## 1ecuea2024002-print-pdf

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### Executive summary — context and program objectives
- 48-month Extended Fund Facility (EFF) arrangement approved May 2024: SDR 3 billion (430 percent of quota, about US$4 billion).
- Core objectives:
  - strengthen fiscal sustainability, while protecting vulnerable groups;
  - safeguard dollarization and macroeconomic stability;
  - rebuild liquidity buffers;
  - enhance financial stability and integrity;
  - advance structural reforms for sustainable and inclusive growth.
- Noted reforms: overhaul of COPLAFIP; amendment of COMYF enhancing BCE independence; new anti-corruption legislation.
- Remaining challenges: fiscal imbalances, reliance on volatile oil revenues, financial sector vulnerabilities, thin domestic capital market, labor market rigidities and informality, low productivity, limited trade integration, governance challenges, rising insecurity, electricity shortages, climate vulnerabilities.
- Political calendar: presidential and legislative elections February 2025; new president takes office May 2025; first-round win requires 50 percent or over 40 percent with 10 percentage-point lead; otherwise second round April 2025.

### Recent macroeconomic developments
- Electricity crisis:
  - Historic drought in late 2024 severely reduced hydroelectric generation (about three quarters of the country’s electricity) causing nationwide outages.
  - Emergency measures: rent/purchase of barges/turbines to increase thermal generation; temporary VAT reduction on electric generators; partial household electric bill compensation (limited usage) Nov 2024–Feb 2025; one-off cash transfer program for three months beginning Dec 2024.
  - Electricity imports from Colombia resumed as of end-November 2024.
- Output and labor market:
  - Real GDP contracted in 2023H2, began to recover in 2024H1 driven by net exports; domestic demand weak.
  - Real GDP projection: contract by 0.4 percent in 2024; recover by 1.6 percent in 2025.
  - Labor market: gradual recovery; inadequate employment remained above pre-pandemic levels; youth disproportionately affected.
  - Poverty rate: 25.5 percent in 2024H1 (decreased slightly overall but increased in rural areas).
- Inflation:
  - Headline: 2.7 percent (y/y) in April 2024; 1.4 percent (y/y) as of October 2024.
  - Core inflation (excl. food, gas, fuel, lubricants): 2.1 percent (y/y) in October 2024.
- External sector and reserves:
  - Merchandise trade surplus: 4.2 percent of projected 2024 GDP Jan–Sep 2024 (up from 1.5 percent of GDP same period 2023).
  - Exports rose 9 percent (y/y); imports declined 6 percent (y/y).
  - Gross international reserves (GIR): US$4.5 billion at end-2023 → US$7.7 billion as of end-November 2024.
  - External position 2023: moderately weaker than implied by fundamentals; expected to improve in 2024 and medium term.
- Financial sector:
  - Total credit growth: 5.3 percent (y/y) in October 2024.
  - Total deposits growth: 12.6 percent (y/y) in October 2024.
  - Private banks: strong deposit and credit increases; credit cooperatives: modest deposit growth, very weak credit growth, higher NPLs, lower provisioning and profitability.
- Fiscal performance:
  - NFPS posted surplus US$1.8 billion (1.5 percent of GDP) Jan–Aug 2024 vs forecasted deficit US$1.5 billion (1.3 percent of GDP) at program approval.
  - NFPS deposits at BCE increased by US$1.5 billion since end-2023 to US$5.3 billion as of end-November 2024.
- Estimated fiscal cost of electricity crisis (authorities intend to absorb within existing fiscal envelope):
  - Estimated total cost about 0.9 percent of GDP in late 2024 and early 2025.
  - Staff estimates of components (In percent of GDP):
    - Decline in tax revenue: 2024 / 2025: 0.1 / 0.0
    - Higher capital spending: 2024 / 2025: 0.3 / 0.2
    - Transfers to electricity SOE: 2024 / 2025: 0.1 / 0.2
    - Cash transfers: 2024 / 2025: 0.1 / 0.0
    - Total: 2024 / 2025: 0.6 / 0.3
- Fiscal overperformance Jan–Aug 2024 (In percent of GDP; IMF staff estimates):
  - Oil balance 0.9
  - Nonoil revenue 0.3
  - Lower current expenditure 0.3
  - Lower capital expenditure 0.6
  - Decline in interest rates 0.1

### Outlook and risks
- Updated projections vs program approval:
  - Real GDP: -0.4 percent in 2024 (program approval: +0.1 percent); +1.6 percent in 2025.
  - Inflation: average 1.9 percent in 2024 (program approval: 2.4 percent).
  - Current account balance: surplus 4.4 percent of GDP in 2024 (program approval: 2.1 percent).
- Medium-term projections:
  - Growth rising toward estimated potential of 2½ percent.
  - Inflation converging to around 1½ percent.
  - Assumption: ITT oil production unwound gradually and offset by other fields over medium term.
  - Current account surplus stabilizes around 2½ percent of GDP.
  - GIR projected to rebuild to about 57 percent of ARA by end of program; including Liquidity Fund and liquid net foreign assets of domestic banking sector, liquidity buffers represent 96 percent of ARA by 2028.
- Risks (tilted to downside, overall high):
  - Downside: deterioration of security; prolonged electricity crisis; social discontent/political fragmentation after 2025 elections; decline in oil balance beyond assumptions; weakening balance sheet of some financial institutions; shortfalls in external financing; extreme weather events.
  - Upside: stronger-than-expected global growth; higher oil prices; faster improvements in security and energy; lower political fragmentation or increased reform appetite reducing risk premia.
- Authorities’ view: broadly concur with staff; expect normalization of activity in 2025 as hydro capacity normalizes and investments in generation proceed within existing capital envelope; optimistic about current account surplus and reserve trajectory citing mining exports, remittances, and moderate import growth.

### Program implementation, Article IV observations, and conditionality
- All quantitative performance criteria (QPCs) and indicative targets (ITs) for the first review met.
- Substantial progress on structural benchmarks (SBs); staff assesses exceptional access criteria continue to be met.
- Article IV highlights:
  - Ambitious strategy to strengthen fiscal sustainability while protecting priority social and investment spending.
  - Essential to strengthen financial sector oversight.
  - Recommendations to promote stronger and inclusive growth: improve security; strengthen energy sufficiency; increase female labor participation; enhance governance; foster competition; boost competitiveness.
  - Measures to reduce climate vulnerability would enhance macro resilience.

### Strengthening fiscal sustainability — revenue, consolidation, and financing
- Non-oil revenue:
  - Jan–Sep 2024 tax revenue rose 18 percent (y/y); expected ~17 percent increase for full year.
  - Represents annual rise ~1.8 percent of GDP; improvement equally driven by VAT rate increase and other temporary revenues.
- Fuel price reform:
  - June 2024: price-setting mechanism for domestic low-octane gasoline aligned broadly with international prices; monthly adjustments capped at +5 / -10 percent per month.
  - Compensation scheme covered over two-thirds of eligible transport recipients as of Sep 2024.
  - Net fiscal savings at current oil prices: ~0.1 percent of GDP in 2024 and 0.3 percent of GDP in 2025.
- NFPS deficit and financing 2024:
  - NFPS deficit expected to narrow to 1.8 percent of GDP in 2024 from 3.6 percent in 2023.
  - Electricity crisis cost ~0.6 percent of GDP in 2024 financed by reprioritizing expenditures and other net fiscal savings.
  - 2024 financing relied on multilateral US$4.6 billion (including IMF) and bilateral US$319 million.
- Medium-term fiscal strategy and debt outlook:
  - Authorities aim to improve NOPBS by 5.5 percentage points of GDP over 2024-28, in line with EFF.
  - Public debt expected to decline from 55.4 percent of GDP in 2023 to reach 40 percent of GDP by 2032 (COPLAFIP target).
  - MTFF published Oct 2024; end-Oct 2024 SB met.
  - 2025 fiscal plan aligns with program targets; VAT rate maintained at 15 percent; replace 0.7 percent of GDP transitory 2024 measures with permanent ones.
  - Electricity crisis cost 0.3 percent of GDP in 2025; projected oil balance decline 0.4 percent of GDP to be offset by interest savings and frontloaded NOPBS adjustment.
- Medium-term consolidation measures (overview):
  - Tax revenue mobilization: stabilize higher revenues; rationalize tax expenditures (currently >2 percent of GDP); replace transitory measures with permanent high-quality ones (mid-November 2024 SB met); strengthen tax admin; reinstate advance income tax payments for legal persons; adopt compliance risk framework.
  - Other revenue: improve oil sector efficiency; promote private participation; better target subsidies; enhance refinery efficiency.
  - Expenditure consolidation: gradual reduction of current spending share of GDP by containing wage bill and improving procurement governance; rationalize fixed-term and temporary contracts; operationalize SNC (end-Dec 2024 SB); develop upgraded SOCE (proposed end-July 2025 SB with IDB support); enhance SOE efficiency; preserve fiscal space for social and capital spending.
- Fiscal consolidation plan — Change in the non-oil primary balance including fuel subsidies (in percent of GDP):
  - Revenue: 2024: 2.4; 2025: 0.5; 2026: 0.7; 2027: 0.2; 2028: 0.2; 2024-28: 4.1
  - Tax revenue: 2024: 1.7; 2025: 0.2; 2026: 0.0; 2027: 0.1; 2028: 0.1; 2024-28: 2.2
  - Other: 2024: 0.8; 2025: 0.3; 2026: 0.7; 2027: 0.1; 2028: 0.1; 2024-28: 1.9
  - Expenditure: 2024: -0.3; 2025: 0.4; 2026: 0.4; 2027: 0.4; 2028: 0.5; 2024-28: 1.4
  - Wages and salaries: 2024: -0.1; 2025: 0.2; 2026: 0.2; 2027: 0.3; 2028: 0.3; 2024-28: 1.0
  - Goods and services: 2024: 0.4; 2025: 0.0; 2026: 0.0; 2027: 0.1; 2028: 0.1; 2024-28: 0.7
  - Social and capital: 2024: -0.5; 2025: 0.3; 2026: -0.1; 2027: -0.1; 2028: 0.0; 2024-28: -0.4
  - Other: 2024: -0.2; 2025: 0.0; 2026: 0.3; 2027: 0.0; 2028: 0.0; 2024-28: 0.1
  - Total: 2024: 2.1; 2025: 1.0; 2026: 1.1; 2027: 0.6; 2028: 0.7; 2024-28: 5.5
- 2025 financing plan and gross financing needs (US$ million):
  - Financing needs: US$8.3 billion (6.6 percent of GDP).
  - Planned sources: multilateral loans US$3.4 billion; domestic financing (T-bills and bonds) US$3.4 billion; bilateral US$630 million; external commercial borrowing US$381 million; external bond issuance US$1.5 billion.
  - Plan facilitates building NFPS deposit buffers ~US$1 billion.
- Estimated Gross Financing Needs and Sources (US$ million):
  - Gross Financing Needs: 2024: 8,097; 2025: 8,250; 2026: 8,264; 2027: 7,916; 2028: 7,248
  - NFPS Deficit: 2024: 2,187; 2025: 1,570; 2026: 280; 2027: -1; 2028: -765
  - Amortization: 2024: 5,910; 2025: 6,680; 2026: 7,984; 2027: 7,918; 2028: 8,013
  - Domestic amortization: 2024: 3,598; 2025: 3,467; 2026: 3,708; 2027: 3,408; 2028: 3,804
  - External amortization: 2024: 2,312; 2025: 3,212; 2026: 4,276; 2027: 4,509; 2028: 4,209
  - Gross Financing Sources: 2024: 8,097; 2025: 8,250; 2026: 8,264; 2027: 7,916; 2028: 7,248
  - Domestic sources: 2024: 3,219; 2025: 2,339; 2026: 3,029; 2027: 2,769; 2028: 3,104
  - NFPS deposits (- = accumulation): 2024: -362; 2025: -1,070; 2026: -718; 2027: -977; 2028: -1,090
  - T-bills: 2024: 2,166; 2025: 2,166; 2026: 2,166; 2027: 2,166; 2028: 2,166
  - Bonds (domestic): 2024: 1,414; 2025: 1,243; 2026: 1,582; 2027: 1,579; 2028: 2,028
  - External sources: 2024: 4,878; 2025: 5,911; 2026: 5,235; 2027: 5,148; 2028: 4,144
  - IMF: 2024: 1,500; 2025: 1,250; 2026: 500; 2027: 500; 2028: 250
  - Multilateral (excl. IMF): 2024: 3,059; 2025: 2,150; 2026: 1,900; 2027: 1,900; 2028: 1,400
  - Bilateral: 2024: 319; 2025: 630; 2026: 490; 2027: 490; 2028: 490
  - Commercial: 2024: 0; 2025: 381; 2026: 345; 2027: 258; 2028: 4
  - Bonds (external): 2024: 0; 2025: 1,500; 2026: 2,000; 2027: 2,000; 2028: 2,000
  - Memo: NFPS deposits stock (US$ million): 2024: 4,152; 2025: 5,222; 2026: 5,940; 2027: 6,917; 2028: 8,008
- Market conditions and spreads:
  - Sovereign debt spreads ~1,300 basis points as of end-November 2024.
  - Successful consolidation and active debt management expected to support spread reduction and renewed market access in H2 2025.

