

### 14. Between January and April 2021, revenues were well above expected levels at both

### 14. Between January and April 2021, revenues were well above expected levels at both

### Fiscal outturn January–April 2021
- Revenues at the PGE+CFDD level were above expected levels by $580 million.
- Revenues at the NFPS level were above expected levels by about $1.3 billion.
- Higher oil prices increased CFDD expenses by about $550 million.
- Resulting balances:
  - Fiscal balance at the PGE+CFDD level: in line with expectations.
  - NFPS balance: over $1 billion better than expected.
- NFPS deposit accumulation at the central bank (the quantitative performance target, QPC, under the Fund-supported program) was slightly lower than the target by $77 million.
- Given the small degree of noncompliance ($77 million) and minor macroeconomic impact, a waiver of nonobservance is requested for the combined Second and Third Reviews, with April QPCs as the controlling ones.
- Prior action: corrective actions to enhance cash management capacities.

### 2021 central government budget and one-off expenditures
- The 2021 central government budget balances vaccination needs, economic recovery, and one-off payments inherited by the administration.
- One-off Expenditures in the Central Government Budget, 2021 (In US$ millions):
  - Increase in social spending (bonos): 125
  - Vaccines and vaccination-related expenses: 293
  - Additional spending on health care workers: 25
  - Refurbishing schools and education expenses: 121
  - Expenses related to termination of employment: 135
  - Expenses for elections: 21
  - Overdue VAT payment to local governments: 300
  - Total: 1,020
- Sources: Ministry of Finance and IMF staff estimations.
- The government intends to roll back these one-off measures next year to preserve fiscal sustainability.

### 2021–2025 Development Plan and medium-term fiscal objectives
- Main objectives: environmentally friendly, private sector-led growth; ecological transition (greater renewable energy capacity, greater energy efficiency, increased productivity).
- Consideration to reduce state-owned enterprises (liquidation, monetization) to generate additional medium-term revenues.
- Target reduction in size of the state: from almost 36 percent of GDP last year to below 32 percent by the end of the administration.
- Commitment: consolidation in non-oil primary balance (including fuel subsidies) of 4.5 percentage points of GDP over 2019-2025 (corresponding to an improvement of 4.1 percentage points of GDP in the overall balance of the NFPS over the same period).
- Fiscal package underpinned by measures summarized below.

### Tax reform (planned submission and components)
- Tax bill to be submitted to the National Assembly in September, for enactment by end-October (revised structural benchmark for October 2021).
- Framed around:
  - Policy measures (0.7 percent of GDP):
    - Changes to personal income tax: lower personal expenditure deductions (from the current maximum of $14,575 to the median of deductions); change deductions from being applied to pre-tax income to a tax credit with a quota; narrow income brackets for higher tax brackets; marginal tax rates unchanged.
    - Corporate income tax: measures to eliminate credits and deductions.
  - Administrative measures (0.3 percent of GDP):
    - Implement IMF technical assistance recommendations: improve collection through the Large Contributors Unit, enhanced customs tariff collection, and VAT compliance.
  - Transitory measures (0.5 percent of GDP):
    - Special contribution from corporations with net worth over $1 million whose sales in 2020 exceeded those of 2019.
    - Special contribution of high-net-worth individuals, with rates progressively increasing from 0.5 percent to 1.5 percent.
    - Disclosure of foreign investments/assets held abroad to allow a one-time tax.

### Tax administration and customs actions
- Large Taxpayer Unit (LTU) reforms:
  - Strengthen LTU debt collection powers: national jurisdiction, high rank within SRI, KPI-driven.
  - Properly staff LTU; set up offices in each province.
  - Improve segmentation of debt, debtors, and risks in profiling activities.
  - Enhance information exchanges with other jurisdictions and third parties.
  - Special sub-unit to follow-up wealthy individuals.
- Customs administration measures:
  - Improve trade facilitation through process automation and new technologies.
  - Develop compliance risk management program focused on sensitive sectors.
  - Optimize use of data by HS codes and foreign trade operator segments.
  - Strengthen post-clearance audit and cooperation with SRI.
  - Combat fuel smuggling.
- VAT gap actions:
  - Use VAT gap estimates to support SRI's actions and VAT-compliance risk strategic management.
  - Conduct in-depth analysis of sectors with largest compliance gaps.
  - Use RA-GAP model to monitor accumulation of credit carry-forwards and collection performance; validate SRI estimates every 2-3 years.
  - Exchange key statistical and regulatory information with the BCE.
  - Close VAT compliance gap through integrated control based on taxpayer life-cycle approach.

### Expenditure consolidation strategy and savings targets
- Medium-term strategy: expenditure-led consolidation complemented by tax reform.
- Required reduction in public primary expenditures: about 4.2 percentage points of GDP by end of administration.
- Major savings sources:
  - Improved procurement practices: expected to yield 1.5 ppt of GDP in savings in goods and services and capital expenditure during the term.
  - Rolling back 2021 one-off spending: 0.9 ppt of GDP.
  - Continuing fuel subsidy reform with expected decline in global oil prices: 0.9 ppt of GDP.
  - Remaining 0.9 ppt of GDP from expenditure rationalization while protecting essential services.
- Wages and salaries:
  - Plan to slow growth of the wage bill over 2022-2025 via partial replacement of retiring staff and partial nonrenewal of fixed-term contracts, with wages growing with inflation.
  - Possible additional measures: revised pay scales for new hires; inflation-adjusted wages; lower replacement rates for retiring staff; lower renewal rates of fixed-term contracts.
  - Guidelines on public sector workforce to be jointly defined with the Labor Ministry; further assessment with external experts.
- Procurement reform:
  - Presidential Decree No. 155 (August 12, 2021) to regulate anti-corruption legislation: Office of the Comptroller General to control budget availability and existence of market studies before procurement.
  - SERCOP, Ministry of Economy and Finance, and National Secretary of Planning to issue and enforce procurement guidelines (new structural benchmark for November 2021).
  - Anticorruption law (approved February 2021) created the National Control Subsystem (SNC) — new structural benchmark for October 2021 — to enable interoperability of databases among control entities and coordinated action on procurement irregularities.
  - Estimated cumulative savings from SERCOP guidelines and SNC: 1.5 percent of GDP starting with 2022 budget execution through 2025.
- Estimated Savings from Procurement Efficient Measures (In percent of GDP):
  - Bulk and standardized purchases: 2022: 0.2; 2023: 0.1; 2024: 0.1; 2025: 0.0; 2022-2025: 0.4
  - Dynamic and electronic processes, modernization of pre-contractual procedures, and transparency: 2022: 0.1; 2023: 0.1; 2024: 0.0; 2025: 0.0; 2022-2025: 0.2
  - Increased competition in procurement: 2022: 0.2; 2023: 0.2; 2024: 0.1; 2025: 0.1; 2022-2025: 0.6
  - Subsystem of control of the National System of Public Procurement and close relationship with suppliers: 2022: 0.1; 2023: 0.1; 2024: 0.1; 2025: 0.0; 2022-2025: 0.3
  - Total savings (percent of GDP): 2022: 0.6; 2023: 0.5; 2024: 0.3; 2025: 0.1; 2022-2025: 1.5

### Public investment and capital expenditure prioritization
- Prioritize capital expenditure projects, focusing on the oil sector and opening it to private investment.
- Promote public-private partnerships and concessions with attention to contingent liabilities and fiscal risks.
- Ecuadorian Development Bank to channel multilateral and bilateral resources for local government infrastructure investment.
- Aim to reduce expenses on unused infrastructure older than 5 years and related maintenance costs.
- Undertake a Public Investment Management Assessment (PIMA) in Q1 2022, supported by IMF technical assistance, to improve public investment management cycle and transparency.

### Fuel subsidy reform
- Maintain automatic fuel pricing mechanism to align domestic fuel prices with international prices.
- Automatic monthly change in diesel prices changed from +/-5 percent to +/-3 percent in January 2021.
- Rationale: subsidies poorly targeted, encourage fuel consumption, foster corruption and smuggling, harm the environment.
- Exploring options to target subsidies on public transportation while reducing subsidies for other users; some tariff reductions for vehicles and inputs for the transportation sector.
- Lowered import tariffs on energy efficient vehicles.
- Reform aims: generate lasting fiscal savings, encourage efficient energy use, preserve environment, curtail smuggling, limit resource depletion, and finance higher-priority public spending including social assistance expansion.

### Expenditure review, arrears management, and financial management systems
- Conduct a detailed expenditure review drawing on IMF and World Bank inputs to identify additional savings and contingency measures.
- Arrears situation:
  - Inherited central government account payables of over 90 days overdue amounting to $967 million as of June 2021.
  - Commitment to clear arrears gradually and avoid new accumulation.
  - With IMF long-term expert assistance, implement a monitoring system to evaluate stock of domestic payment arrears for central government and selected NFPS entities.
  - Publish a methodology to estimate the stock of arrears and reporting templates for public sector entities (structural benchmark for November 2021).
  - Revamp strategy to clear, monitor, and prevent further accumulation at NFPS level.
- Financial Management Information Systems:
  - Develop e-SIGEF (short term) and SINAFIP (long term) to register due dates and other information to determine when obligations fall into arrears.
  - Design policy to gather monthly information on arrears from other NFPS entities by the MEF and outline policies to prioritize payments.

### Social security and other reforms
- Social security system is actuarially insolvent and will incur cash flow shortages; urgent reform needed.
- Diagnostic undertaken with World Bank support.
- Intent to establish a high-level commission and promote public communication on the need for pension reform and consider options to address it.
- IESS has started to reduce personnel; further efficiency gains to be promoted while protecting health, pension, and disability benefits.