### Enhancing the social safety net
- Social registry revamp:
  - URS and MIES plan to revamp social registry to cover more families in lower deciles (end-Oct 2024 SB met).
  - Validation of existing data by end-2025; enhanced coverage by end-2027.
  - Ministerial agreement completed to facilitate transition out of benefits for households no longer meeting low-income criteria.
- Cash transfer coverage:
  - Expanded social transfer programs by 23,489 new families in year through Aug 2024; total families covered 1.19 million (indicator met).
  - As of end-Sep 2024: 1,200,811 families receiving cash transfer.
  - These expansions support child malnutrition program objectives.
- Authorities’ stance: safety net key to shield vulnerable during consolidation; planned registry improvements to facilitate transparent, efficient administration.

### Safeguarding financial stability — assessments, actions, and recommendations
- System assessment and risks:
  - Financial system largely stable but soundness in some banks and cooperatives deteriorated.
  - 2023 FSAP: overall resilience but credit and liquidity main risks.
  - Systemic risk increased since 2023 FSAP due to legacy pandemic losses, weak economy, insecurity, electricity crisis → higher NPLs, lower provisions, weaker capital ratios.
  - Direct contagion risk from cooperatives to banks appears limited.
- Supervisory/prudential measures taken:
  - Monitoring and actions: strengthened capital and intensive supervision programs; cancelled CFN-Banecuador merger; reviewed corrective action plan for a public bank; transmitted BIESS credit info to private bureaus.
  - Financial Stability Committee (FSC) established (end-Nov 2024 SB met).
  - Two Superintendencies standardized client identifiers for system-wide credit risk analysis.
  - Regulations issued on capital surcharges for systemically important institutions and countercyclical capital buffer (end-Nov 2024 SB met).
  - Enacted 6 percent minimum Tier 1 capital requirement; preparing to implement Basel Liquidity Coverage Ratio for banks and cooperatives.
  - Stress testing capacities being developed with IMF TA.
- Policy recommendations and planned reforms:
  - Strengthen oversight and resolution frameworks; phase out regulatory forbearance at appropriate pace.
  - Maintain/enforce loan classification and provisioning rules while allowing prudent renegotiations within strict guidelines.
  - Increase frequency of credit data transmission from Superintendency of Banks to credit bureaus.
  - Enhance coordination and resolution toolkit with IMF TA.
  - Proposed SB: establish inter-institutional group within FSC to coordinate resolution reforms (end-Jan 2025).

### Domestic bond market, payments, and market infrastructure
- Payments and securities infrastructure upgrades:
  - Improve RTGS.
  - Overhaul BCE central securities depository (DCV) including compensation, liquidation, custody (end-Nov 2024 SB; proposed reset end-Jan 2025).
- Once in place, authorities intend to start auctioning public securities at market-determined rates as conditions allow.

### Electricity sector — deficits, master plan, and private participation
- Structural deficit driven by infrastructure limitations and drought impact on hydro generation.
- Electricity imports from Colombia increasingly fill domestic deficit.
- Updated Electricity Master Plan: increase generation capacity by 7,404 MW by 2032 (prioritizing thermal, solar, wind, hydro), financed by public investment, PPPs, and private funds; strengthen interconnection with Peru.
- Legislative reform allowing greater private participation in generation enacted; suggestion to consider wholesale electricity market with private participation.

### Regulatory improvement, competitiveness, and export diversification
- Regulatory improvement national priority to promote efficiency, competitiveness, entrepreneurship, legal certainty.
- Priority reforms: streamline regulatory processes/licenses; reform corporate insolvency; modernize customs to ease non-tariff barriers.
- Export diversification opportunities: agroindustry, mining, tourism.
- New FTAs: China, Costa Rica; ongoing discussions with Canada; upcoming FTA with South Korea noted.

### SOEs: governance and efficiency
- SOEs operate across many industries, face favorable regulations, conflicts of interest, political intervention.
- Scope for reforms to improve efficiency, corporate governance, accountability.
- Government closed EMCO; seeking to reform several SOEs’ collective labor agreements.
- Authorities working to complete 2019 and 2020 audits of Petroecuador and Petroamazonas (end-Mar 2025 SB).

### Labor, gender, migration, and crime
- Violet Economy Law (VEL) enacted 2023 as step to close gender gap.
- Challenges: low female labor force participation, high informality, unpaid work, sizable salary gap.
- Priorities: flexible work arrangements; vocational training; family-friendly policies; incentivize women into higher-remunerated technical fields.
- Migration: integrate migrants into workforce; create jobs; strengthen safety nets to stem emigration.
- Labor reform recommendations: formula-based minimum wage mechanism; expand access to quality education and upskilling.
- Crime and security:
  - Rapid rise in crime linked to organized crime and drug violence with adverse economic effects.
  - IMF staff analysis: a 1 percent increase in local murder rate associated with up to 0.5 percent decline in local economic activity.
  - Recommended multifaceted approach: strengthen citizen security; diminish profitability of crime; tackle illicit financial flows; improve allocation of security resources; promote job-rich growth for youth.

### AML/CFT, beneficial ownership, and procurement transparency
- July 2024: National Assembly approved AML/CFT law incorporating FATF-aligned reforms (end-Feb 2025 SB).
- Implementation priorities:
  - Establish BO transparency approach ensuring adequacy, accuracy, up-to-dateness, accessibility to competent authorities, sanctions for non-provision/false provision.
  - Provide UAFE robust governance to ensure independence.
  - Consider strengthening targeted UN sanctions related to terrorism financing.
  - Improve understanding of organized crime laundering channels with possible IMF TA.
  - Approve and publish a summarized AML/CFT Strategic Action Plan from 2024 National Risk Assessment (proposed end-Sep 2025 SB).
- Procurement transparency:
  - SERCOP requires UBO information for public procurement; SRI developing Registry for Ultimate Beneficiaries (regulations Sep 2024).

### Climate adaptation, mitigation, transition risks, and green finance
- Adaptation prioritized given relatively low GHG emissions.
- National Adaptation Plan (2023-2027) adopted.
- Adaptation policy focuses: remove market imperfections for private adaptation; build resilient infrastructure; implement regulations internalizing climate considerations; refine disaster risk management and integrate into public finance; increase cooperation.
- Mitigation and NDCs:
  - 2019 NDCs: reduce emissions by 9 percent by 2025 vs BAU; 20.9 percent conditional on international support.
  - Authorities preparing updated NDCs through 2030 expected next year.
  - Key policy areas: limit deforestation; reduce vehicle emissions; minimize fugitive/vented/flared emissions in energy sector.
- Transition risks and diversification:
  - 2023: oil sector accounted for 7.5 percent of GDP, one-quarter of exports, one-third of NFPS fiscal revenue.
  - IEA projects global oil demand decline between 4 and 29 percent by 2040 depending on mitigation scenarios.
  - Recommendation: gradually diversify economy, develop non-oil industries, expand export diversification and quality, improve education, infrastructure, government effectiveness.
- Sustainable bonds and green finance:
  - National green taxonomy developed; several sustainable bonds issued since 2019.
  - Strategies to attract private green financing: streamline issuance process; enhance governance of NDC plan; assess suitable green financing instruments to catalyze private investment.

### Program modalities, monitoring, and safeguards
- First review under EFF: all QPCs and ITs met with margin; SBs largely progressing.
- QPC/IT selected outturns (Million of U.S. dollars, cumulative change from Jan 1, end-August 2024):
  - Non-oil primary balance of PGE (floor): Actual 899 (Met); Program/Adjusted: -1,078
  - Overall balance PGE and CFDD (floor): Actual 200 (Met); Program/Adjusted: -2,200 / -2,108
  - Accumulation of NFPS deposits at BCE (floor): Actual 1,756 (Met); Program/Adjusted: 200 / -581
  - Overall balance of NFPS (floor): Actual 1,795 (Met); Program/Adjusted: -1,628 / -1,537
  - NOPBS of NFPS (floor): Actual -1,865 (Met); Program/Adjusted: -4,100 / -4,192
  - Change in stock of NIR (floor): Actual 1,573 (Met); Program/Adjusted: -200 / -458
  - Stock of PGE arrears to domestic private sector (ceiling): Actual 322 (Met); Program/Adjusted: 862
  - Number of families in first three income deciles covered by cash transfers (floor): Actual 1,192,883 (Met); Program/Adjusted: 1,192,713
- Structural Benchmarks (selected met and proposed):
  - MTFF and MTDS published (end-Oct 2024 SBs met).
  - Financial Stability Committee established (end-Sep 2024 SB met).
  - Mobilize non-oil fiscal revenues plan shared (mid-Nov 2024 SB met).
  - Automatize PGE payments proposed end-Mar 2025 SB.
  - Inter-institutional group within FSC proposed end-Jan 2025 SB.
  - Approve/publish AML/CFT Strategic Action Plan proposed end-Sep 2025 SB.
- Safeguards and BCE reforms:
  - BCE strengthened safeguards since 2019 via COMYF reforms; “backing rule” established.
  - Further alignment of BCE financial statements with IFRS needed.
  - Fiscal safeguards review: PFM provides broadly adequate safeguards for Fund budget support use.
- Lending into arrears:
  - Residual arrears to private bondholders from 2008-09: US$52 million remain outstanding.
  - Authorities established public procedure for liquidation requests; staff judges authorities making good faith efforts.

### Article VIII / CFMs and ISD
- Ecuador maintains tax on transfers abroad (“impuesto a la salida de divisas,” ISD).
- ISD rate increased from 3.5 percent to 5 percent in April 2024 to address reserve deterioration (tightening of outflow CFM).
- Authorities committed to gradually phasing out ISD as stability is restored.
- ISD rate for 2025 on imports of certain raw materials will be reduced starting Jan 2025.

### Debt sustainability, risks, and capacity to repay
- Public debt:
  - Public debt-to-GDP: 55.4 percent in 2023.
  - Public debt projected to decline to 40 percent of GDP by 2032 under program.
- DSA and risk metrics:
  - Public debt (Percent of GDP) projections: 2023: 55.4; 2024: 56.8; 2025: 56.8; 2026: 55.7; 2027: 54.4; 2028: 52.5; 2029: 50.0; 2030: 46.8; 2031: 43.1; 2032: 40.0; 2033: 37.3; 2034: 34.8
  - Gross financing needs (GFN) (Percent of GDP): 2023: 8.3; 2024: 6.7; 2025: 6.6; 2026: 6.4; 2027: 5.9; 2028: 5.2; 2029: 4.9; 2030: 5.5; 2031: 5.3; 2032: 4.9; 2033: 4.5; 2034: 4.2
  - Memo: Real GDP growth (percent) used in DSA: 2023: 2.4; 2024: -0.4; 2025: 1.6; 2026: 1.8; 2027: 2.4; 2028: 2.5; 2029: 2.5; 2030: 2.5; 2031: 2.5; 2032: 2.5; 2033: 2.5; 2034: 2.5
- Exceptional access criteria (staff assessment):
  - Criterion 1: Met — exceptional BOP need; estimated financing gap US$3 billion in 2024-28; Ecuador’s IMF credit outstanding SDR 6.4 billion as of end-Oct 2024 (≈ US$8.5 billion, or 914 percent of quota).
  - Criterion 2: Met — baseline public debt sustainable but not with high probability; DSA tests met.
  - Criterion 3: Met — prospects of regaining private market access present; spreads declined ~800 bps since early 2024 (assessment subject to risks).
  - Criterion 4: Met — policy program provides reasonably strong prospect of success; all QPCs met for end-Aug 2024; decisive measures implemented; assessment subject to risks from economic environment and 2025 elections.
- Capacity to repay and Fund exposure:
  - GRA credit to Ecuador peaks in 2025: 978.8 percent of quota and 25.7 percent of exports.
  - Peaks at 7.4 percent of GDP in 2024 (Table 9 reference).
  - Fund obligations relative to GIR peak at 15.8 percent in 2025 and decline to 2.84 percent by 2034.
  - Program financing: fully financed with firm commitments for next 12 months and good prospects; IFIs committed to maintain/increase support.
  - Financing assumptions: market access approx US$1.5 billion in 2025 and US$2 billion per year starting 2026.
  - Identified estimated financing gap US$3 billion in 2024-28 (Box 1).