### International cooperation
- Pursue information exchange with foreign tax authorities:
  - Agreement established with the United States.
  - Promoting an agreement with the Global Forum (CAAM) to enable information exchange with more than 140 jurisdictions.
- Enable declaration of assets held abroad as part of tax policy measures.

*Italic: Source — Ministry of Finance and IMF staff content as presented in the supplied chapter.*

### 19. The new SDR allocation served a dual purpose of boosting Ecuador’s international

### 19. The new SDR allocation served a dual purpose of boosting Ecuador’s international

### SDR allocation, recording, and use
- The SDR allocation increased international reserves (asset on the BCE’s balance sheet) and was recorded as a liability in the Single Account of the National Treasury, enabling use by the MEF towards the budget.
- The BCE, as fiscal agent, converted the SDRs into freely usable currency.
- All spending from the proceeds is recorded with a unique budget code to provide transparency and accountability.
- Recording and use of the SDRs comply with the Organic Code of Planning and Public Finance (COPLAFIP) and the Organic Monetary and Financial Code (COMYF).
- As holder of the liability, MEF is responsible for:
  - the interest rate cost on the SDRs;
  - exchange rate risk on the SDRs;
  - reconstituting the SDR balances when needed, per the joint BCE-MEF Memorandum of Understanding.

### Contingency policies and fiscal risk management
- Identified risks to the 2021 and 2022 budgets and medium-term fiscal framework include:
  - deterioration of the outlook for global oil prices;
  - shortfalls in financing;
  - materialization of contingent liabilities.
- Oil price assumptions and fiscal sensitivity:
  - Budget assumptions: $59.8/barrel for 2021 and $59.2/barrel for 2022.
  - A decline of global oil prices from these assumptions would increase the annual fiscal deficit by 0.7-0.8 percent GDP for each $10 dollar/barrel decline, after accounting for reduced fuel subsidies and lower import bill for fuel derivatives.
- Two-pronged strategy:
  - Near-term: prepared backup fiscal measures to implement in case of sharp oil price declines or financing shortfalls, including accelerating expenditure-side reforms and maintaining conservative revenue forecasts for asset monetization until projects mature.
  - Medium-term: allocate additional oil revenue windfalls with inter-generational equity in mind; save part of windfalls in nonrenewable resources toward buffers; two oil stabilization funds are envisioned (in Decree 95 and in COPLAFIP, respectively).
- Additional measures:
  - Ongoing SOEs reform and asset quality reviews of public banks to contain contingent liabilities.
  - Expenditure review later this year and the PIMA next year to identify additional contingency measures.
- Fiscal risk statement:
  - Risks to the 2022 budget will be reflected in the fiscal risk statement to be annexed to the budget document.

### Strengthening fiscal frameworks, governance, and transparency
- Historical fiscal data and publication:
  - Revised historical government financial statistics for 2012-2020 published in August.
  - Data disaggregated between different levels of the non-financial public sector with consistency between above- and below-the-line.
  - Data published on the MEF website: https://www.finanzas.gob.ec/estadisticas-fiscales-historicas/.
- Statistical and disclosure improvements:
  - A Compilation Guide for financial statistics published to enhance transparency and standardization.
  - Continue regular publication of a statistical public debt bulletin and disclosure of sovereign debt and crude oil pre-sale contracts as legally permissible.
  - Debt holder profile now included in IMF staff reports in line with Debt Limits Policy requirements.
  - Request IMF TA on quarterly debt data.
- Fiscal Transparency Evaluation (FTE):
  - Planned in the second quarter of 2022, supported by IMF technical assistance to improve fiscal reporting, forecasting, budgeting, fiscal risk analysis and resource revenue management.
- Medium Term Debt Strategy:
  - Update the existing Medium Term Debt Strategy (formulated in February) to establish a debt policy agenda analyzing costs and risk tradeoffs of financing options.
- Public procurement and beneficial ownership transparency:
  - Procurement website centralizes information including contracts.
  - September 2020 regulation mandates publication of awarded entities, beneficial owners, and ex-post delivery validation on a government website.
  - SERCOP will present legal ownership and, where available, ultimate beneficiary owner information for contracts exceeding US$962,410 (a threshold defined by the Office of the Comptroller General, equivalent to 0.003 percent of the central government budget) awarded since September 2020, representing about 90 percent of the value of awarded purchases over the last 12 months (prior action).
  - SERCOP to enhance collection and accessibility of beneficial ownership information for remaining contracts by the end of November (proposed structural benchmark).
  - Changes to bidder application process to ensure publication of 100 percent of new contracts and beneficial ownership information beyond end-November 2021.
  - Independent audit of the 100 largest public procurement contracts awarded over 2022-21 (structural benchmark for September 2022).
- Public Finance Statistics Committee:
  - Implemented under MEF to coordinate statistical compilation methodologies among NFPS organizations.

### Implementation of COPLAFIP and fiscal management systems
- COPLAFIP implementation:
  - COPLAFIP amendments adopted in July 2020.
  - Regulation on data reporting by subsectors of the NFPS adopted end-September 2020.
  - Remaining regulations adopted by Presidential decree in early December 2020, including regulations on data reporting adopted in September 2020 by ministerial decree.
  - IMF support planned in four areas: fiscal risks, medium term fiscal framework, fiscal rules, and fiscal coordination.
- Specific COPLAFIP-related steps:
  i. Fiscal risk: developing and implementing a fiscal risk strategy; the 2021 Budget Proforma incorporates the first Fiscal Risk analysis and strategy using Fund TA; advances in establishing a fiscal risks unit within MEF.
  ii. Medium-term fiscal framework (MTFF): start presenting MTFF with budget documents beginning October 2021 and April 2022.
  iii. Fiscal rules: issuing regulations on expenditure ceilings to support the newly introduced expenditure growth fiscal rule.
  iv. Fiscal coordination: establish a National Fiscal Coordination Committee (NFCC) by end-November, 2021 (structural benchmark); NFCC to monitor National Development Plan and budget execution, vote on overall and sectoral fiscal targets, and assess public spending quality.

### Cash management and procurement transparency actions
- Cash management improvements:
  - Prepare and present to IMF staff a central government financial plan for the remaining of year 2021 approved by the Financial Committee (prior action).
  - The financial plan will include detailed monthly cash flow, arrears as of July 2021 verified by MEF following COPLAFIP definition by sector, 2021 clearance estimate and monthly accumulation data, potential risks and mitigating measures, and explanation of deviations of the 2021 Financial Plan delivered to IMF staff in December 2020.
  - Use commitment and accrual quotas to align expenditure execution with cash availability; proactively use commitment control and short-term securities (CETES/NOTES) for temporary liquidity deficiencies.
  - Improve projection capabilities of cash availability and use the Financial Committee or other high-level alignment mechanism.

### Strengthening the institutional framework of the Central Bank (BCE)
- COMYF adoption:
  - COMYF law adopted on May 3rd of this year.
  - Ministry of Finance and the Central Bank signed an agreement on June 30 to transfer shares of public banks held by the Central Bank to the Ministry of Finance, with the Ministry committed to pay about US$2.4 billion during 2027–35 according to the included table.
- BCE institutional enhancements:
  - Strengthen BCE research department: prepare a financial stability report in 2022 and present an annual technical assessment on the fiscal budget to the National Assembly.
  - Creation of Unit of Management and Regularization to clean up legacy assets from the 1999 banking crisis; all legacy assets, liabilities, obligations, and rights from the 1999 crisis to be transferred to the new agency after an independent audit expected to be completed by end December 2021.
  - From legacy assets the central bank already transferred 17 vehicles to the technical secretary of real estate management and more than 100 items to the Ministry of Culture.
- Transparency and governance measures:
  - Implement IMF safeguards assessment recommendations.
  - Publish in 2022 the audit opinion on the BCE financial statements starting with the 2021 report.
  - Make the Audit Committee operational by appointing Board members and adopt IFRS accounting standard by the end of this year.
  - Advance independence and capacity of BCE’s internal audit following establishment of the Audit Committee.
- Operational and liquidity measures:
  - BLADEX increased letters of credit with the central bank for fuel imports; new letters of credit planned with international banks to help manage short-term Treasury liquidity.
  - In September, the BCE will establish a working group with private and public entities to identify shortcomings in the financial payments system and develop a reform plan for approval by the new Monetary Board.

### Boosting the resilience of the financial system
- System resilience and supervisory strengthening:
  - Financial system remains resilient and liquid though large uncertainties persist.
  - IMF technical assistance on stress testing in progress to improve stress testing models of liquidity and credit risk for banking supervision and policymaking during transition to the post-COVID period.
  - Ensure Superintendency of Banks has resources and staff to supervise effectively and implement TA on stress testing capacity, risk-based AML/CFT supervision, and related assistance by development partners.
- Crisis measures and their planned removal:
  - Crisis measures (loan deferrals/restructuring, reduced bank contributions to liquidity fund, extended NPL classification periods, reduced provisioning) helped institutions and borrowers cope.
  - Plan for smooth transition as crisis measures expire at the end of this year; Superintendency may grant additional time on a bank-by-bank basis if banks are under-provisioned, subject to conditions (clear financial plan, restrictions on dividend payouts, closer supervisory scrutiny).
  - IMF to support the Superintendency on strategy and action plans.
- Cooperative sector supervision and regulatory alignment:
  - Crisis measures for cooperatives extended to December 2022.
  - Regulatory arbitrage with the banking sector led to cooperative sector growth; intention to close regulatory gap on NPL classification and provisioning by end 2022.
  - SEPS plans to work with largest cooperatives to align provisioning requirements for large cooperatives with those of banks by end 2022.
  - SEPS implementing plan to introduce higher statutory standards and minimum capital requirements to be fully implemented by mid-2023; enhancing corporate governance standards.
  - Maintain moratorium on creation of new cooperative entities until technical conditions are appropriate for reopening registrations.

_Italic: IMF Country Report content unit 1ecuea2021001._

### 32. Separately, we are also interested in updating the overall provisioning framework

### 1ecuea2021001 - 32. Separately, we are also interested in updating the overall provisioning framework

### Provisioning framework and public banks
- Intention to update the overall provisioning framework for banks and cooperatives; design requires advance preparation and careful analysis of the Ecuadorian system on credit cycles and expected losses; Fund technical assistance is being used to build capacity.
- Plan to carry out preparations before designing the new system in close consultation with the Fund and banks.
- Non-performing loans in public banks increased during the pandemic to reach an average of about 17 percent in two public banks: Banecuador and CFN.
- Two other public banks, BEDE and CONAFIPS, are regularly audited and are in better financial health.
- Plan to conduct an independent Asset Quality Review (AQR) in consultation with the IMF to:
  - estimate any shortfall in provisioning and
  - assess capitalization needs.
  - Structural benchmarks: initiate the reviews by November of 2021, and finalize them by June 2022.
- Reform CFN to focus on being a second-floor bank supporting development objectives.
- Banco del Pacífico (fully state-owned but not legally a public bank) underwent a detailed evaluation in 2019; management plans another evaluation in 2022.

### Liquidity support and contingency facilities
- Doubled the size of the swap facility with the Bank of International Settlements to $840 million as a precautionary measure for USD liquidity shortages.
- Liquidity fund assets to be maintained in high quality liquid investments abroad at top international financial institutions.
  - As of June 2021, the liquidity fund had about $2.7 billion, and about 95 percent of these funds are invested with CAF, FLAR, and the BIS.
- Banks’ contributions to the fund were reduced in 2020; COSEDE will assess restoring pre-crisis contributions soon after the president of its Board is appointed and will share with the IMF.

### Interest rate caps, payments, and digitalization
- In August, the BCE completed the methodology for setting interest rate caps.
  - New members of the Financial Policy and Regulation Board will have two months after taking office to revise and approve the methodology developed by the BCE.
  - Implementation will be progressive for the thirteen credit segments.
  - The methodology is based on four components: credit risk, funding, operational and capital costs.
  - Three objectives: 1) technical support for setting interest rates, 2) foster competition in the financial system, 3) promote financial inclusion.
  - The Financial Policy and Regulation Board will develop regulation to apply the methodology; financial regulators will ensure implementation.
- COVID-19 accelerated digital payments adoption; policy measures to incentivize alternatives to cash:
  - Resolution 672 approved on August 5, 2021 eliminated the 22-cent fee for receiving electronic interbank transactions.
  - Resolution 672 requests that all public service payments for amounts greater than $76 will be made through electronic means starting January 1, 2022.
  - Plan to revise sources of red tape and disincentives to adoption of digital payments.
  - Plan to implement a Real-Time Gross Settlement (RTGS) for large-value interbank funds transfers in early 2022.

### Competitiveness and private sector-led growth
- Administration committed to restoring international competitiveness and catalyzing private sector-led growth.
- Policies include leveraging international trade agreements, gradual reduction in the ISD, and reforming capital and labor markets.
- Decree 95 expected to foster greater private sector participation in oil and gas via participation contracts.
- Mining Decree 151 intended to facilitate investment in the mining sector, with production and exports already increasing at a high annual growth rate.

### Labor market and social policy
- COVID-19 compounded pre-existing labor market weaknesses; recovery in formal employment is timid and jobs quality is weak.
- Humanitarian Law (in effect since June 22, 2020) helped save 74,000 jobs and create an additional 240,000 jobs through mechanisms including emergency hour reduction upon agreement.
- Preparing a new bill (Ley de Oportunidades Laborales) to foster private sector employment, target informal sector (mostly women and young people), increase flexibility in work arrangements, reduce rigidity in part-time and temporary contracts, and address equity including gender.
- Adopting a consultative approach bringing together employers, employees, and the unemployed.
- Committed to applying a newly developed mechanism for setting the minimum wage tied to macroeconomic aggregates such as inflation and productivity.

### Transparency, governance, and AML/CFT
- November 2020 regulation enhances online publication of asset declarations by high-level officials and politically exposed persons (PEPs); General Comptroller can publish itemized information on assets and liabilities online and improved accessibility on its website.
- Planned actions to strengthen law and implementation:
  - Upgrade the AML/CFT legislative framework so it is in effect ahead of the on-site visit for the GAFILAT assessment expected to start in April 2022.
  - With Fund technical support, bring current AML/CFT legislation in line with FATF international standards by end-March 2022 (structural benchmark).
  - Enact legislation to strengthen prevention and management of conflicts of interest in the public sector in line with UNCAC (Articles 7 and 8) and international good practices; structural benchmark by end-August 2022.
    - Broaden asset declaration system to include incomes (types, sources, and values) and interests (positions held outside office, participation in entities, professional experience, past employment), including assets directly or indirectly owned by officials or close family members, in the country or abroad.
    - Legislation will prioritize transparency and ensure on-line public access to relevant information on assets, incomes, liabilities and interests.
  - Continue strengthening the Superintendency of Banks’ capacity, with Fund technical support, to implement a risk-based approach (RBA) to AML/CFT supervision.

### State-owned enterprises (SOEs), audits, and fiscal risks
- Commitment to strengthen SOE framework and align standards to private companies to improve efficiency and limit contingent liabilities.
  - Government absorbed about $490 million in SOEs losses during 2018–2020 in addition to more than $600 million in transfers.
- National Assembly overhauling SOEs law to promote corporate governance and transparency; seven SOEs are in process of liquidation.
- Presidential Decree (#[95]) adopted to audit the merger process of PetroAmazonas and PetroEcuador.
  - Plan to conduct audits of the 2019 and 2020 financial statements of PetroAmazonas and PetroEcuador.
  - Structural benchmarks: launch the audits by end-November 2021; complete audits of individual companies by end-April 2022; complete the 2020 financial statements audit of the joint entity by end-October 2022 in compliance with IFRS guidelines.
- PPP Committee developing guidelines (with IADB and US Treasury support) to operationalize executive decree institutionalizing approval and bidding process for PPPs adopted in November 2020.
- Fiscal risk unit being set up within MEF reorganization to evaluate PPP viability, quantify risks to public sector balance sheet, propose mitigations, and present risks in a fiscal risk statement starting with the 2021 and 2022 budgets.

### Audit transparency and COVID-related spending
- Office of the Comptroller General conducted audits of COVID-related spending as committed under the RFI in May 2020.
- COVID-19 audit reports consolidated and displayed on a dedicated webpage within the Comptroller General Office website.
  - Webpage provides access to published independent audit reports of COVID-19-related spending; some reports remain confidential due to ongoing investigations and legal proceedings (prior action).

### Infrastructure, PPPs, and conservative fiscal assumptions
- Commitment to reduce cost of operations of strategic infrastructure by enhancing private sector participation with leasing concession rights (including renewable energy generation).
- Review and enhancement of PPP legal framework planned.
- Given recent difficulties in securing asset monetization and PPP contracts, conservative revenue projections will be used in budgets and the medium-term fiscal framework.
- Commitment to rely on international best practices to ensure transparent processes and protect the budget from contingent liabilities.

### Climate policy and disaster resilience
- Commitment to equitable and environmentally friendly policies; reduce reliance on oil and strengthen resilience to natural disasters.
- Aim to work with international partners to identify, cost, and implement concrete actions to reduce GHG emissions, including commitments under the Paris Agreement.
- Ongoing fuel subsidy reform and reliance on hydropower are steps toward climate mitigation by reducing CO2 emissions.
- Plans to promote transition to electric vehicles and installation of electric recharging stations.
- Recognition that global net-zero CO2 drive may permanently depress oil prices; private sector development and diversification away from fossil fuels is a goal.
- IADB support to establish a climate finance unit within MEF; international financial support needed for ex-ante preparation to protect vulnerable populations.

### Domestic capital markets and public debt instruments
- Continue developing domestic capital markets to deepen finance and diversify financing sources, with technical assistance from the United States Treasury.
- Plans include standardizing government securities, voluntarily replacing non-standardized and excessively short-term government debt securities (including those held by the BIESS) with standardized, longer-term ones, developing a domestic yield curve, and lengthening maturities of short-term instruments.
- Domestic bonds with standardized financial conditions have been placed to private and public investors.

### Capacity development and technical assistance
- Commitment to enhance capacity of civil servants in MEF and BCE via capacity building and technical assistance with international organizations including the Fund.
- Support on cash management includes assignment of a long-term expert.
- Requested technical assistance on fiscal risks, fiscal rules, MTFF, and fiscal coordination.
- Plan to request IMF support for expenditure review; agreed to undertake:
  - Public Investment Management Assessment (PIMA) in the first quarter of 2021.
  - Fiscal Transparency Evaluation (FTE) in the second quarter of 2021.
- Continue working with the Fund on a customized Financial Programming and Policies (FPP) for Ecuador.
  - MEF and BCE technical staff received virtual training on FPP.
  - Core capacity building to deliver a customized macro-framework scheduled for delivery in the second quarter of 2022.
- Improve balance of payments statistics and national accounts:
  - Work to improve quality and coverage of information on the private sector for external sector statistics, drawing on micro data where relevant.
  - Continue efforts to ensure the transition to BPM6 is fully implemented and improve International Investment Position compilation and dissemination per IMF recommendations.
- Various superintendencies (banks, cooperatives and mutuals) receiving technical assistance on stress tests.
- Financial and Economic Analysis Unit (UAFE) and Superintendency of Banks receiving technical assistance to strengthen AML/CFT framework.
- Further technical assistance contemplated with the Office of the Comptroller General to strengthen anti-corruption capacities.