### Data, reporting, and monitoring requirements (selected exact lags and definitions)
- Fiscal data:
  - All fiscal data for program monitoring provided within 45 days from end of each test date (Table 2).
  - Preliminary monthly data provided with lag no more than 30 days after end of each month (specifics vary by indicator up to 90 days for some test dates).
- NFPS deposits at BCE:
  - Weekly reporting of NFPS deposits data within 5 business days following week end.
- NIR and FX data:
  - Weekly foreign exchange asset and liability data within 5 business days following week end.
  - Export price of Ecuador mix crude oil: lag no more than 20 days after closing of each month.
- Social assistance coverage:
  - Monthly data on number of family units in lowest three deciles covered and registry updates: lag no more than 30 days after end of each month.
- High-frequency reporting:
  - Daily: daily monetary and financial data template no later than 1 business day after day end.
  - Weekly: consolidated banking system balance sheets within 5 business days.
  - Monthly: NFPS stocks and flows, NFPS debt stock, PGE cash flow, social spending, SDR net position, collateralized debt details.
  - Quarterly: detailed balance of payments data no later than 90 days after quarter end.
- TMU adjustors:
  - Adjustor on overall balance: US$23.85 million per US$1/bbl deviation of Ecuador mix crude price from program assumption, capped at US$178.9 million.
  - Ecuador mix crude oil price (US$ per barrel): 68.52 (Nov. 2024).
  - Adjustors on NIR and NFPS deposits use US$11.93/US$23.85 million per US$1/bbl depending on measure, capped at US$178.9 million.

### Governance, transparency, and PFM improvements
- COPLAFIP operationalized; MTFF and MTDS published.
- Plan to clear and prevent PGE domestic arrears developed (end-Nov 2024 SB met).
- Automatize PGE payments proposed end-Mar 2025 SB.
- Procurement reforms and PIMA recommendations to improve public investment management.
- IESS healthcare obligations: MEF–IESS updated agreement in progress (proposed reset end-Mar 2025); audits of 2019–2024 health claims underway (tender for 2023–24 audits initiated and completed ahead of schedule).
- Public sector integrity: National Policy of Public Integrity 2030; AML/CFT law with enhanced asset and interest declaration framework; draft Law to Prevent Conflict of Interests submitted to National Assembly in 2022.

### Concluding staff assessment and recommendations
- IMF staff supports completion of First Review under the EFF.
- Staff recommends completion of financing assurances review and supports authorities’ request for Board approval for retention of exchange restriction arising from ISD (temporary, non-discriminatory).
- Key staff recommendations:
  - Maintain fiscal consolidation while protecting the poor via targeted social spending and social registry improvements.
  - Strengthen financial sector oversight, resolution frameworks, and phase out regulatory forbearance.
  - Advance electricity generation investments and reforms to foster private participation and diversification of energy mix.
  - Continue governance, procurement, SOE reforms, and AML/CFT implementation.
  - Enhance climate adaptation, mobilize green finance, and diversify the economy away from oil dependence.

*International Monetary Fund — Executive Summary (1ecuea2024002-print-pdf)*

### EXECUTIVE SUMMARY

### EXECUTIVE SUMMARY

### Context
- Ecuador has implemented decisive policy actions and reforms supported by a 48-month Extended Fund Facility (EFF) arrangement approved by the Executive Board in May 2024 of SDR 3 billion (430 percent of quota, about US$4 billion).
- Core objectives of the EFF-supported program:
  - strengthen fiscal sustainability, while protecting vulnerable groups;
  - safeguard dollarization and macroeconomic stability;
  - rebuild liquidity buffers;
  - enhance financial stability and integrity;
  - further advance the structural reform agenda to promote sustainable and inclusive growth.
- Noted structural and institutional reforms in recent years include: overhaul of the organic budget code (COPLAFIP), amendment of the organic monetary and financial code (COMYF) enhancing central bank independence, and new anti-corruption legislation.
- Remaining challenges: fiscal imbalances, high reliance on volatile oil revenues, financial sector vulnerabilities, a thin domestic capital market, labor market rigidities and informality, low productivity, limited trade integration, governance challenges, rising insecurity, deterioration in fiscal position and reserve buffers in 2023, electricity shortages, and increasing climate vulnerabilities.
- Political calendar: presidential and legislative elections in February 2025; new president takes office in May 2025. To win in the first round a candidate needs 50 percent of the votes, or over 40 percent with a 10 percentage-point lead over the second candidate; otherwise, a second round would be held in April 2025.

### Recent macroeconomic developments
- Electricity crisis:
  - A historic drought triggered a severe electricity crisis in late 2024, significantly reducing hydroelectric generation (which supplies about three quarters of the country’s electricity) and causing nationwide power outages.
  - Emergency measures implemented include renting or purchasing barges or turbines to increase thermal generation, temporarily reducing VAT on electric generators, partially compensating households for electric bills up to a specified usage from November 2024 to February 2025, and a one-off cash transfer program for three months beginning in December 2024.
  - As of end-November 2024, electricity imports from Colombia were resumed, alleviating shortages.
- Output and labor market:
  - Real GDP contracted in 2023H2, began to recover in 2024H1 driven by net exports while domestic demand remained weak.
  - Real GDP is projected to contract by 0.4 percent in 2024, with a recovery of 1.6 percent in 2025 (see Outlook).
  - Labor market showed gradual recovery; inadequate employment remained above pre-pandemic levels and disproportionately affected youth.
  - Poverty rate decreased slightly to 25.5 percent in 2024H1 but increased in rural areas.
- Inflation:
  - Headline inflation rose to 2.7 percent (y/y) in April 2024, then decelerated to 1.4 percent (y/y) as of October 2024.
  - Core inflation (excluding food, gas, fuel, and lubricants) stood at 2.1 percent (y/y) in October 2024.
- External sector and reserves:
  - Merchandise trade balance recorded a surplus of 4.2 percent of projected 2024 GDP between January and September 2024 (up from 1.5 percent of GDP in the same period of 2023), supported by a 9 percent (y/y) increase in exports and a 6 percent (y/y) decline in imports.
  - Gross international reserves (GIR) increased from US$4.5 billion at end-2023 to US$7.7 billion as of end-November 2024.
  - Ecuador’s external position in 2023 was moderately weaker than implied by medium-term fundamentals and desirable policies but is expected to improve in 2024 and the medium term.
- Financial sector:
  - Total credit grew by 5.3 percent (y/y) in October 2024, slowing from its 2022 peak.
  - Total deposits growth rebounded to 12.6 percent (y/y) in October 2024.
  - Deposit and credit trends differed between private banks (strong increases) and credit cooperatives (modest deposit growth and very weak credit growth); cooperatives show higher non-performing loans and lower provisioning and profitability.
- Fiscal performance:
  - Nonfinancial public sector (NFPS) posted a surplus of US$1.8 billion (1.5 percent of GDP) during January–August 2024, compared to a deficit of US$1.5 billion (1.3 percent of GDP) forecasted at program approval.
  - NFPS deposits at the Central Bank of Ecuador (BCE) increased by US$1.5 billion since end-2023 to US$5.3 billion as of end-November 2024.
- Estimated fiscal cost of the electricity crisis (authorities intend to absorb within existing fiscal envelope):
  - Estimated total cost about 0.9 percent of GDP in late 2024 and early 2025.
  - Staff estimates of components (In percent of GDP):
    - 2024 / 2025: Decline in tax revenue 0.1 / 0.0
    - 2024 / 2025: Higher capital spending 0.3 / 0.2
    - 2024 / 2025: Transfers to electricity SOE 0.1 / 0.2
    - 2024 / 2025: Cash transfers 0.1 / 0.0
    - 2024 / 2025: Total 0.6 / 0.3
- Fiscal overperformance Jan–Aug 2024 (In percent of GDP; IMF staff estimates):
  - Oil balance 0.9
  - Nonoil revenue 0.3
  - Lower current expenditure 0.3
  - Lower capital expenditure 0.6
  - Decline in interest rates 0.1

### Outlook and risks
- Updated projections and comparisons with program approval:
  - Real GDP: projected to contract by 0.4 percent in 2024 (compared to an increase of 0.1 percent at program approval) and to recover by 1.6 percent in 2025.
  - Inflation: projected to average 1.9 percent in 2024 (compared to 2.4 percent at program approval).
  - Current account balance: expected to record a surplus of 4.4 percent of GDP in 2024 (up from 2.1 percent at program approval).
- Medium-term outlook:
  - Growth projected to rise gradually toward estimated potential of 2½ percent in the medium term, supported by macroeconomic stability and structural reforms.
  - Inflation converging to around 1½ percent.
  - Projections assume oil production from the Ishpingo-Tambococha-Tiputini (ITT) field is unwound gradually and broadly offset by increased production in other fields over the medium term.
  - Current account surplus projected to stabilize at around 2½ percent of GDP over the medium term.
  - International reserve buffers: GIR projected to rebuild to about 57 percent of the Fund’s reserve adequacy metric (ARA) by the end of the program; including Liquidity Fund and liquid net foreign assets of the domestic banking sector, liquidity buffers would represent 96 percent of ARA by 2028.
- Risk assessment:
  - Liquidity risks have subsided since early 2024, but overall risks remain high and tilted to the downside.
  - Downside risks include:
    - deterioration of the security situation;
    - a prolonged electricity crisis;
    - increased social discontent and/or political fragmentation after the 2025 elections, hampering reform efforts;
    - decline in the oil balance beyond program assumptions;
    - weakening of the balance sheet of some financial institutions;
    - shortfalls in external financing;
    - extreme weather events disrupting economic activity.
  - Upside risks include:
    - stronger-than-expected global growth;
    - increase in oil prices beyond program assumptions;
    - faster improvement in security and energy situations;
    - lower political fragmentation or increased reform appetite after the 2025 elections, which could reduce risk premia and accelerate reforms.
- Authorities’ views:
  - Authorities concurred broadly with staff’s assessment, expecting normalization of economic activity in 2025 as hydroelectric capacity normalizes and investments in generation proceed within the existing capital envelope.
  - Authorities optimistic about current account surplus and reserve buffer trajectory, citing potential increases in mining exports, continued remittance flows, and moderate import growth.

### Program implementation and Article IV observations
- Program implementation:
  - All quantitative performance criteria (QPCs) and indicative targets (ITs) for the first review have been met.
  - Authorities made substantial progress on structural benchmarks (SBs).
  - Staff assesses that exceptional access criteria continue to be met.
- Article IV consultation highlights:
  - Authorities implementing an ambitious strategy to strengthen fiscal sustainability while protecting priority social and investment spending.
  - It is essential to strengthen financial sector oversight.
  - Recommendations to promote stronger and inclusive growth include: improving the security situation; advancing structural reforms to strengthen energy sufficiency; increase female labor participation; enhance governance; foster competition; and boost competitiveness.
  - Measures to reduce vulnerabilities to climate change would enhance macroeconomic resilience.

*International Monetary Fund — Executive Summary (1ecuea2024002-print-pdf)*

### 16. Focus of the Article IV Consultation. Building on the progress made since the 2021 Article

### 16. Focus of the Article IV Consultation. Building on the progress made since the 2021 Article IV consultation

### A. Strengthening Fiscal Sustainability
- Consultation objectives included policies to (i) strengthen fiscal sustainability and rebuild buffers; (ii) protect the most vulnerable; (iii) safeguard dollarization and financial stability; (iv) strengthen governance, boost competitiveness, and promote strong and inclusive growth; and (v) build resilience to climate change and natural disasters.
- Non-oil revenue performance and drivers
  - From January to September 2024, tax revenue rose by 18 percent (y/y) compared to the same period in 2023 and is expected to post an increase of about 17 percent for the full year.
  - This represents an annual rise of around 1.8 percent of GDP, broadly in line with program projections.
  - Improvement was approximately equally driven by the increase in the VAT rate and by other temporary revenues.
- Oil fiscal balance and fuel price reform
  - In June 2024, authorities reformed the price setting mechanism for domestic sales of low-octane gasoline, aligning them broadly with international prices.
  - The scheme establishes monthly upward (downward) adjustments capped at 5 (10) percent per month, respectively.
  - A compensation scheme to prevent transport fare increases for vulnerable groups covered over two-thirds of eligible recipients as of September 2024.
  - At current international oil prices, net fiscal savings from this reform are estimated at about 0.1 percent of GDP in 2024 and 0.3 percent of GDP in 2025.
- NFPS deficit and financing in 2024
  - The deficit of the NFPS is expected to narrow to 1.8 percent of GDP in 2024 from 3.6 percent of GDP in 2023.
  - Cost of the electricity crisis estimated at about 0.6 percent of GDP in 2024; financed by reprioritizing expenditures and other net fiscal savings.
  - 2024 financing strategy relied on multilateral (US$4.6 billion, including the IMF) and bilateral (US$319 million) support.
- Medium-term fiscal strategy and debt outlook
  - Authorities’ strategy envisages improving the NFPS non-oil primary balance including subsidies (NOPBS) by 5.5 percentage points of GDP over 2024-28, fully in line with the EFF-supported program.
  - Public debt expected to decline from 55.4 percent of GDP in 2023 to reach 40 percent of GDP by 2032, in line with the COPLAFIP target.
  - October 2024: updated Medium-Term Fiscal Framework (MTFF) published and end-October 2024 structural benchmark met.
  - Fiscal plan for 2025 aligns with program targets (early December 2024 structural benchmark, met); contemplates maintaining the VAT rate at 15 percent and replacing 0.7 percent of GDP in transitory revenue measures with permanent ones.
  - Cost of electricity crisis estimated at 0.3 percent of GDP in 2025 and projected decline in the oil balance of 0.4 percent of GDP to be offset by savings in the interest bill and a more frontloaded NOPBS adjustment.
- Medium-term consolidation measures (overview)
  - Tax revenue mobilization: stabilize revenues at higher level, rationalize inefficient tax expenditures (currently estimated at above 2 percent of GDP), replace transitory 2024 measures with permanent high-quality ones (mid-November 2024 structural benchmark, met), strengthen tax administration, modernize tax and customs legislation and procedures, strengthen management of large corporate taxpayers and high-net-worth individuals, reinstate advance payments of income taxes for all legal persons, adopt institutional compliance risk management framework and develop risk-based compliance improvement plans.
  - Other revenue: improve oil sector efficiency, promote greater private participation, better target subsidies, enhance refinery efficiency.
  - Expenditure consolidation: gradual durable reduction of current spending as share of GDP by containing wage bill and improving public procurement governance; rationalize fixed-term and temporary contracts; improve procurement centralization and cataloguing (savings reported by SERCOP); operationalize National Control Subsystem (SNC) (end-December 2024 structural benchmark); develop upgraded Official System of Public Procurement (SOCE) (proposed structural benchmark for end-July 2025) with IDB support; enhance SOE efficiency; preserve fiscal space for essential social and capital spending.
- Fiscal consolidation plan — Change in the non-oil primary balance including fuel subsidies, in percent of GDP
  - Revenue: 2024: 2.4; 2025: 0.5; 2026: 0.7; 2027: 0.2; 2028: 0.2; 2024-28: 4.1
  - Tax revenue: 2024: 1.7; 2025: 0.2; 2026: 0.0; 2027: 0.1; 2028: 0.1; 2024-28: 2.2
  - Other: 2024: 0.8; 2025: 0.3; 2026: 0.7; 2027: 0.1; 2028: 0.1; 2024-28: 1.9
  - Expenditure: 2024: -0.3; 2025: 0.4; 2026: 0.4; 2027: 0.4; 2028: 0.5; 2024-28: 1.4
  - Wages and salaries: 2024: -0.1; 2025: 0.2; 2026: 0.2; 2027: 0.3; 2028: 0.3; 2024-28: 1.0
  - Goods and services: 2024: 0.4; 2025: 0.0; 2026: 0.0; 2027: 0.1; 2028: 0.1; 2024-28: 0.7
  - Social and capital: 2024: -0.5; 2025: 0.3; 2026: -0.1; 2027: -0.1; 2028: 0.0; 2024-28: -0.4
  - Other: 2024: -0.2; 2025: 0.0; 2026: 0.3; 2027: 0.0; 2028: 0.0; 2024-28: 0.1
  - Total: 2024: 2.1; 2025: 1.0; 2026: 1.1; 2027: 0.6; 2028: 0.7; 2024-28: 5.5
- 2025 financing plan and gross financing needs (US$ million)
  - Financing needs estimated at US$8.3 billion (6.6 percent of GDP).
  - Planned sources: multilateral loans totaling US$3.4 billion; domestic financing (T-bills and bonds) of US$3.4 billion; bilateral loans of US$630 million; external commercial borrowing of US$381 million; external bond issuance of US$1.5 billion.
  - Plan facilitates building NFPS deposit buffers of about US$1 billion.
- Estimated Gross Financing Needs and Sources (US$ million)
  - Gross Financing Needs: 2024: 8,097; 2025: 8,250; 2026: 8,264; 2027: 7,916; 2028: 7,248
  - NFPS Deficit: 2024: 2,187; 2025: 1,570; 2026: 280; 2027: -1; 2028: -765
  - Amortization: 2024: 5,910; 2025: 6,680; 2026: 7,984; 2027: 7,918; 2028: 8,013
  - Domestic amortization: 2024: 3,598; 2025: 3,467; 2026: 3,708; 2027: 3,408; 2028: 3,804
  - External amortization: 2024: 2,312; 2025: 3,212; 2026: 4,276; 2027: 4,509; 2028: 4,209
  - Gross Financing Sources: 2024: 8,097; 2025: 8,250; 2026: 8,264; 2027: 7,916; 2028: 7,248
  - Domestic sources: 2024: 3,219; 2025: 2,339; 2026: 3,029; 2027: 2,769; 2028: 3,104
  - NFPS deposits (- = accumulation): 2024: -362; 2025: -1,070; 2026: -718; 2027: -977; 2028: -1,090
  - T-bills: 2024: 2,166; 2025: 2,166; 2026: 2,166; 2027: 2,166; 2028: 2,166
  - Bonds (domestic): 2024: 1,414; 2025: 1,243; 2026: 1,582; 2027: 1,579; 2028: 2,028
  - External sources: 2024: 4,878; 2025: 5,911; 2026: 5,235; 2027: 5,148; 2028: 4,144
  - IMF: 2024: 1,500; 2025: 1,250; 2026: 500; 2027: 500; 2028: 250
  - Multilateral (excl. IMF): 2024: 3,059; 2025: 2,150; 2026: 1,900; 2027: 1,900; 2028: 1,400
  - Bilateral: 2024: 319; 2025: 630; 2026: 490; 2027: 490; 2028: 490
  - Commercial: 2024: 0; 2025: 381; 2026: 345; 2027: 258; 2028: 4
  - Bonds (external): 2024: 0; 2025: 1,500; 2026: 2,000; 2027: 2,000; 2028: 2,000
  - Memo: NFPS deposits stock (US$ million): 2024: 4,152; 2025: 5,222; 2026: 5,940; 2027: 6,917; 2028: 8,008
- Market conditions and spreads
  - Ecuador’s sovereign debt spreads about 1,300 basis points as of end-November 2024.
  - Successful implementation of consolidation and active debt management expected to support reduction in spreads and renewed market access in second half of 2025.
- Public financial management, fiscal governance, and social security reforms
  - MTDS published (end-October 2024 structural benchmark, met).
  - Strategy to clear and prevent resurgence of central government payment arrears developed (end-November 2024 structural benchmark, met).
  - Proposed structural benchmark: automatize central government payments (end-March 2025).
  - Planned implementation of budget quotas, expenditure controls, strengthened fiscal risk analysis and monitoring, and improved public investment management in line with 2023 PIMA recommendations.
  - Operationalize revamped PPP framework to improve environment for private investment.
  - MEF-IESS updated agreement for healthcare obligations (end-October 2024 structural benchmark, proposed reset for end-March 2025); audit of 2023 and 2024 healthcare obligations with IESS completed (end-December 2024 structural benchmark, met ahead of schedule).
- Authorities’ views
  - Full commitment to fiscal plan supported by the EFF arrangement and COPLAFIP debt reduction targets while preserving priority expenditure in security, energy, public investments, and social protection.
  - All quantitative conditionality met with significant margins for the EFF first review; substantial progress on fiscal structural benchmarks.
  - Emphasized need for permanent non-oil revenue measures and gradual rationalization of current expenditure to maintain social and political support.

### B. Enhancing the Social Safety Net
- Social registry revamp and targets
  - URS and MIES elaborated comprehensive plan to revamp the social registry to cover more families in lower deciles (end-October 2024 structural benchmark, met).
  - Plan foresees finalizing validation of existing data by end-2025 and transitioning to enhanced coverage by end-2027.
  - URS and MIES completed a ministerial agreement to facilitate transition out of social benefits for households no longer meeting low-income requirement.
- Cash transfer coverage and targets
  - In the year through August 2024, authorities expanded social transfer programs to 23,489 new families, bringing total families covered to 1.19 million, in line with the EFF indicative target.
  - As of end-September 2024, 1,200,811 families were receiving cash transfer.
  - These expansions support objectives to combat child malnutrition through dedicated government program.
- Authorities’ views
  - Authorities consider the safety net a key pillar to shield vulnerable groups from adverse effects of fiscal consolidation and to ensure equitable fiscal resource use.
  - Planned improvements to the social registry expected to facilitate transparent and efficient administration of cash transfer programs.

### C. Safeguarding Financial Stability
- Overall system assessment and risks
  - Financial system remained largely stable but financial soundness in some banks and credit cooperatives deteriorated.
  - 2023 FSAP concluded overall resilience but identified credit and liquidity as main risks.
  - Systemic risk increased since 2023 FSAP due to unresolved legacy losses from the pandemic, weak economic environment, insecurity, and the electricity crisis, resulting in higher NPLs, lower loan loss provisions, and weaker capital ratios.
  - Direct contagion risk from cooperatives to banks appears limited.
- Supervisory and prudential measures taken
  - Authorities monitoring weak institutions and taking actions within legal framework to mitigate contagion risk, including strengthened capital and intensive supervision programs with preventive and corrective action plans.
  - Actions included cancelling CFN-Banecuador merger, reviewing corrective action plan for a public bank, and transmitting BIESS credit information to private credit bureaus.
  - Financial Stability Committee (FSC) established (end-November 2024 structural benchmark, met) to facilitate information sharing and coordination.
  - Two Superintendencies standardized client identifiers for system-wide credit risk analysis.
  - Regulations issued on capital surcharges for systemically important institutions and the countercyclical capital buffer (end-November 2024 structural benchmark, met).
  - Enacted a 6 percent minimum Tier 1 capital requirement and preparing to implement Basel Liquidity Coverage Ratio for banks and credit cooperatives.
  - Assessment of interest rate caps system to provide reform recommendations (end-March 2025 structural benchmark).
  - Stress testing capacities being developed with IMF technical assistance.
- Policy recommendations and planned reforms
  - Strengthen financial sector oversight and resolution frameworks; phase out regulatory forbearance at an appropriate pace.
  - Maintain and enforce current regulations on loan classification and provisioning for banks and credit cooperatives while allowing prudent renegotiation of loan terms within strict regulatory guidelines.
  - Increase frequency of credit data transmission from Superintendency of Banks to credit bureaus to improve counterparty risk assessment.
  - Enhance coordination mechanisms and resolution toolkit through legal and operational improvements with IMF technical assistance.
  - Plan to establish an inter-institutional group within the FSC to coordinate resolution reforms and strategies (proposed structural benchmark for end-January 2025).

*Source: 16. Focus of the Article IV Consultation. Building on the progress made since the 2021 Article IV consultation (excerpt).*

### 31.      Developing the domestic bond market remains high in the policy agenda. Having a

### Developing the domestic bond market remains high in the policy agenda

### Domestic bond market development and payments/settlement infrastructure
- Well-functioning domestic bond market is key to provide fiscal flexibility and facilitate liquidity management within the financial system.
- Authorities are revamping payments and securities infrastructure as groundwork:
  - Improving the Real Time Gross Settlement System (RTGS).
  - Overhauling the BCE’s central securities depository (DCV), including compensation, liquidation, and custody functions (end-November 2024 structural benchmark; proposed to be reset for end-January 2025).
- Once systems are in place, authorities intend to start auctioning public securities at market-determined rates as market conditions allow.