### Program monitoring and reviews
- Program to be monitored based on performance criteria, indicative targets, and structural benchmarks as set out in Tables 1, 2, and 3 and the Technical Memorandum of Understanding.
- Expected review schedule:
  - Fourth Review on or after December 15, 2021.
  - Fifth Review on or after April 15, 2022.

*Source: 1ecuea2021001 - 32. Separately, we are also interested in updating the overall provisioning framework*

### 2. Accumulation of NFPS deposits at the central bank (

### 2. Accumulation of NFPS deposits at the central bank (floor)

### Quantitative performance criteria — accumulation of NFPS deposits and related PCs
- End-Sep. 2021 (Program / Adj. 3/ / Actual / Status)
  - Overall balance of the budgetary central government and CFDD (floor)1/: Program -4,005 / Adj. -3,893 / Actual -3,655 — Met
  - Accumulation of NFPS deposits at the central bank (floor)1/: Program 300 / Adj. 487 / Actual 1,293 — Met
  - Non-accumulation of external payments arrears (continuous PC): Program 0 / Adj. 0 / Actual 0 — Met
  - (No new) Net credit to government from the central bank (continuous PC): Program 0 / Adj. 0 / Actual 0 — Met
- End-Dec. 2021 (Program / Adj. 3/ / Actual / Status)
  - Overall balance of the budgetary central government and CFDD (floor)1/: Program -241 / Adj. -305 / Actual -184 — Met
  - Accumulation of NFPS deposits at the central bank (floor)1/: Program -47 / Adj. 22 / Actual -55 — Not Met
  - Non-accumulation of external payments arrears (continuous PC): Program 0 / Adj. 0 / Actual 0 — Met
  - (No new) Net credit to government from the central bank (continuous PC): Program 0 / Adj. 0 / Actual 0 — Met
- End-Apr. 2022 and End-Aug. 2022 (Program / Actual)
  - End-Apr. 2022 — Overall balance: Program -2,301 / Actual -4,188
  - End-Apr. 2022 — Accumulation of NFPS deposits at the central bank (floor)1/: Program 899 / Actual 1,527

Notes:
- 1/ Cumulative change from January 1, 2021.
- 3/ Adjusted for oil prices (and for disbursements from multilateral institutions and China for NFPS deposits) as per the TMU.

### Indicative targets reported alongside NFPS deposits
- End-Sep. 2021 (Program / Adj. 3/ / Actual / Status)
  - Non-oil primary balance of the NFPS (including fuel subsidies) (floor)1/: Program -5,467 / Adj. -5,355 / Actual -4,072 — Met
  - Overall balance of the NFPS (floor)1/: Program -5,656 / Adj. -5,544 / Actual -4,334 — Met
  - Change in the stock of NIR - program definition (floor)1/: Program -4,228 / Adj. -4,041 / Actual -2,357 — Met
  - Coverage of the cash transfer programs for lower income families - number of families (floor)2/: Program 226,000 / Adj. 226,000 / Actual 271,668 — Met
- End-Dec. 2021 (Program / Adj. 3/ / Actual / Status)
  - Non-oil primary balance of the NFPS (including fuel subsidies) (floor)1/: Program -572 / Adj. -636 / Actual -90 — Met
  - Overall balance of the NFPS (floor)1/: Program -273 / Adj. -337 / Actual 842 — Met
  - Change in the stock of NIR - program definition (floor)1/: Program -579 / Adj. -110 / Actual 542 — Met
  - Coverage of the cash transfer programs for lower income families - number of families (floor)2/: Program 384,600 / Adj. 384,600 / Actual 443,619 — Met
- End-Apr. 2022 and End-Aug. 2022 (Program / Actual)
  - End-Apr. 2022 — Non-oil primary balance: Program -3,368 / Actual -6,030
  - End-Apr. 2022 — Overall balance of the NFPS: Program -513 / Actual -2,422
  - End-Apr. 2022 — Change in the stock of NIR: Program 38 / Actual 717
  - End-Apr. 2022 — Coverage of cash transfer programs — Program 453,700 / Actual 514,000

Notes:
- 1/ Cumulative change from January 1, 2021.
- 2/ Cumulative change from July 1, 2020.
- Note: Aggregates and adjustors as defined in the Technical Memorandum of Understanding (TMU).

### Additional quantitative performance and indicative targets (2022)
- Quantitative performance criteria (2022, Program / Actual)
  - Overall balance of the NFPS (floor)1/: 713 / 1,117
  - Accumulation of NFPS deposits at the central bank (floor)1/: 678 / 1,135
  - Non-accumulation of external payments arrears (continuous PC): 0 / 0
  - (No new) Net credit to government from the central bank (continuous PC): 0 / 0
- Indicative targets (2022)
  - Non-oil primary balance of the NFPS (including fuel subsidies) (floor): -76 / -991
  - Change in the stock of NIR - program definition (floor)1/: 432 / 693
  - Coverage of cash transfer programs for families in the bottom three income deciles - percent of families in each province (floor): 60.0 / 65.0
  - Coverage of cash transfer programs for families in the first income decile - percent of families in the first income decile (floor): 50.0 / 57.5
  - Coverage of cash transfer programs for families in the first income decile - number of families (floor)2/: 625,600 / Ⲻ

Notes:
- 1/ Cumulative change from January 1, 2022.
- 2/ Cumulative change from July 1, 2020.
- Note: Aggregates and adjustors as defined in the Technical Memorandum of Understanding (TMU).

### Summary of selected Prior Actions (PAs) and Structural Benchmarks (SBs) relevant to fiscal management and transparency
- Prior Actions (completed or with status):
  - Make procurement contracts exceeding US$962,410 awarded since September 2020 available on procurement website with legal ownership and, when available, beneficial ownership information — Objective: Strengthen anticorruption and AML/CFT; Status: Prior action.
  - Consolidate COVID-19 audit work in a dedicated webpage within the Comptroller General Office website, providing access to published independent audit reports and summaries where full reports cannot be published — Objective: Improve expenditure control, including COVID related spending, and governance; Status: Prior action.
  - Prepare and present to IMF staff a central government financial plan for the remaining of year 2021 approved by the Financial Committee, including detailed monthly cash flow, arrears as of July 2021 verified by MEF, 2021 clearance estimate and monthly accumulation data, risks, mitigating measures, and explanation of deviations from the December 2020 plan — Objective: Improve institutional capacity and identify early warning signs of impending liquidity constraints; Status: Prior action.
- Selected Structural Benchmarks (examples and statuses):
  - Adopt regulation to implement July 2020 amendments to COPLAFIP covering public debt, MTFF, budget preparation and ceilings, fiscal strategy publication, cash management and arrears, fiscal risk management, corrective measures, and fiscal rules — Objective: Strengthen PFM and fiscal discipline; Due: End-Nov. 2020; Status: Implemented with delay.
  - BCE internal audit charter aligned with international standards approved by JPRF — Objective: Improve the BCE’s audit mechanisms; Due: End-Nov. 2020; Status: Met.
  - Enhance online publication of asset declarations of high-level public officials/PEPs with itemized incomes, assets and liabilities — Objective: Strengthen anticorruption and AML/CFT; Due: End-Nov. 2020; Status: Partially implemented; proposed new SB to advance reform.
  - Deliver to IMF staff a PGE financial plan for 2021 approved by the Financial Committee — Objective: Improve institutional capacity; Due: Dec. 16, 2020; Status: Met.
  - Enactment of anticorruption legislation criminalizing acts of corruption in line with UNCAC Articles 15–30 — Objective: Strengthen anticorruption; Due: End-Dec. 2020; Status: Met.
  - Enactment of amendments to the Central Bank legal framework (COMYF) to strengthen autonomy and governance of the BCE — Objective: Strengthen autonomy and governance; Due: End-Jan. 2021; Status: Not met. Implemented with delay in April.
  - Publish a Medium-Term Debt Management Strategy (MTDS) with IMF TA support — Objective: Facilitate domestic debt market development and increase transparency; Due: End-Feb. 2021; Status: Met.
  - Share updated arrears clearance strategy with IMF staff including updated stock of arrears as of end-2020 — Objective: Strengthen monitoring and reduce accumulation of payment arrears; Due: End-Apr. 2021; Status: Not met. Converted to new benchmark.
  - Correct and publish historical NFPS data above- and below-the-line back to 2012 — Objective: Improve quality of fiscal statistics; Due: End-May 2021; Status: Not met. Implemented with delay in August.
  - Prepare a compilation guide, in consultation with IMF TA, and disseminate to data providers across the NFPS through a workshop — Objective: Improve quality of fiscal statistics; Due: End-May 2021; Status: Met.
  - Undertake an independent audit of COVID-19-related spending by the Office of the Comptroller General and publish results — Objective: Improve expenditure control; Due: End-Jun. 2021; Status: Not met. Reset as PA.
- Additional SBs and newly proposed benchmarks cover tax reform, procurement transparency and SNC establishment, SOE audits (Petroecuador and Petroamazonas), third-party asset quality reviews for public banks, arrears reporting methodology, establishment of NFCC, social registry upgrade and expansion of social assistance coverage, conflict-of-interest legislation, AML/CFT legislation, and staged deadlines through 2022.