### Financial sector resilience, oversight, and temporary forbearance
- Authorities’ assessment and policies:
  - Financial sector described as resilient, despite challenges—especially for credit cooperatives.
  - Regulatory forbearance measures considered needed on a temporary basis due to the significant impact of the ongoing electricity crisis on the financial sector.
  - Emphasis on proper classification and transparent disclosure of impaired credit exposures.
  - Need for enhanced financial oversight, notably of credit cooperatives, linked to past weak supervision that led to lower lending standards and household over-indebtedness.
  - Substantial progress reported on addressing macro-critical FSAP recommendations, including implementation of financial sector structural benchmarks under the EFF-supported program.

### Electricity sector: deficits, master plan, and private participation
- Key findings and plans:
  - Sector faces a structural deficit driven by infrastructure limitations and critically exacerbated by droughts impacting hydroelectric generation.
  - Electricity imports from Colombia have increasingly filled the domestic deficit in recent years.
  - Updated Electricity Master Plan aims to increase generation capacity by 7,404 MW by 2032, prioritizing thermal, solar, wind, and hydroelectric projects, financed by a mix of public investment, public-private partnerships, and private funds.
  - Medium-term plan includes strengthening interconnection with Peru.
  - Recent legislative reform allowing greater private sector participation in electricity generation noted as a welcome step.
  - Suggestion: consider establishing a wholesale electricity market with private participation (see SIP).

### Regulatory improvement, competitiveness, and export diversification
- Authorities declared “regulatory improvement” a national priority to promote efficiency, competitiveness, entrepreneurship, and legal certainty.
- Priority reform areas highlighted:
  - Streamline regulatory processes and licenses to unlock industries such as formal mining and energy.
  - Consider prioritizing reforms in the corporate insolvency regime to facilitate corporate restructuring and promote investment.
  - Expedite modernization of customs to ease non-tariff trade barriers.
  - Export diversification opportunities identified in agroindustry, mining, and tourism.
- Trade opportunities:
  - New Free Trade Agreements with China, Costa Rica and soon with South Korea, and ongoing discussions with Canada highlighted as promising.

### State-owned enterprises (SOEs): governance and efficiency
- Issues and actions:
  - SOEs operate in many industries, including several open to competition, and face favorable regulations, conflicts of interest, and political intervention.
  - Scope for reforms to foster efficiency, enhance corporate governance, increase accountability, and create a level playing field.
  - Government recently closed the Public Enterprise Coordinating Company (EMCO) and is seeking to reform several SOEs’ collective labor agreements.
  - Authorities working on completing the 2019 and 2020 financial audits of Petroecuador and Petroamazonas (end-March 2025 structural benchmark).

### Gender, youth, labor market reforms, and migration
- Violet Economy Law and gender/youth policies:
  - Violet Economy Law (VEL) enacted in 2023 seen as a critical step to close the gender gap in the labor market.
  - Persistent challenges: lower female labor force participation, high incidence of informality, unpaid work, and sizeable salary gap.
  - Suggested priorities: promote flexible work arrangements; improve specialized and vocational training; introduce comprehensive family-friendly policies; incentivize women’s participation in higher-remunerated technical fields.
  - Continue initiatives to integrate migrants into the workforce; create job opportunities, enhance economic resilience, and strengthen social safety nets to help stem emigration flows.
- Other labor market reforms:
  - Actions to address rigidities, reduce informality, and foster job creation could include implementing a formula-based minimum wage setting mechanism to reduce the wage-productivity gap and further enhancing specialized training programs.
  - Expand access to quality basic and tertiary education to enhance human capital and upskilling.
  - IMF staff analysis (IMF 2019, 2023) finds labor reforms have larger benefits when (i) preceded by improvements in governance and business regulation, and (ii) implemented under strong macroeconomic conditions; or, if implementation cannot be delayed, some reforms could be grandfathered.

### Crime, security, and macroeconomic effects
- Crime surge and associated impacts:
  - Rapid rise in crime linked to organized crime and drug-related violence, with adverse economic and social effects.
  - IMF staff analysis finds that a 1 percent increase in the murder rate at the local level in Ecuador is associated with a decline in the level of economic activity of up to 0.5 percent (see SIP).
- Policy approach recommended:
  - Multifaceted actions to strengthen citizen security; diminish the profitability of crime; tackle illicit financial flows; enhance efficiency of security resource allocation; and promote macroeconomic job-rich growth for youth while reducing inequality.
  - Emphasis on granular data, monitoring, and coordination between national and local authorities.

### AML/CFT framework, beneficial ownership, and financing of organized crime
- Recent legal and institutional steps:
  - July 2024: National Assembly approved a law to strengthen the AML/CFT framework, incorporating reforms in line with Financial Action Task Force (FATF) standards (end-February 2025 structural benchmark).
  - Authorities plan to issue regulations to implement the AML/CFT law.
- Implementation priorities and recommendations:
  - Establish a multi-pronged approach to beneficial ownership (BO) information transparency so information is adequate, accurate, and up-to-date, accessible to competent authorities, and subject to sanctions for non-provision or false provision.
  - Provide the Economic and Financial Analysis Unit (UAFE) with a robust governance structure to ensure independence from undue influence.
  - Consider strengthening targeted financial sanctions from the United Nations Security Council related to terrorism and its financing.
  - Improve understanding of organized crime activities and laundering channels to prioritize measures that disrupt illicit financial flows, potentially with IMF technical support.
  - Approve and publish a summarized AML/CFT Strategic Action Plan establishing actionable policy priorities identified in the National Risk Assessment approved in 2024 (proposed structural benchmark for end-September 2025).

### Transparency, anticorruption, and beneficial ownership in procurement
- National Policy of Public Integrity 2030 outlines integrity and anticorruption priorities, including adopting new technologies to fight corruption, increase transparency, and prevent conflicts of interest.
- Remaining vulnerabilities: weak enforcement, insufficient inter-agency coordination, and sector-specific corruption risks.
- Further steps suggested:
  - Pass legislation to prevent conflicts of interest in public administration.
  - Effectively operationalize the enhanced asset and interest declaration framework introduced by the AML/CFT law.
  - Sustain enforcement efforts against corruption.
  - Ensure accuracy of BO information for participants in procurement processes.

### Climate adaptation, mitigation, and transition risks
- Adaptation and resilience:
  - Ecuador vulnerable to floods, landslides, extreme heat, and droughts.
  - National Adaptation Plan (2023-2027) adopted as policy framework for adaptation.
  - Potential adaptation policy focuses: (i) remove market imperfections to promote private adaptation; (ii) build resilient infrastructure; (iii) implement regulations that internalize climate considerations (e.g., zoning prohibitions in flood zones); (iv) refine disaster risk management responsibilities and integrate disaster risk in public finance; and (v) increase national and international cooperation.
  - Note: Ecuador’s IMF adapted readiness score around the median compared to Latin American peers, but room for improvement in governance readiness, ecosystem services, health, and human habitat.
- Mitigation and emissions targets:
  - Ecuador’s GHG emissions are relatively low but growing over the past three decades, largely driven by the transportation sector.
  - 2019 NDCs committed to reducing emissions by 9 percent by 2025 compared to the business-as-usual (BAU) scenario, and by 20.9 percent conditional on receiving international support.
  - Authorities preparing updated NDCs through 2030 expected by next year.
  - Key policy focus areas to achieve NDC goals: limit deforestation; reduce emissions from the vehicle fleet; minimize fugitive, vented, and flared emissions in the energy sector.
  - Complementary measures: green public investment (green R&D, network infrastructure) and incentives for renewable energy (besides hydropower) and sustainable forest conservation.
- Transition risks and economic diversification:
  - Ecuador’s exports less diversified than regional peers; high dependence on oil increases vulnerability to international oil price and demand developments.
  - 2023: oil sector accounted for 7.5 percent of GDP, one-quarter of exports, and one-third of the NFPS fiscal revenue.
  - International Energy Agency projects global oil demand would decline by between 4 and 29 percent by 2040, depending on mitigation scenarios.
  - Policy recommendations: gradually diversify the economy, develop non-oil industries, expand export diversification and quality, and improve fundamentals (education, infrastructure, government effectiveness) to mitigate transition risks.

### Sustainable bonds and green finance
- Status and recommendations:
  - Ecuador’s green finance market positioned for growth; authorities and financial sector have developed a national green taxonomy.
  - Several financial institutions have issued sustainable bonds since 2019.
  - Three strategies to attract private financing for green investments:
    - Streamline the sustainable bond issuance process to incentivize use of green financing instruments over conventional methods.
    - Enhance governance of the country’s NDC plan to bolster investor confidence.
    - Assess green financing instruments that suit public investment needs and can catalyze private investments while optimizing efficiency in line with the country’s overall financing strategy.

*Source: 1ecuea2024002-print-pdf (IMF).*

### 47.      The authorities are strongly committed to continue reducing emissions and plan on

### 1ecuea2024002-print-pdf - 47.      The authorities are strongly committed to continue reducing emissions and plan on

### Climate policy, adaptation, and green finance
- Ecuador views adaptation as more critical than mitigation given its relatively low GHG emissions.
- Authorities plan to release updated NDC targets next year.
- Measures to reduce the energy sector’s vulnerability to droughts include diversifying towards non-conventional renewable energy sources and increasing private sector participation.
- Authorities emphasize:
  - the importance of a unified legal framework for climate change combining mitigation and adaptation;
  - increasing coordination among different government agencies.
- On climate finance, authorities recognize significant investment needs for adaptation and mitigation, are committed to creating a supportive environment for green finance, and are considering the development of carbon markets.

### Program modalities and macro-fiscal performance (EFF first review)
- All quantitative performance criteria (QPCs) and indicative targets (ITs) set for the first review under the EFF were met with margin.
- QPC outcomes (year through end-August 2024):
  - Budgetary central government (PGE) and CFDD non-oil primary surplus: US$899 million (0.7 percent of GDP) — Exceeded adjusted target by US$2 billion (1.6 percent of GDP).
  - Overall surplus: US$215 million (0.2 percent of GDP) — Exceeded adjusted target by US$2.3 billion (1.9 percent of GDP).
  - Overperformance largely due to delays in capital budget execution.
  - NFPS deposits at the BCE rose by US$1.8 billion over the same period, exceeding target.
  - Continuous performance criteria of no accumulation of external arrears or new central bank credit to the NFPS were met.
- IT outcomes (as of end-August 2024):
  - Overall balance of the NFPS: surplus of US$1.8 billion — higher than adjusted deficit target of US$1.5 billion.
  - Net international reserves (NIR) increased by US$1.6 billion in the year through end-August 2024 — exceeded adjusted target of -US$458 million.
  - Stock of PGE arrears at end-August 2024: US$322 million — compared to IT of US$862 million.
  - Number of families in the lowest three income deciles nationwide covered by cash transfer programs: 1,192,883 as of end-August 2024 — exceeding the IT by 170 families.
  - Fiscal overperformance allowed faster clearance of domestic arrears with the private sector.

### Quantitative performance criteria and indicative targets (selected figures)
- Non-oil primary balance of the PGE (floor) — Actual end-August 2024: 899 (Met); Program/Adjusted: -1,078.
- Overall balance of the PGE and CFDD (floor) — Actual end-August 2024: 200 (Met); Program/Adjusted: -2,200 / -2,108.
- Accumulation of NFPS deposits at the central bank (floor) — Actual: 1,756 (Met); Program/Adjusted: 200 / -581.
- Overall balance of the NFPS (floor) — Actual: 1,795 (Met); Program/Adjusted: -1,628 / -1,537.
- Non-oil primary balance including fuel subsidies (NOPBS) of the NFPS (floor) — Actual: -1,865 (Met); Program/Adjusted: -4,100 / -4,192.
- Change in the stock of NIR (floor) — Actual: 1,573 (Met); Program/Adjusted: -200 / -458.
- Stock of PGE arrears to the domestic private sector (ceiling) — Actual: 322 (Met); Program/Adjusted: 862.
- Number of families in first three income deciles covered by cash transfer programs (floor) — Actual: 1,192,883 (Met); Program/Adjusted: 1,192,713.

(Note: Figures are in Million of U.S. dollars, unless otherwise indicated; cumulative change from January 1.)