### Technical Memorandum of Understanding (TMU) — program definitions and exchange rates
- TMU establishes definitions of PCs and ITs, assessment methods, and information requirements for program monitoring.
- Any variable not explicitly defined is to follow the Fund's standard statistical methodology.
- Program exchange rates (US Dollar to ... as of July 31, 2020; Source: Bloomberg)
  - US Dollar to Euro 0.85
  - US Dollar to Renminbi 6.98
  - US Dollar to Yen 105.83
  - US Dollar to SDR 0.71
  - US Dollar to British Pound 0.76
  - US Dollar to South Korean Won 1,191.03
  - US Dollar to Swiss Franc 0.91
  - US Dollar to Canadian Dollar 1.34
  - US Dollar to Danish Krone 6.32
  - US Dollar to Swedish Krone 8.78
  - US Dollar to Norwegian Krone 9.10
  - US Dollar to Australian Dollar 1.40
  - US Dollar to Mexican Peso 22.28
  - US Dollar to Colombian Peso 3,732.71
  - Gold prices (US$/ounce) 1,975.86

*Source: IMF — 1ecuea2021001 (Tables and TMU excerpts as provided).*

### 6. Change in the stock of NIR - program definition (

### 6. Change in the stock of NIR - program definition (floor)

### Quantitative performance criteria: definitions of variables
- Budgetary central government (Gobierno Central or CG) and CFDD:
  - CG includes PGE (including universities).
  - CFDD: Cuenta de Financiamiento de Derivados Deficitarios (account of financing oil derivatives).
- Overall balance of CG and CFDD:
  - Defined as total revenues of CG and CFDD minus their total spending.
- Total revenues (recorded on cash basis) explicitly include:
  - Revenues from oil exports;
  - Revenues from the domestic sales of oil derivatives;
  - Interest revenues;
  - Tax revenues (ingresos tributarios);
  - Other revenues (otros ingresos);
  - Proceeds from asset monetization (revenues from leasing of assets owned by CG and CFDD).
- Total spending (recorded on an accrual basis) comprises:
  - Wages and salaries (sueldos y salarios);
  - Purchases of goods and services (compra de bienes y servicios);
  - Interest expenditure (interés);
  - Other current spending;
  - Capital expenditures (including capital transfers and other investment outlays).
- Other current spending includes the cost of imports and local purchases of petroleum derivatives (Cuenta de Financiamento de Derivados Deficitarios).
- Treatment of public-private partnerships:
  - Government-funded PPPs treated as traditional public procurements.
  - CG obligations accrued on PPPs recorded in budget data and measured as part of the CG deficit as they accrue.
  - Accrued but not settled PPP obligations recorded as either public debt or contingent liabilities depending on nature.
- Costs associated with divestment or liquidation of public entities (e.g., contract cancellations, severance payments) are recorded as spending.
- Expenditures recorded as a credit in “Account 99” (due to lack of corresponding budget allocations) will be recorded above-the-line as spending on an accrual basis as spending obligations accrue.

### Monitoring requirements for CG and CFDD
- All fiscal data needed for program monitoring will be provided to the Fund within 45 days from the end of each test date as shown in Table 2.
- Preliminary monthly data will be provided with a lag of no more than 30 days after the end of each month.

### Adjustors affecting the floor on the overall balance of CG and CFDD
- Oil price adjustor:
  - The floor will be adjusted upward/downward by US$23.85 million at corresponding test dates for each US$1 per barrel that the average Ecuador mix crude oil price is above/below the program assumption in Table 3.
  - This adjustor is capped at US$119.33 million at corresponding test dates.
  - The average Ecuador mix oil price is calculated as total value of crude oil exports divided by total volume of oil exports over the period since the prior test date.
  - Table 3 sample values: Ecuador mix crude oil price (US$ per barrel) — September 62.1, December 62.1, April 56.1, August 54.6.
- Adjustor on external financing from China:
  - The floor will be adjusted downward by the amount of excess in external loan disbursements from China relative to baseline in Table 4.
  - Cumulative maximum through end-December 2021: US$300 million.
  - Table 4 reported expected disbursements from China (cumulative): 2021: from January 1 — 209.4; 2022: from January 1 — 209.4/209.4/0.0/0.0 (as shown in table layout).

### Definitions: Non-Financial Public Sector (NFPS) and scope
- NFPS consists of:
  - CG and CFDD;
  - Decentralized Autonomous Governments (municipal, provincial, parish boards);
  - Social Security Funds (including IESS, ISSFA, ISSPOL and BIESS);
  - Non-Financial State Owned Enterprises (SOEs detailed in Table 5);
  - Development Bank of Ecuador (BDE);
  - Accounts related to payments to private operators of oil concessions (Ministerio de Energia y Recursos Naturales no Renovables).
- The Central Bank of Ecuador (BCE) is outside the NFPS perimeter.
- Table 5: Non-Financial Public Sector Corporations covered:
  - Empresa Pública de Exploración y Explotación de Hidrocarburos Petroamazonas - PAM;
  - Empresa Pública de Hidrocarburos del Ecuador Petroecuador - PEC;
  - Empresa Pública Flota Petrolera Ecuatoriana-EP FLOPEC;
  - Empresa Nacional de Ferrocarriles del Ecuador – ENFE (*);
  - Empresa Pública Línea Aérea del Ecuador TAME (*);
  - Empresas Públicas Menores (Empresas de Agua Potable).
  - (*) SOEs in liquidation process remain in fiscal data until liquidation finishes.

### Floor on the accumulation of NFPS deposits at the BCE: definitions, monitoring, and adjustors
- NFPS deposits at the BCE include all depository liabilities (time and on-call deposits) at the BCE of the NFPS.
- Measurement:
  - Accumulation at each test date = change in stock of deposits between first and last day of corresponding test dates as in Table 2.
- Data provision:
  - NFPS deposits data provided weekly within 5 business days following end of the week.
- Adjustors:
  - External borrowing adjustor:
    - Floor adjusted upward/downward by amount of NFPS borrowing from non-residents above/below program, net of issuances related to liability-management operations with no net impact on outstanding NFPS debt.
    - International borrowing comprises issuance of international bonds.
    - Table 6 sample: Total market issuance consistent with program targets (cumulative) — 0.0 across September, December, April, August.
  - Disbursements from multilateral institutions adjustor:
    - Floor adjusted upward/downward by excess/shortfall in program loan disbursements from IMF, IADB, World Bank, CAF, and FLAR, and grants relative to baseline in Table 7.
    - Program loan disbursements defined as external loan disbursements (excluding project financing disbursements) from official creditors that are freely usable for financing NFPS budget operations.
    - Table 7 sample: Expected disbursements of program loans by multilaterals (cumulative) — 2021/2022: 1/ 1483.0/3803.0/300.0/600.0 (as shown across test dates).
  - Oil price adjustor (same specification as for CG/CFDD):
    - Floor adjusted upward/downward by US$23.85 million per US$1 per barrel deviation of average Ecuador mix crude oil price from Table 3 assumption.
    - Capped at US$119.33 million at corresponding test dates.

### Ceiling on external payment arrears by the NFPS
- Definition of external debt:
  - Determined by residency criterion except for debt securities where place of issuance applies.
  - Debt defined as a current liability under contractual arrangement requiring future asset or service payments that discharge principal and/or interest.
  - Forms include loans, suppliers’ credits, and leases (present value at inception excluding operation/maintenance payments).
- Arrears, penalties, and judicially awarded damages arising from failure to make payment on contractual obligations that constitute debt are debt.
- External payment arrears for program monitoring:
  - Defined as (i) external debt obligations (principal and interest) falling due after September 30, 2020 that have not been paid within 90 days of the due date (considering contractual grace periods), and (ii) payment arrears on goods delivered or services rendered by external entities.
- Coverage exclusions:
  - Arrears on short-term trade credit or letters of credits;
  - Arrears on debt subject to renegotiation or restructuring;
  - Arrears from nonpayment of commercial claims subject to litigation initiated prior to September 30, 2020.
- Monitoring: This performance criterion will be monitored on a continuous basis.

### Ceiling on new gross central bank direct financing to the NFPS and indirect financing to the NFPS through public banks
- Definitions:
  - Includes overdraft transfers from BCE to NFPS entities, advance distribution of unrealized BCE profits, BCE acquisition of government debt on the primary market or by purchase from public institutions, and BCE lending to public banks for acquisition of government debt on primary market or by purchase from public institutions.
  - Note: For this target, any restructuring of the debt originally owed by the Ministry of Economy and Finance to Goldman Sachs that was subsequently transferred to the BCE will not be considered as financing to the NFPS.
- Monitoring:
  - Continuous monitoring.
  - Monthly data on amortizations and disbursements of credit to NFPS and to publicly-owned banks for financing the NFPS provided within five business days to the Fund.

### Indicative target: Floor on the non-oil primary balance including fuel subsidies of the NFPS
- Definitions:
  - Non-oil primary balance including fuel subsidies = non-oil primary balance of NFPS minus spending on subsidies on petroleum products.
  - Non-oil primary balance of NFPS = total non-oil revenues minus primary non-oil spending.
- Primary non-oil revenues (recorded on cash basis) explicitly include:
  - Tax revenues (ingresos tributarios), excluding corporate income tax paid by state-owned oil companies;
  - Social security contributions (contribuciones sociales);
  - Other revenues (otros ingresos);
  - Proceeds from asset monetization (leasing of assets owned by NFPS).
- Revenues explicitly excluded from primary non-oil revenues:
  - Interest income (cash basis);
  - Proceeds from sale of financial assets;
  - Revenues from privatization of government-owned entities;
  - Revenues from oil exports;
  - Revenues from domestic sales of oil derivatives;
  - Operating surplus of state-owned oil companies (PetroAmazonas and PetroEcuador).
- Primary non-oil spending (accrual basis) comprises:
  - Wages and salaries (sueldos y salarios);
  - Purchases of goods and services (compra de bienes y servicios);
  - Social security benefits (prestaciones sociales);
  - Other current spending;
  - Capital expenditures not related to oil investment.
  - Other current spending excludes cost of imports of petroleum derivatives (Cuenta de Financiamento de Derivados Deficitarios) and payments to private operators of oil concessions (Ministerio de Energia y Recursos Naturales no Renovables).
- Petroleum product subsidies defined:
  - Difference between distributor sale price and cost of product.
  - Cost = weighted average between cost of imported petroleum derivative products and domestically produced petroleum products, plus cost of transportation, storage, and commercialization.
  - For domestically produced products, export price of eastern crude (opportunity cost) and cost of refining considered as raw material costs.
  - Import cost includes price at FOB plus freight and insurance.
- Treatment of PPPs, divestment costs, and Account 99 expenditures: same treatment as other NFPS definitions (recorded transparently and on accrual basis).
- Monitoring:
  - All fiscal data needed for program monitoring provided to the Fund within 60 days from end of each test date as in Table 2.
  - Data submission includes below-the-line data.
  - Preliminary monthly data provided with lag no more than 45 days after end of each month.
- Adjustors:
  - Oil price adjustor:
    - Floor adjusted downward/upward by US$23.85 million per US$1 per barrel deviation of average Ecuador mix crude oil price from Table 3 assumption.
    - Capped at US$119.33 million at corresponding test dates.
  - External financing from China adjustor:
    - Floor adjusted downward by amount of excess in external loan disbursements from China relative to baseline in Table 4.
    - Cumulative maximum through end-December 2021: US$300 million.

### Floor on the overall balance of the NFPS
- Definitions:
  - Overall balance of NFPS = non-oil primary balance of NFPS + oil balance of NFPS + interest revenues of NFPS − interest expenditures of NFPS.
  - Oil balance of NFPS = (i) revenues from oil exports + (ii) revenues from domestic sales of oil derivatives + (iii) operating surplus of state oil companies (PetroAmazonas and PetroEcuador) − (i) expenditures on investment in the oil sector − (ii) expenditures on imports of petroleum derivatives (de Financiamento de Derivados Deficitarios) − (iii) payments to private oil companies (Ministerio de Energia y Recursos Naturales no Renovables).
  - NFPS interest expenditures measured on cash basis; all other expenditures measured on accrual basis.

*Source: 1ecuea2021001 - 6. Change in the stock of NIR - program definition (PDF chapter).*

### 40.      All fiscal data referred to above and needed for program monitoring purposes will be

### 1ecuea2021001 - 40.      All fiscal data referred to above and needed for program monitoring purposes will be

### Monitoring timetable and general data provision
- All fiscal data needed for program monitoring will be provided to the Fund with a lag of no more than 60 days after the end of each test date as shown in Table 2.
- Preliminary data will be provided with a lag of no more than 45 days after the end of each month.
- Foreign exchange asset and liability data will be provided to the Fund at weekly frequency within 5 business days following the end of the week.
- Export price of Ecuador mix crude oil will be provided with a lag of no more than 20 days after the closing of each month.
- Detailed balance of payments data: no later 90 days after the end of the quarter.

### Adjustors affecting fiscal and reserve floors
- Adjustor on oil prices (overall NFPS balance):
  - The floor on the overall balance of the NFPS will be adjusted upward/downward by US$23.85 million at corresponding test dates for each US$1 per barrel that the average Ecuador mix crude oil price is above/below the program assumption defined in Table 3.
  - This adjustor is capped at US$119.33 million at corresponding test dates.
  - The average price of Ecuador mix oil price will be calculated as the total value of crude oil exports divided by the total volume of oil exports over the period since the prior test date.
- Adjustor on external financing from China:
  - The floor on the overall balance of the non-financial public sector will be adjusted downward by the amount of excess in external loan disbursements from China relative to the baseline projections reported in Table 4, up to a cumulative maximum through end-December 2021 of US$300 million.
- Adjustor on external borrowing (NIR):
  - The floor on net international reserves will be adjusted upward/downward by the amount of borrowing from non-residents above/below that envisioned under the program, as reported in Table 6 and net of issuances related to liability-management operations that have no net impact on the outstanding stock of NFPS debt. International borrowing will comprise issuance of international bonds.
- Adjustor on multilateral disbursements (NIR):
  - The floor on net international reserves will be adjusted downward/upward by the shortfall/excess in loan disbursement by multilateral institutions (the IADB, World Bank, CAF, and FLAR), and grants, relative to the baseline projection reported in Table 7.
  - Program loan disbursements are defined as external loan disbursements (excluding project financing disbursements) from official creditors that are freely usable for the financing of the NFPS budget operations.
- Adjustor on oil prices (NIR):
  - The floor on net international reserves will be adjusted upward/downward by US$23.85 million at corresponding test dates for each US$1 per barrel that the average Ecuador mix crude oil price is above/below the program assumption defined in Table 3.
  - This adjustor is capped at US$119.33 million at corresponding test dates.
  - The average price of Ecuador mix oil price will be calculated as the total value of crude oil exports divided by the total volume of oil exports over the period since the prior test date.
- Note on China adjustor: "The adjustor for disbursements from China is temporarily removed given that disbursements are not currently built into the baseline projections. It would be reintroduced when disbursements are projected in the baseline."

### Net International Reserves (NIR) — definitions and measurement
- NIR definition:
  - NIR are computed as the US dollar value of the usable gross international reserve assets of the BCE minus (i) gross reserve related liabilities to nonresidents of the BCE, and (ii) the reserve holdings of domestic banks and deposits of other financial institutions held at the BCE.
  - Non-U.S. dollar denominated foreign assets and liabilities will be converted into U.S. dollar at the program exchange rates.
- Usable gross international reserve assets comprise:
  - (i) currency and deposits;
  - (ii) monetary gold;
  - (iii) holdings of SDRs;
  - (iv) the reserve position in the IMF;
  - (v) securities (including debt and equity securities);
  - (vi) financial derivatives; and
  - (vii) other claims (loans and other financial instruments).
- Specifically excluded from gross international reserves:
  - Any precious metals or metal deposits, other than monetary gold, held by the BCE;
  - Assets in nonconvertible currencies and illiquid assets;
  - Claims on residents;
  - Any reserve assets that are pledged, collateralized or otherwise encumbered (in so far as those assets are not already excluded), including assets tied up in repurchase agreement transactions;
  - Net positions with ALADI and SUCRE.
- Gross reserve-related liabilities comprise:
  - All short-term liabilities of the BCE vis-à-vis non-residents denominated in convertible foreign currencies with an original maturity of one year or less;
  - Short-term loans, securities, and other liabilities (excluding account payables) of the central government with an original maturity of less than 30 days;
  - The stock of IMF credit outstanding;
  - The nominal value of all derivative positions (including swaps, options, forwards, and futures) of the BCE, implying the sale of foreign currency or other reserve assets.
- Reserve holdings of domestic banks held at the BCE:
  - All liabilities of the BCE to other depository institutions (otras sociedades de depósitos, as defined in the BCE’s Metodología: Información Estadística Mensual, 4th Edition of May 2017).
- Deposits of other financial institutions at the BCE:
  - All liabilities of the BCE to other financial institutions (otras sociedades financieras, as defined in the BCE’s Metodología: Información Estadística Mensual, 4th Edition of May 2017), with the exception of deposits of the BIESS, including those held in trust funds (“fideicomisos BIESS y fideicomisos IESS).
- Monitoring of NIR:
  - The change in net international reserves (NIR) will be measured as the cumulative change in the stock of NIR between test dates in Table 2.

### Social assistance coverage of poor families — definitions and monitoring
- Definition of coverage:
  - Social assistance coverage of poor families is computed as the sum of all active beneficiary families in the three bottom deciles of the income distribution that benefit from at least one social assistance programs.
  - Poor beneficiary families are defined according to information in the RS2018.
  - Coverage expansion will occur through the following social assistance programs: Bono de Desarrollo Humano (BDH), Bono de Desarrollo Humano Variable (BDH-V), Personas con discapacidad, Pensión para Adultos Mayores, Mis mejores años, and Pensión Toda Una Vida.
  - The level (size) of benefits of any of the cash transfer programs in the bottom three deciles of the income distribution should not be reduced (with respect to their level on September 30, 2020).
- Monitoring:
  - Monthly data on (i) number of poor families with at least one active beneficiary in any of the social assistance programs, and (ii) monthly data on numbers of registries with information updated and validated following RS2018 by income decile will be provided to the Fund with a lag of no more than 30 days after the end of each month.