### Structural Benchmarks (SBs) progress and upcoming SBs
- Implemented SBs (examples and dates):
  - Established a Financial Stability Committee (end-September 2024 SB).
  - Published updated MTFF and MTDS (end-October 2024 SBs).
  - Developed plans to expand the social registry (end-October 2024 SB).
  - Mobilize non-oil fiscal revenues (mid-November 2024 SB).
  - Clear and prevent resurgence of domestic arrears (end-November 2024 SB).
  - Issued macroprudential regulations on capital buffers (end-November 2024 SB).
  - Enacted measures to ensure the 2025 fiscal plan is in line with the program (December 6, 2024 SB).
  - Tender process for 2023 and 2024 healthcare audits implemented ahead of schedule (end-December 2024 SB).
- In progress and proposed resets:
  - Updated MEF–IESS agreement to settle healthcare obligations (end-October 2024 SB) — in progress; proposed reset to end-March 2025.
  - Tender process for new platform for BCE’s central securities depository (end-November 2024 SB) — in progress; proposed reset to end-January 2025.
- Future SBs (selected):
  - Establish inter-institutional group within Financial Stability Committee to coordinate resolution reforms (end-January 2025 SB).
  - Implement system to automatize PGE payments, including arrears’ payments (end-March 2025 SB).
  - Develop conceptual framework for upgraded Official System of Public Procurement (end-July 2025 SB).
  - Approve and publish an AML/CFT Strategic Action Plan (end-September 2025 SB).

### Program timeline, targets, and definitions
- QPCs set through end-April 2025; new ITs cover period through end-December 2025.
- QPCs for end-December 2024 unchanged from program approval; NIR indicative target adjusted upwards due to stronger balance of payments outturn.
- Technical Memorandum of Understanding (TMU) clarifies program definitions and defines adjustors relevant to program performance assessment.

### Capacity to repay and financing assurances
- Capacity to repay: assessed as adequate but subject to significant risks tied to policy implementation and availability of external financing.
- GRA credit to Ecuador:
  - Peak in 2025: 978.8 percent of quota and 25.7 percent of exports.
  - Peaks at 7.4 percent of GDP in 2024 (Table 9 reference).
  - Fund obligations relative to gross international reserves peak at 15.8 percent in 2025 and decline steadily to 2.84 percent by 2034.
  - Fund obligations in percent of GDP and exports peak at 1.3 and 4.7 percent, respectively, in 2027.
- Program financing:
  - Program is fully financed with firm financing commitments for next 12 months and good prospects thereafter (Table 6 reference).
  - IFIs (WB, IDB, CAF, FLAR) have committed to maintain or increase support.
  - Financing assumptions include market access of approximately US$1.5 billion in 2025 and US$2 billion per year starting in 2026.
  - Identified estimated financing gap of US$3 billion in 2024-28 (Box 1).

### Safeguards, arrears, and lending into arrears
- Safeguards:
  - 2024 update safeguards assessment in process.
  - BCE strengthened safeguards since 2019, notably through 2021 COMYF reforms prohibiting BCE financing of sovereign and quasi-fiscal operations and establishing a “backing rule” to fully cover BCE monetary liabilities and government deposits with international reserve assets.
  - BCE has taken steps to ensure quorum capacity of BCE Board and full constitution of Audit Committee.
  - Further work needed to align BCE annual financial statements with International Financial Reporting Standards, particularly for BCE-owned public debt.
  - Fiscal safeguards review underway; main finding: Ecuador’s PFM system provides broadly adequate safeguards for use of Fund resources for budget support.
  - Treasury Single Account (TSA) at the BCE is comprehensive with adequate controls; further work needed to improve treasury and budget management to prevent arrears accumulation.
- Lending into Arrears:
  - Residual arrears to international private bond holders from 2008-09 repudiations: US$52 million remain outstanding in hands of individual creditors.
  - Authorities established a public procedure to follow if a holder requests liquidation of those securities; staff judges authorities continue to make good faith efforts to reach collaborative agreement.

### Article VIII / Capital Flow Management Measures (CFMs)
- Ecuador maintains a tax on transfers abroad (“impuesto a la salida de divisas,” ISD) for financial and current international transactions.
- ISD developments:
  - After reductions in 2022-23, ISD rate increased from 3.5 percent to 5 percent in April 2024 to address rapid reserve deterioration.
  - The increase in 2024 represented a tightening of the outflow CFM; prior reductions constituted an easing.
  - ISD constitutes an exchange restriction subject to Fund approval under Article VIII, Section 2(a).
  - Authorities committed to gradually phasing out the ISD as macroeconomic and balance of payments stability is restored.
  - Note: The ISD rate for 2025 on the imports of certain raw materials will be reduced starting in January 2025.

### Risks, mitigants, and staff assessment of exceptional access criteria
- Enterprise risks:
  - Significant business, operational, financial, and reputational risks related to the EFF arrangement persist.
  - Business risks: uncertain economic outlook, fragmented political landscape, uncertainty ahead of 2025 elections.
  - Operational risks: staff safety and well-being; institutional capacity constraints; lags and variability in data sources.
  - Financial risks: potential delays in additional international financial support and market re-access.
  - Reputational risks linked to above scenarios.
- Risk mitigants:
  - Bold policy actions already taken and strong program implementation (all QPCs met with large margins).
  - Authorities’ commitment to continue implementing program policies and SBs.
  - Strong multilateral financial support and commitment to honor external debt obligations.
  - Program protection of social spending and contingency planning.
- Box 1: Assessment of Exceptional Access Criteria — staff assessments:
  - Criterion 1: Met. Ecuador experiencing exceptional BoP need; estimated financing gap of US$3 billion in 2024-28. Ecuador’s IMF credit outstanding at SDR 6.4 billion as of end-October 2024 (equivalent to about US$8.5 billion, or 914 percent of quota).
  - Criterion 2: Met. Under staff baseline, public debt sustainable but not with high probability. Debt sustainability and FX availability tests using new Debt Sustainability Framework for Market Access Countries are assessed to be met.
  - Criterion 3: Met. Prospects of regaining access to private capital markets judged to be present; spreads declined by about 800 basis points since beginning of 2024. Assessment subject to significant risks.
  - Criterion 4: Met. Policy program judged to provide reasonably strong prospect of success; authorities fully committed; all QPCs met for end-August 2024; decisive measures including VAT increase to 15 percent and aligning domestic gasoline prices with international prices alongside social compensation implemented. Assessment remains subject to risks from economic environment, political fragmentation, and 2025 elections. Discussions with four key presidential candidates indicate broad support for continued engagement with the Fund and program objectives.

*Source: IMF staff report excerpt (End-August 2024 data and program documents).*

### 58.      Ecuador is facing renewed challenges from a severe electricity crisis and the authorities

### Ecuador is facing renewed challenges from a severe electricity crisis and the authorities are implementing swift policy actions to mitigate its effects.

### Electricity crisis and economic impact
- The electricity crisis stems from a historic drought, causing electricity shortages and nationwide outages, hurting economic activity.
- The authorities’ actions will be instrumental in preventing a further deepening of the crisis, with GDP growth expected to recover in 2025 and over the medium term.
- The authorities are taking steps to foster needed investment in the medium term to tackle the structural deficit in electricity generation.
- Structural reforms are called for to encourage private sector participation, including in renewable energy.

### Macroeconomic outlook and external position
- Liquidity risks have subsided since early 2024 but overall risks to the outlook remain high and tilted to the downside.
- Ecuador’s external position was moderately weaker than the level implied by medium-term fundamentals and desirable policies in 2023 but is expected to improve in 2024 and the medium term.

### Progress under the EFF arrangement
- The authorities made significant progress with the implementation of their economic reform program supported by the EFF arrangement.
- Authorities embarked on decisive policy actions and reforms, which strengthened the fiscal position and catalyzed access to multilateral and bilateral financing.
- These efforts alleviated the severe liquidity conditions experienced in early 2024, enabling the rebuilding of buffers and the clearance of some domestic arrears.
- All quantitative targets for the first review of the EFF arrangement have been met, most with large margins, and implementation of SBs is progressing well, with some met ahead of schedule.

### Fiscal reforms and public finances
- The fiscal plan is anchored on implementing a NOPBS consolidation of 5.5 percent of GDP over 2024-28, which would ensure public debt remains on a firm downward path to meet the 40 percent of GDP target by 2032 as established in COPLAFIP.
- Policies aim at stabilizing non-oil revenue by replacing temporary measures with permanent high-quality ones and improving the oil balance by enhancing the efficiency of the oil sector and reducing the fiscal cost of fuel production and distribution.
- On the expenditure side, the authorities plan on implementing a gradual but durable reduction in current spending, while safeguarding fiscal space for essential social and capital spending, especially in the education, health, security, and energy sectors.
- Appropriate contingency planning remains critical to tackle any fiscal shortfalls and/or potential delays in external financing.

### Social safety nets and inclusive growth
- The authorities continue expanding the social safety net.
- Broadening the coverage of the existing social registry, in line with the plan formulated by the authorities with support from the World Bank, would help expanding and targeting the existing cash transfers schemes.
- Boosting the social safety net would ensure that the most vulnerable have adequate access to government support in the near term, while efforts to improve access to education and health would promote more inclusive and job-rich growth.

### Public financial management, transparency, and governance
- Strengthening public financial management, transparency, and governance will help support fiscal efforts.
- Priorities in the fiscal structural agenda include improving cash flow management and strengthening fiscal risk analysis.
- Implementing the authorities’ arrears clearance strategy would prevent the resurgence of payment arrears.
- It is key to finalize the updated agreement between the MEF and the IESS and complete the pending audits of health claims, so that healthcare obligations can be recognized and payments made on a timely basis.
- Enhancing public investment management based on the recommendations of the 2023 PIMA could significantly increase efficiency.

### Financial sector resilience and supervision
- Plans to strengthen the resolution framework and increase coordination among financial sector supervisors are welcome.
- While the financial sector has remained broadly stable, financial soundness of some small banks and credit cooperatives has deteriorated.
- The authorities have taken steps to curb vulnerabilities and advance an extensive agenda of financial sector policies in line with FSAP recommendations, which will help safeguard financial stability.
- Authorities recognize the importance of improving financial sector oversight, ensuring proper and transparent risk disclosures, and gradually phasing out regulatory forbearance at an appropriate pace.
- Continuing to closely monitor and address weak institutions, while working to enhance the financial safety net, would further bolster the resilience of the financial system.

### Structural reforms, crime, and labor markets
- Continued efforts in advancing structural reforms and combating crime would promote inclusive growth.
- Streamlining regulations and licenses would help unlock the potential of industries such as mining and energy.
- Recent trade agreements offer opportunities for trade expansion and export diversification.
- There is ample scope to foster efficiency and enhance governance in SOEs.
- Labor market policy priorities include reducing informality, promoting more flexible work arrangements, improving specialized training, and facilitating female labor participation.
- Implementing family-friendly policies and incentives for women to participate in higher-paying technical fields would help advance progress in reducing the gender wage gap.
- The approval of a new AML/CFT law by the National Assembly was an important step to strengthen the financial integrity framework, with effective implementation being an important subsequent priority.
- Further increasing transparency and accountability will help mitigate vulnerabilities to corruption.
- Continued efforts to reduce crime and make it less profitable, including by tackling illicit financial flows and strengthening the UAFE, are key for boosting growth.

### Climate policy and energy transition
- The authorities are strongly committed to continue advancing the climate policy agenda to enhance macroeconomic resilience.
- The policy agenda includes proactive adaptation measures to reduce vulnerabilities to climate change, including actions to diversify and secure the energy supply, and continued efforts to reduce GHG emissions to reach NDC goals.
- Continuing to foster private sector participation, integrating climate considerations in policymaking, and enhancing coordination between government agencies will facilitate climate policy efforts.
- Gradually diversifying the economy to reduce dependence on fossil fuels is essential for mitigating risks associated with the global shift to a low-carbon economy.
- Given significant adaptation and mitigation investment needs, the authorities are exploring solutions to catalyze climate financing.

### IMF staff recommendations and assessments
- Staff supports the completion of the First Review under the arrangement.
- Staff recommends completion of the financing assurances review, including given Ecuador’s ongoing good faith efforts to resolve external arrears with private creditors, and supports the authorities’ request for Board approval for the retention of the exchange restriction arising from the ISD.
- The exchange restriction is maintained for balance of payment reasons, is temporary, and non-discriminatory.