### Public debt definitions and NFPS debt coverage
- Debt instrument definition (GFSM 2014 and Public Sector Debt Guide):
  - Total gross debt covers all liabilities that are debt instruments.
  - A debt instrument is defined as a financial claim that requires payment(s) of interest and/or principal by the debtor to the creditor at a date, or dates, in the future.
  - Instruments considered debt instruments:
    - Special drawing rights (SDRs);
    - Currency and deposits;
    - Debt securities;
    - Loans;
    - Insurance, pension, and standardized guarantee schemes; and
    - Other accounts payable.
- Exclusions from debt in GFSM balance sheet:
  - Equity and investment fund shares and financial derivatives and employee stock options are not considered debt.
- For the program, Ecuador’s NFPS debt includes:
  - Debt Securities including short term liquidity instruments (held by nonresidents, and by residents not included in the Non-Financial Public-Sector entities);
  - Loans;
  - Other Accounts Payables.
- Consolidation and cross-holdings:
  - Any liabilities issued by entities of the NFPS, held as an asset by other entity of the NFPS should be netted out.
  - Since consolidation is done at the level of NFPS, central bank lending to the government is included in the stock of NFPS debt.
- Monitoring:
  - The data on NFPS stock of debt in US$ will be provided to the Fund monthly with a lag of no more than 60 days after the end of each month.
  - The data submission will also include cross-holdings among NFPS entities.

### Data frequency and templates — daily, weekly, monthly requirements
- Daily (no later than 1 business day after the end of the day):
  - Daily monetary and financial data in the template agreed with Fund staff, including at least:
    - movements of international reserves by inflows and outflows;
    - main balance sheet accounts of financial institutions, broken down by private banks, cooperatives and mutuals;
    - daily oil production.
- Weekly (no later than 5 business days after the end of the week):
  - Consolidated balance sheets of the banking system, by main accounts, including deposits in the banking system, available funds, credit to the private sector, and credit to the government.
  - BCE balance sheet. Financial indicators: deposits of banks at the BCE.
  - Weekly monetary data in the template agreed with Fund staff.
  - Weekly data on international reserves and foreign currency liquidity, in line with SDDS requirements, no later than 5 business days after the end of the week.
- Monthly (various templates and lags):
  - Data on stocks and flows (above- and below the line), disaggregated by each subsector of the NFPS (budgetary central government and CFDD, rest of the central government, subnational governments, SOEs and social security) using templates previously agreed with the IMF team.
  - One template with detailed data on revenues and expenditures of each of the subsectors and the consolidations between them.
  - Another template with data by subsectors with a summary of above the line data and the comparison with the below the line data for monitoring the statistical discrepancy and data on stocks of financial assets and liabilities and the financing (below the line data) also by subsectors.
  - NFPS financing data compiled based on detailed information on financial assets and liabilities, namely, deposits, loans, securities, equities, other accounts payable including oil related, and their amortizations, disbursements and arrears accumulation.
  - NFPS cash flow data from the beginning to the end of the current fiscal year, with a lag of no more than 60 days after the closing of each month. This will include expected monthly amortizations and repayments on NFPS debt as defined above.
  - Provision of detailed information on collateralized debt and debt with similar arrangements, such as repo transactions and other similar debt involving the pledge, sale/resale, or encumbrance of assets within 2 weeks of signing new contracts. Information to include: all contracts related to such debt; information on the escrow accounts overseas that serve as collateral; and detailed information for each creditor on the stock of debt, its terms (including on the amounts pledged, sold/resold, or encumbered, as well as any related commitments or obligations to purchase related or unrelated goods and/or services from the lender), and expected repayment schedules.
  - Data to determine the latest net SDR position at the end of each month. For the central government, this would include total external liabilities with the SDR department. For the central bank, this would include total SDR holdings. All reported data should be denominated in SDRs.

*Source: 1ecuea2021001 - 40.*

### 69.      Detailed fiscal and debt data by the subsectors of NFPS, no later than 60 days after the

### 69.      Detailed fiscal and debt data by the subsectors of NFPS, no later than 60 days after the 

### Quarterly NFPS fiscal and debt reporting requirement
- Timeliness: Detailed fiscal and debt data by the subsectors of the Non-Financial Public Sector (NFPS) to be provided no later than 60 days after the end of the quarter.
- Content scope: Includes above and below the line data, summary of the statistical discrepancy, calendar of amortization and payment of interest by instrument of debt stock at the end of the quarter, and stock of gross debt.

### NFPS data coverage and recent dissemination
- Published NFPS time series coverage: January 2012 up to December 2020 for revenues, expenditures, and financing data for NFPS and its subsectors (Central Government, Social security Funds, Local Government and a sample of SOEs).
- Identified improvements: National classification of revenues and expenditures updated and improved to allow future participation in the Government Finances Statistics Yearbook (GFSY) based on GFSM 2014.
- Remaining gaps: Further improvement needed in provision and dissemination of consolidated NFPS Debt Statistics Data broken down by sector.

### Fund relations and safeguards (selected facts)
- Membership status: Joined: December 28, 1945, Article VIII.
- Central bank (BCE) safeguards assessment: An update finalized in June 2019 with recommendations on restoring BCE autonomy and strengthening credibility of dollarization regime.
- Central bank law (COMYF): Enacted in April 2021; authorities have implemented most recommendations and are on track to implement the remainder with some delay.
- Remaining BCE tasks: Adopting IFRS accounting standards; making the Audit Committee operational by appointing its members; intend to publish the audit opinion on the BCE financial statements starting with the 2021 report (MEFP ¶26).

### Exchange rate arrangement and related measures
- De facto/de jure arrangement: Arrangement with no separate legal tender; local coins in circulation about US$80 million.
- Historical: Dollarization adopted March 9, 2000 at 25,000 sucres per U.S. dollar.
- Exchange restriction: A 5 percent tax on transfers for the making of payments and transfers abroad on current international transactions (with exemptions); SUCRE regional payments arrangement creates an exchange restriction because settlement period exceeds three months.
- Recent change: Executive Decree lowering the tax rate to zero for foreign airline companies operating in Ecuador; published in the official gazette on September 22, 2021.

### Statistical practices and status (as of September 10, 2021)
- National accounts:
  - GDP series fixed base year: 2007.
  - Disseminated data spans: annual 2007-20; quarterly 2007Q1-2021Q1.
  - GDP by income approach: published annually up to 2019.
  - Annual gross fixed capital formation: disseminated by product; disaggregation of private and public capital formation only available in current prices.
  - Ongoing work: updating the base year of the national accounts.
- Price statistics:
  - CPI: Laspeyres-type covering nine urban areas amounting to 83 percent of the population and 87 percent of the expenditure; weights based on 2011-12 household expenditure survey; current index reference period 2014.
  - PPI: Laspeyres-type with weights based on national accounts of 2013; current index reference period 2015; covers agriculture, forestry and fishing, and manufacturing.
  - Note: International best practices call for updating weights every five years.
- Monetary and financial statistics:
  - BCE compiles monetary statistics generally following the Monetary and Financial Statistics Manual.
  - Detailed monthly monetary data reported for central bank and other depository corporations using SRFs.
  - Integrated monetary database in progress.
  - Core FSIs for deposit-takers and five (out of 13) encouraged FSIs reported to STA monthly.
- External sector statistics:
  - Quarterly balance of payments and annual IIP compiled; migration to BPM6 completed in 2019.
  - Quarterly external debt data and monthly Template on International Reserves and Foreign Currency Liquidity disseminated.
  - Areas for strengthening: quality and coverage of BOP and IIP, enhance coverage and analysis of quarterly NFPS data for ESS, and better use of available source data for ESS.
- Data standards:
  - SDDS subscriber since March 27, 1998; met all SDDS requirements on July 14, 2000.

### Data frequency and recent observations (selected items from Table of Common Indicators)
- International Reserve Assets and Reserve Liabilities of the Monetary Authorities: Date of Latest Observation Jul, 2021; Date Received Aug, 2021; Frequency of Data M; Frequency of Reporting M; Frequency of Publication M.
- Reserve/Base Money: Date of Latest Observation Jul, 2021; Date Received Aug, 2021; Frequency M/M/M.
- Broad Money: Date of Latest Observation Jul, 2021; Date Received Aug, 2021; Frequency M/M/M.
- Central Bank Balance Sheet: Date of Latest Observation Jul, 2021; Date Received Aug, 2021; Frequency M/M/M.
- Consolidated Balance Sheet of the Banking System: Date of Latest Observation Jul, 2021; Date Received Aug, 2021; Frequency M/M/M.
- Interest Rates: Date of Latest Observation Aug, 2021; Date Received Aug, 2021; Frequency M/M/M.
- Consumer Price Index: Date of Latest Observation Mar, 2021; Date Received Apr, 2021; Frequency M/M/M.
- Revenue, Expenditure, Balance and Composition of Financing – General Government: Date of Latest Observation May, 2021; Date Received Aug, 2021; Frequency M/M/M.
- Revenue, Expenditure, Balance and Composition of Financing – Central Government: Date of Latest Observation May, 2021; Date Received Aug, 2021; Frequency M/M/M.
- Stock of consolidated Non-Financial Public Sector debt: Date of Latest Observation May, 2021; Date Received Aug, 2021; Frequency M/M/M.
- External Current Account Balance: Date of Latest Observation Q1/2021; Date Received Jul, 2021; Frequency Q/Q/Q.
- GDP/GNP: Date of Latest Observation Q1/2021; Date Received Apr, 2021; Frequency Q/Q/Q.
- Gross External Debt: Date of Latest Observation 2019; Date Received Jan, 2020; Frequency A/A/A.
- International Investment Position: Date of Latest Observation Q1/2021; Date Received Jul, 2021; Frequency Q/Q/Q.