*Source: IMF Country Report excerpt.*

### 67.      It is recommended that the next Article IV consultation take place on a 24-month

### It is recommended that the next Article IV consultation take place on a 24-month cycle.

### Recent economic developments
- Real GDP (percent change): 6.2 (2022); 2.4 (2023); 0.1 (2024); -0.4 (2024 staff program approval baseline); 1.2 (2025); 1.6 (2026); 1.8 (2027); 2.4 (2028); 2.5 (2029); 2.5 (2030).
- GDP per capita (US$): 6,581 (2022); 6,664 (2023); 6,806 (2024); 6,703 (2024 staff baseline); 6,982 (2025); 6,907 (2026); 7,080 (2027); 7,300 (2028); 7,537 (2029); 7,783 (2030).
- Consumer price index (period average): 3.5 (2022); 2.2 (2023); 2.4 (2024); 1.9 (2024 staff baseline); 2.2 (2025); 2.2 (2026); 1.6 (2027); 1.5 (2028); 1.5 (2029); 1.5 (2030).
- Consumer price index (end-of-period): 3.7 (2022); 1.3 (2023); 3.4 (2024); 2.8 (2024 staff baseline); 1.7 (2025); 1.7 (2026); 1.5 (2027); 1.5 (2028); 1.5 (2029); 1.5 (2030).
- High-frequency indicators: economy temporarily picked up in 2024H1 but high-frequency data point to weaker economic activity in 2024H2; inflation stabilized after a spike in April; formal employment in the private sector is gradually edging up in 2024; poverty rate edged down except in rural areas.

### Fiscal developments and public finances
- NFPS overall balance (percent of GDP): 0.0 (2022); -3.6 (2023); -2.0 (2024); -1.8 (2024 staff baseline); -1.2 (2025); -1.3 (2026); -0.2 (2027); 0.0 (2028); 0.5 (2029); 0.8 (2030).
- Primary balance (percent of GDP): 0.5 (2022); -2.7 (2023); -0.9 (2024); -0.8 (2024 staff baseline); 0.1 (2025); -0.3 (2026); 0.9 (2027); 1.1 (2028); 1.6 (2029); 1.9 (2030).
- Non-oil primary balance (NOPB, percent of GDP): -3.4 (2022); -4.9 (2023); -3.1 (2024); -3.2 (2024 staff baseline); -3.1 (2025); -3.1 (2026); -2.6 (2027); -2.1 (2028); -1.5 (2029); -1.2 (2030).
- NOPB including fuel subsidies (NOPBS, percent of GDP): -7.3 (2022); -7.7 (2023); -5.4 (2024); -5.6 (2024 staff baseline); -4.7 (2025); -4.6 (2026); -3.5 (2027); -2.9 (2028); -2.2 (2029); -1.8 (2030).
- NFPS gross debt (percent of GDP): 57.0 (2022); 55.4 (2023); 56.3 (2024); 56.8 (2024 staff baseline); 56.4 (2025); 56.8 (2026); 55.7 (2027); 54.4 (2028); 52.5 (2029); 50.0 (2030).
- Revenues and expenditures (US$ millions, 2024 staff baseline): revenue 46,791; expenditure 48,978; net/gross investment in nonfinancial assets 2,173; net lending/borrowing (NLB) -2,187.

### External sector and reserves
- Current account (US$ millions): 2,093 (2022); 2,229 (2023); 2,537 (2024); 5,280 (2024 staff baseline); 2,755 (2025); 3,886 (2026); 3,642 (2027); 3,481 (2028); 3,552 (2029); 3,641 (2030).
- Trade balance (US$ millions): 2,544 (2022); 2,207 (2023); 2,991 (2024); 5,566 (2024 staff baseline); 2,849 (2025); 4,087 (2026); 3,872 (2027); 3,760 (2028); 3,784 (2029); 3,994 (2030).
- Exports, f.o.b. (US$ millions): 33,033 (2022); 31,484 (2023); 32,015 (2024); 33,423 (2024 staff baseline); 31,550 (2025).
  - Oil exports (US$ millions): 11,587 (2022); 8,952 (2023); 8,699 (2024); 9,053 (2024 staff baseline); 8,025 (2025).
  - Non-oil exports (US$ millions): 21,446 (2022); 22,532 (2023); 23,316 (2024); 24,370 (2024 staff baseline); 23,525 (2025).
- Imports, f.o.b. (US$ millions): 30,489 (2022); 29,277 (2023); 29,024 (2024); 27,857 (2024 staff baseline); 28,702 (2025).
- Gross international reserves (US$ millions): 8,459 (2022); 4,454 (2023); 5,212 (2024); 7,648 (2024 staff baseline); 6,724 (2025); 10,544 (2026); 12,676 (2027); 14,679 (2028); 16,678 (2029); 18,740 (2030).
- Gross international reserves as percent of the ARA metric (excluding the Liquidity Fund): 33.7 (2022); 17.8 (2023); 20.7 (2024); 29.1 (2024 staff baseline); 26.2 (2025); 38.7 (2026); 45.2 (2027); 51.0 (2028); 56.6 (2029); 61.9 (2030).

### Financial system and credit dynamics
- Broad money (M2) percent change, yoy (consolidated banking system): 7.5 (2022); 6.7 (2023); 2.5 (2024); 4.8 (2024 staff baseline); 3.4 (2025); 3.8 (2026); 3.3 (2027); 3.9 (2028); 4.0 (2029); 4.1 (2030).
- Credit to the private sector (percent change, yoy): 13.9 (2022); 8.4 (2023); 4.0 (2024); 4.5 (2024 staff baseline); 3.3 (2025); 4.0 (2026); 4.0 (2027); 4.4 (2028); 4.5 (2029); 4.8 (2030).
- Credit-to-GDP dynamics: credit to the private sector (percent of GDP) 50.6 (2022); 53.8 (2023); 54.7 (2024); 55.6 (2024 staff baseline); 54.6 (2025); 55.7 (2026); 56.1 (2027); 56.3 (2028); 56.6 (2029); 57.0 (2030).
- Banking system soundness (selected indicators, Oct-24): regulatory capital to risk-weighted assets 14.7; nonperforming loans to total gross loans 4.7; provisions to nonperforming loans 161.5; return on assets 1.7; return on equity 9.5.
- System developments noted: deposit growth starting to recover; incipient increase in bank reserves; household credit growth decelerating while firm credit stabilized; widening of lending margins following revision of some lending caps; loan quality continues to decline while provisioning remains adequate; solvency ratios falling but remain above regulatory norm.

### External financing and gross financing needs
- NFPS gross financing needs (US$ millions): 6,321 (2022); 9,813 (2023); 8,035 (2024); 8,097 (2024 staff baseline); 7,849 (2025); 8,250 (2026); 8,264 (2027); 7,916 (2028); 7,248 (2029); 7,128 (2030).
- Gross external financing requirements (US$ millions): 5,154 (2022); 6,568 (2023); 4,346 (2024); 888 (2024 staff baseline); 5,101 (2025); 4,000 (2026); 4,407 (2027); 5,288 (2028); 4,507 (2029); 4,649 (2030).
- External debt (US$ millions): 64,239 (2022); 62,375 (2023); 58,989 (2024); 65,786 (2024 staff baseline); 61,333 (2025); 68,657 (2026); 71,905 (2027); 73,387 (2028); 74,594 (2029); 75,211 (2030).
- Public external debt (US$ millions): 51,684 (2022); 50,500 (2023); 51,024 (2024); 53,967 (2024 staff baseline); 53,509 (2025).

### Policy recommendation
- It is recommended that the next Article IV consultation take place on a 24-month cycle.

*Sources: Ecuador’s Internal Revenue Service, Central Bank of Ecuador, INEC, IESS, Ministry of Economy and Finance, Haver, Bloomberg, STA BOP database, Superintendency of Banks, IMF Monetary and Financial Statistics, and IMF staff calculations and projections.*

### 1. Non-oil primary balance of the budgetary central government (PGE) (floor) 1/

### 1. Non-oil primary balance of the budgetary central government (PGE) (floor) 1/

### Performance on Quantitative Performance Criteria and Indicative Targets (End-August 2024)
- Non-oil primary balance of the budgetary central government (PGE) (floor):
  - Target: -1,078
  - Outturn: -1,078
  - Status: Met
  - Cumulative change from January 1: 899; subsequent quarterly/monthly entries: -2,295; -341; -1,220; -2,452
- Overall balance of the PGE and CFDD (floor):
  - Target: -2,200
  - Outturn: -2,108
  - Status: Met
  - Cumulative entries: 200; -4,213; -1,041; -2,628; -3,868
- Accumulation of NFPS deposits at the central bank (floor):
  - Target: 200
  - Outturn: -58
  - Status: Met
  - Cumulative entries: 1,756; 360; 0; -5; 1,070
- Non-accumulation of external payments arrears by the NFPS (continuous performance criterion):
  - Target: 0
  - Outturn: 0
  - Status: Met
  - Cumulative entries: 0; 0; 0; 0
- (No new) Central bank direct and indirect financing to the NFPS (continuous performance criterion):
  - Target: 0
  - Outturn: 0
  - Status: Met
  - Cumulative entries: 0; 0; 0; 0

### Indicative Targets (End-August 2024)
- Overall balance of the NFPS (floor):
  - Target: -1,628
  - Outturn: -1,537
  - Status: Met
  - Cumulative entries: 1,795; -2,442; -89; -1,103; -1,570
- Non-oil primary balance including fuel subsidies (NOPBS) of the NFPS (floor):
  - Target: -4,100
  - Outturn: -4,192
  - Status: Met
  - Cumulative entries: -1,865; -6,528; -1,151; -3,070; -5,751
- Change in the stock of NIR (floor):
  - Target: -200
  - Outturn: -458
  - Status: Met
  - Cumulative entries: 1,573; 65; -34; 46; 1,038
- Stock of PGE arrears to the domestic private sector (ceiling):
  - Target/ceiling: 862
  - Outturn: 322
  - Status: Met
  - Cumulative entries: 662; 600; 400; 262
- Number of families in the first three income deciles nationwide covered by cash transfer programs (floor):
  - Target: 1,192,713
  - Outturn: 1,192,883
  - Status: Met
  - Cumulative entries (quarterly milestones): 1,212,984; 1,228,660; 1,244,336; 1,260,012

### Notes and Data Sources
- Sources: Ministry of Economy and Finance and IMF staff estimates.
- Note: Aggregates and adjustors as defined in the Technical Memorandum of Understanding (TMU).
- 1/ Cumulative change from January 1.
- 2/ Staff report for the EFF Request.
- 3/ Adjusted for oil prices and disbursements from multilateral institutions.
- Units: (US$ million, unless otherwise indicated)
- Reporting date: End-August 2024

### IMF Purchases and Reviews (SDR amounts and percent of Quota)
- Approval of arrangement (May 31, 2024):
  - Amount of purchase: 752.9 (Millions of SDRs)
  - Percent of Quota: 107.9
- First review and end-August 2024 performance/continuous criteria (November 15, 2024):
  - Amount of purchase: 375.9
  - Percent of Quota: 53.9
- Second review and end-December 2024 performance/continuous criteria (March 15, 2025):
  - Amount of purchase: 312.9
  - Percent of Quota: 44.8
- Third review and end-April 2025 performance/continuous criteria (July 15, 2025):
  - Amount of purchase: 312.9
  - Percent of Quota: 44.8
- Fourth review and end-August 2025 performance/continuous criteria (November 15, 2025):
  - Amount of purchase: 312.9
  - Percent of Quota: 44.8
- Fifth review and end-December 2025 performance/continuous criteria (March 15, 2026):
  - Amount of purchase: 186.9
  - Percent of Quota: 26.8
- Sixth review and end-June 2026 performance/continuous criteria (September 15, 2026):
  - Amount of purchase: 186.9
  - Percent of Quota: 26.8
- Seventh review and end-December 2026 performance/continuous criteria (March 15, 2027):
  - Amount of purchase: 186.9
  - Percent of Quota: 26.8
- Eighth review and end-June 2027 performance/continuous criteria (September 15, 2027):
  - Amount of purchase: 186.9
  - Percent of Quota: 26.8
- Ninth review and end-December 2027 performance/continuous criteria (March 15, 2028):
  - Amount of purchase: 184.9
  - Percent of Quota: 26.5
- Total: 3,000.0 (Millions of SDRs); 430.0 (Percent of Quota)
- Note: Ecuador's quota is SDR 697.7 million.
- Source: IMF staff estimates.