### Recent program-related developments and policy measures (Statement by the Staff Representative and authorities, Sep 29, 2021)
- Labor market: September employment survey indicates unemployment rate declined by 0.6 ppt to 6.1 percent among women between June and August; remained flat at 4 percent among men. Adequate employment improved from 31.3 to 32.4 percent but remains below pre-pandemic level of around 40 percent.
- Prior actions completed for Second and Third Reviews:
  - Publication of procurement contracts awarded after September 2020 exceeding US$962,410 on SERCOP website, including legal ownership and, when available, beneficial ownership information. Of 522 contracts published, 119 were missing ultimate beneficial ownership information.
  - Approved audits of COVID-19 related spending during the state of emergency published on a dedicated webpage of the Comptroller General Office; summary identifies main findings including deficiencies in publication of contracting information, determination of reference budget, suppliers not complying with legal requirements, uncompetitive pricing, and deficiencies in technical specifications.
  - Authorities prepared and presented a central government financial plan for remainder of 2021 approved by the Financial Committee; plan includes detailed monthly cash flow, arrears until August 2021, clearance of arrears from past years and estimated monthly accumulation of arrears during 2021, potential risks and mitigating measures. Staff reviewing Plan for consistency with the program and PFM practices.
- National Development Plan (NDP) 2021-2025 (approved September 21):
  - Medium-term goals include achieving a real GDP growth rate of 5 percent, generating 2 million high-quality jobs, reducing rural poverty and malnutrition by 15 and 6 ppts respectively, expanding internet access by 10 percent to reach 78 percent coverage, and improving Transparency International perception of corruption ranking from 93 to 50 by 2025.
- Legislative actions and fiscal package:
  - Executive Decree reducing tax on transfers abroad for foreign airline companies to zero; published September 22, 2021.
  - National Assembly returned the 2021 Budget to government for clarification but will not affect enactment; authorities plan to resubmit without changes. Questions raised on oil price assumptions, inflation forecast, quantification of fuel subsidy savings, consistency of revenue forecasts, allocations to education and health, support to women, arrears to social security, and use of IMF SDR allocation.
  - Authorities submitted “Law for Creating Opportunities” package on September 24 under emergency procedures (30 days for Assembly to vote; failure to vote leads to automatic adoption). Main elements:
    - Tax bill: Reform personal income tax to increase contribution from those earning more than $2,000 per month; temporary tax on high net-worth individuals for two years; temporary tax on profitable large companies for one year; administrative measure to mediate tax disputes to raise permanent and temporary revenues; some exemptions and eliminations (e.g., some personal hygiene goods exempted from VAT; mobile phone plans exempted from excise taxes; 2 percent sales tax for micro, small and medium firms eliminated). Authorities estimate proposed bill may yield about $220 million (0.2 percent of GDP) per year in the next two years compared to MEFP commitments.
    - Labor bill: Increase flexibility in work arrangements, reduce rigidity in temporary contracts, allow hourly hiring schemes to promote formal employment and equity.
    - Competitiveness/investment measures: Allow private sector provision of some public services (utilities, transportation), reduce customs red tape, allow banks to invest in the stock market.

*Prepared by The Western Hemisphere Department (In Consultation with other Departments); information as presented in the IMF staff report and accompanying statements (September 2021).*

### 3.      The  former government took swift actions to  deal  with  the  health  and  economic

### 3. The former government took swift actions to deal with the health and economic challenges posed by the global pandemic

### Immediate crisis response and macroeconomic outcomes
- Concluded a debt restructuring with private creditors that provided much needed relief.
- Requested IMF support: initial RFI emergency disbursement followed by approval of an exceptional access 27-month Extended Arrangement (EFF).
- International technical and financial support from other IFIs was unlocked by the IMF arrangement.
- Economy contracted by 7.8 percent of GDP in 2020, but less than the 11.0 percent initially projected by staff.
- In the first quarter of 2021, the economy expanded by 0.7 percent (quarter-on-quarter).
- Fiscal position in 2020 was better than projected by staff; together with a higher nominal GDP, public debt at end-2020 was almost eight percentage points of GDP lower than projected by staff at the time of the EFF-supported program request.
- Inflation remains subdued; the financial system is liquid and well capitalized.

### Program performance and implementation
- Program implementation has been strong since the first review.
- All quantitative performance criteria for end-December 2020 and all but one for end-April 2021 were met.
- All indicative targets in the period were met.
- Authorities requested a waiver of the end-April 2021 quantitative performance criterion on the accumulation of NFPS deposits at the central bank, which was not met by a small margin; breach was minor and without significant macroeconomic effect.
- Authorities requested IMF technical assistance to improve management systems related to NFPS deposits.
- Structural reform progress:
  - Compilation guide for the government financial system concluded and published.
  - Historical revenue and expenditure statistics for each sector of the NFPS have been disseminated after initial publication challenges were overcome.
  - Progress on reviewing the medium-term debt strategy and better assessing domestic payments arrears with IMF technical assistance.

### Central bank and monetary institutional reforms
- April 2021 parliamentary reform granted the Central Bank of Ecuador (BCE) institutional independence to conduct monetary policy.
- Created the Monetary Commission (Junta Monetaria) to make monetary policy decisions; the Junta Monetaria will appoint the General Manager of the BCE.
- Appointment process: each member of the Junta Monetaria will be appointed by parliament out of a list of three candidates put forward by the President of the Republic.
- To strengthen the BCE balance sheet, shares of three state-owned banks held at the central bank (worth US$2.4 billion) were transferred to the ministry of finance, which agreed to repay the central bank in equal installments during 2021-2035.
- Legacy assets received by the BCE during the 1999 banking crisis will be removed from its balance sheet.

### Social protection and vulnerable populations
- Continued support to vulnerable populations most affected by the pandemic.
- Progress in updating the social registry to expand coverage of social assistance programs.
- Between July 2020 and end-April 2021, the number of beneficiary families increased substantially.
- Implementation pace affected by changes in the survey of poor families and lack of census data; authorities using pre-census data to expand reach.
- Government target: cover under these programs four-fifths of the families in the bottom three income deciles no later than April 2022.

### Near-term priorities of the new administration (health and outreach)
- Priority to bring the pandemic under control; comprehensive vaccination plan implemented.
- Administration reached its initial goal of vaccinating more than half of the adult population in the first one-hundred days in office ahead of time.
- As of September 20, 2021: 60 percent of the adult population received at least one dose of the vaccine, and 55 percent were fully vaccinated.
- Rapid vaccination rollout expected to enable a faster, stronger, and more equitable recovery.
- Immediate economic goal: shift from government-promoted to private sector-led growth; open the economy to the world.
- Government initiated conversations with Mexico, Colombia, Peru, and Chile on Pacific Alliance membership; bilateral and multilateral trade discussions underway, including with the United States and planned negotiations with China.

### Medium-term fiscal and tax priorities
- Fiscal consolidation emphasis on expenditure rationalization.
- Authorities target a reduction in primary spending by 4.2 percent of GDP by the end of the administration through:
  - Improvements in procurement practices: expected yield 1.5 percent of GDP.
  - Rolling back one-off expenditures (from this year): expected yield 0.9 percent of GDP.
  - Continued reduction in fuel subsidies: expected yield 0.9 percent of GDP.
  - Expenditure rationalization across items including the wage bill: expected yield 0.9 percent of GDP.
- Envisaged tax reform aims to increase revenues while making the system more equitable, simpler, and growth friendly:
  - Reducing tax expenditures in personal and corporate income taxes: combined 0.7 percent of GDP in additional revenues.
  - Revenue administration measures (Large Taxpayers Unit, improved customs controls, VAT compliance): yield 0.3 percent of GDP.
  - Special contributions from corporations and high net worth individuals and enhanced disclosure of foreign assets: generate 0.5 percent of GDP in one-time revenue collections.
  - Admission of Ecuador’s Internal Revenue Service (SRI) as a member of the Global Forum on Transparency and Information Exchange under the auspices of the OECD expected to help fight tax evasion.

### Transparency, governance, and financial sector reforms
- Continued strengthening of fiscal transparency with IMF technical assistance.
- COPLAFIP (fiscal responsibility law) amended to help anchor medium-term fiscal sustainability; COIP (anti-corruption framework) strengthened by criminalization of corruption offenses.
- Revised historical government financial statistics have been published.
- Fiscal Transparency Evaluation scheduled for the second semester of 2022.
- Updating the medium-term debt strategy to enhance debt transparency.
- Updating the registry of entities participating in public procurement and incorporating beneficial ownership identification requirements in public tenders; information to be accessible through SERCOP.
- AML/CFT legislation to be reviewed and amended, as needed, by end-March 2022 to incorporate the latest international standards.
- BCE prepared a reform proposal to promote financial inclusion and competition in the financial system to facilitate market-driven reductions in interest rates.

### Competitiveness and labor market reform
- Fostering competitiveness seen as key to boosting medium-term growth potential.
- On September 24, 2021, President Lasso presented to parliament the Draft Law on Creating Opportunities to establish a modern labor market framework with greater flexibility to promote job creation.
- Government committed to liberalizing foreign trade and improving businesses’ access to external trade and finance to create an environment for private investment, private sector-led growth, and job creation.

### Final assessment and outlook
- The EFF-supported program has been critical for Ecuador to mitigate and start overcoming the humanitarian and economic crisis triggered by the global pandemic.
- The program is fully financed and Ecuador’s capacity to repay the Fund remains adequate.
- Some signs of recovery are visible, but significant work remains.
- Continued support from the IMF and other IFIs is emphasized as essential for Ecuador to overcome the pandemic crisis, open the economy to the world, and pursue inclusive growth.

*Source: IMF staff report (excerpt).*

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_Source: https://www.imf.org/-/media/files/publications/cr/2021/english/1ecuea2021001.pdf_