### Structural Benchmarks (Status Highlights)
- Met structural benchmarks (selected):
  - 1. Publish an updated Medium-Term Fiscal Framework (MTFF) in line with program targets. — Due End-October 2024 — Met
  - 2. Publish a Medium-Term Debt Management Strategy in line with program targets. — Due End-October 2024 — Met
  - 4. Share with Fund staff an updated plan to clear and prevent the resurgence of domestic arrears of the PGE. — Due End-November 2024 — Met
  - 5. Prepare and share with the Fund a plan to mobilize non-oil fiscal revenues. — Due Mid-November 2024 — Met
  - 6. Enact regulation on revenue and/or expenditure measures to ensure that the 2025 fiscal plan is in line with program and MTFF commitments. — Due December 6, 2024 — Met
  - 11. Initiate the tender process to select an auditor to undertake the 2023 and 2024 healthcare audits. — Due End-December 2024 — Met
  - 12. Complete the audits of the 2019 and 2020 financial statements of Petroecuador and Petroamazonas and share the results with Fund staff. — Due End-March 2025
  - 15. Establish a Financial Stability Committee in line with best international practices. — Due End-September 2024 — Met
  - 17. Issue macroprudential regulations on bank capital buffers. — Due End-November 2024 — Met
- Not met / reset or proposed deadlines:
  - 8. Establish an updated agreement between the MEF and IESS on the transfer of healthcare obligations — Due End-October 2024 — Not met. Reset to end-March 2025
  - 19. Sign a contract to implement a new platform for the BCE’s central securities depository (DCV) — Due End-November 2024 — Not met. Reset to end-January 2025
  - Several governance, AML/CFT, and financial sector items listed with due dates ranging from End-December 2024 to End-September 2025 and statuses Proposed or Not met.

### External Sector Assessment — Key Findings Relevant to Program and Reserves
- Overall assessment (2023): External position moderately weaker than level implied by medium-term fundamentals and desirable policies.
- Current account (CA):
  - CA surplus: 1.8 percent of GDP in 2022; 1.9 percent of GDP in 2023; in 2024 first two quarters CA = US$3.8 billion (over 3 percent of projected 2024 GDP).
  - Projected medium-term CA surplus: about 2½ percent of GDP.
- Net international investment position (NIIP):
  - 2023 NIIP: -20.3 percent of GDP.
  - Preliminary improvement through 2024Q2: about US$4.7 billion (4 percent of projected 2024 GDP).
- EBA-lite model results (2023):
  - CA-Actual: 1.9
  - Cyclical contributions (from model): (-) -0.2
  - Adjusted CA: 1.1
  - CA Norm (from model): 1.9 (CA model), 3.2 (Consumption model)
  - Adjusted CA Norm: 1.9
  - CA Gap: -0.9 (CA model), -1.7 (REER model), -1.3 (Consumption model)
  - REER Gap (in percent): 4.9 (CA), 9.6 (REER), 7.3 (Consumption)
  - Staff assessment: consumption model indicates a REER overvaluation of around 7.3 percent for 2023.
- Real Effective Exchange Rate (REER):
  - REER depreciated by approximately 1.5 percent in 2023; broadly stable between January and October 2024.
- Capital and financial flows:
  - Net capital flows fell significantly in 2023; projected to increase in 2024 mainly driven by loans from IFIs.
  - Authorities enacted an increase in the ISD to 5 percent in early 2024; authorities intend to phase out this measure as stability is restored.
- Reserves:
  - Gross international reserves (GIR): declined by US$4 billion to US$4.5 billion at end-2023; rose to US$7.7 billion as of end-November 2024.
  - GIR adequacy: 18 percent of the IMF’s reserve adequacy metric (ARA metric) as of end-2023 (21 percent when adjusted for CFMs).
  - When including financial system Liquidity Fund and liquid net foreign assets of the domestic financial sector, available external liquidity at end-2023 rises to 55 percent of the ARA metric (66 percent when also adjusted for CFMs).
  - Additional liquidity facilities: FIMA repo facility with the Federal Reserve Bank of New York (FRBNY), liquidity lines with BIS and FLAR.
  - Policy implication: Authorities plan to gradually strengthen international reserves under the IMF-supported program to increase resilience to shocks.

### Sovereign Risk and Debt Sustainability — Key Statistics and Assumptions
- Public debt dynamics:
  - Public debt-to-GDP ratio: 55.4 percent of GDP in 2023 (down from 57 percent in 2022).
  - Drivers of decline: debt-for-nature swap lowering international bonds by US$970 million; net repayments to bilateral creditors.
  - Spreads: peaked at over 2,100 basis points in late 2023; around 1,300 basis points at end-November 2024.
- Baseline fiscal assumptions:
  - NFPS primary deficit expected to narrow to 0.3 percent of GDP in 2025.
  - NFPS expected to converge to a primary surplus of about 2 percent of GDP in the medium term.
  - Public debt-to-GDP ratio expected to decline from 55.4 percent in 2023 to about 40 percent by 2032.
  - Gross financing needs (GFNs): 8.1 percent of GDP in 2023; 6.7 percent of GDP in 2024; around 5 percent of GDP over the medium term.
- Public Sector Gross Debt by Creditor (2023, US$ Million and Percent of GDP unless otherwise indicated):
  - Total domestic: 17,633 (14.8 percent of GDP; 26.8 percent of total)
    - Treasury bills: 2,166 (1.8 percent of GDP; 3.3 percent of total)
    - Medium- and long-term debt (domestic): 15,467 (13.0 percent of GDP; 23.5 percent of total)
  - Total external: 48,188 (40.5 percent of GDP; 73.2 percent of total)
    - External loans (financial institutions): 2,688 (2.3 percent of GDP; 4.1 percent of total)
    - Eurobonds: 15,988 (13.5 percent of GDP; 24.3 percent of total)
    - Official creditors total: 27,953 (23.5 percent of GDP; 42.5 percent of total)
      - Multilateral: 24,565 (20.7 percent of GDP; 37.3 percent of total)
        - IMF: 7,949 (6.7 percent of GDP; 12.1 percent of total)
        - IDB: 7,835 (6.6 percent of GDP; 11.9 percent of total)
        - WBG: 4,855 (4.1 percent of GDP; 7.4 percent of total)
        - CAF: 3,898 (3.3 percent of GDP; 5.9 percent of total)
      - Bilateral: 3,387 (2.9 percent of GDP; 5.1 percent of total)
        - China: 1,958 (1.6 percent of GDP; 3.0 percent of total)
        - France: 828 (0.7 percent of GDP; 1.3 percent of total)
        - Spain: 232 (0.2 percent of GDP; 0.4 percent of total)
        - Japan: 218 (0.2 percent of GDP; 0.3 percent of total)
        - Korea: 73 (0.1 percent of GDP; 0.1 percent of total)
        - Other: 79 (0.1 percent of GDP; 0.1 percent of total)
    - Other (SDRs and OAP 1/): 1,560 (1.3 percent of GDP; 2.4 percent of total)
  - Total gross debt: 65,821 (55.4 percent of GDP)
- Source for debt tables: MEF.

*Source: Ministry of Economy and Finance and IMF staff estimates, End-August 2024.*

### 2.      Public Debt Definition. Public debt in the SRDSF is defined as the consolidated liabilities of

### 2. Public Debt Definition.

### Public debt perimeter and instruments
- Public debt in the SRDSF is defined as the consolidated liabilities of the NFPS, comprising the PGE, the CFDD, social security funds, public nonfinancial corporations, and the Development Bank of Ecuador (BEDE).
- Instruments included in the debt measure:
  - loans
  - securities (bonds and treasury certificates)
  - liabilities under oil related financing
  - central bank lending to the government
  - deposits at BEDE
  - other accounts payable including arrears

### Fiscal multiplier and near-term growth implications
- Baseline assumption: fiscal multiplier of 0.5.
- Commentary:
  - Headwinds from fiscal adjustment under the EFF arrangement are expected to impact growth in the near term.
  - Mitigating factors: resolution of the liquidity crisis, ongoing clearance of arrears, reduction in uncertainty, and improvement in risk sentiment.
  - The impact of the negative fiscal impulse is assessed as highest in 2024 and is expected to gradually dissipate during the program.
  - The baseline growth path is described as somewhat more conservative than the benchmark metrics provided in the SRDSF.

### Risks to the debt outlook and realism of assumptions
- Overall assessment:
  - Ecuador is at a moderate overall risk of sovereign stress.
  - Debt is sustainable but not with high probability in the baseline program forecast.
- Key risk drivers and mitigating factors:
  - Downside risks:
    - Implementation capacity of the fiscal plan.
    - Revenue shortfalls from growth underperformance, uncertainty in the security situation, possible disruptions in oil production, or more severe energy shortages.
    - Width of the debt fanchart implies debt could increase significantly under an adverse yet plausible scenario.
  - Mitigating factors:
    - Large share of multilateral and bilateral official debt with comparatively low rollover risk and long maturities.
    - Relatively low GFNs in the projection.
    - Successful performance of fiscal measures implemented so far under the program.
- Commentary on realism:
  - The primary consolidation under the program is assessed as ambitious compared to cross-country historical experience.
  - To achieve debt reduction goals it will be important to avoid policy slippages.

### DSA summary and risk signals (textual highlights)
- Debt declined in 2023 and is expected to continue on a downward trajectory in the medium-term provided the program fiscal plan is implemented successfully.
- Medium-term liquidity risks are assessed as moderate by the GFN module, but financing risks remain subject to high sovereign spreads.
- Long-term modules point to the continued need to diversify fiscal revenue out of oil revenue, though pressures from resource exhaustion are only projected to increase in the long-term.
- Note on near-term assessment: "The near-term assessment is not applicable in cases where there is a disbursing IMF arrangement."

### Debt coverage and disclosures (selected inclusions)
- Coverage chosen: NFPS perimeter (nonfinancial public sector).
- Subsectors captured in the baseline:
  - Budgetary central government: Yes
  - Extra budgetary funds (EBFs): No
  - Social security funds (SSFs): Yes
  - State governments: Yes
  - Local governments: Yes
  - Public nonfinancial corporations: Yes
  - Central bank: No
  - Other public financial corporations: No
- Reporting and valuation notes:
  - Stock of arrears could be used as a proxy in the absence of accrual data on other accounts payable.
  - Definitions provided for nominal value, face value, and market value as used in reporting.

### Public debt baseline projection (key exact figures from Figure 4)
- Public debt (Percent of GDP) actual and projections:
  - Actual 2023: 55.4
  - 2024: 56.8
  - 2025: 56.8
  - 2026: 55.7
  - 2027: 54.4
  - 2028: 52.5
  - 2029: 50.0
  - 2030: 46.8
  - 2031: 43.1
  - 2032: 40.0
  - 2033: 37.3
  - 2034: 34.8
- Change in public debt (Percent of GDP):
  - 2024: 1.4
  - 2025: 0.0
  - 2026: -1.0
  - 2027: -1.4
  - 2028: -1.9
  - 2029: -2.4
  - 2030: -3.2
  - 2031: -3.7
  - 2032: -3.1
  - 2033: -2.7
  - 2034: -2.5
- Contribution of identified flows (Percent of GDP):
  - Mirrors "Change in public debt" series with Contribution of identified flows values beginning 2024: 1.4; 2025: 0.0; 2026: -1.1; 2027: -1.4; 2028: -1.9; 2029: -2.4; 2030: -3.2; 2031: -3.7; 2032: -3.1; 2033: -2.7; 2034: -2.5
- Primary deficit (Percent of GDP):
  - Actual 2023: 2.7
  - 2024: 0.8
  - 2025: 0.3
  - 2026: -0.9
  - 2027: -1.1
  - 2028: -1.6
  - 2029: -1.9
  - 2030: -2.4
  - 2031: -2.9
  - 2032: -2.9
  - 2033: -3.0
  - 2034: -3.0
- Noninterest revenues (Percent of GDP):
  - 2023: 35.4
  - 2024: 37.5
  - 2025: 36.3
  - 2026: 36.6
  - 2027: 36.1
  - 2028: 35.9
  - 2029: 35.5
  - 2030: 35.5
  - 2031: 35.5
  - 2032: 35.2
  - 2033: 35.0
  - 2034: 34.8
- Noninterest expenditures (Percent of GDP):
  - 2023: 38.0
  - 2024: 38.3
  - 2025: 36.6
  - 2026: 35.7
  - 2027: 35.1
  - 2028: 34.3
  - 2029: 33.6
  - 2030: 33.1
  - 2031: 32.6
  - 2032: 32.3
  - 2033: 32.0
  - 2034: 31.8
- Automatic debt dynamics (Percent of GDP):
  - 2024: 1.7
  - 2025: 0.3
  - 2026: 0.6
  - 2027: 0.4
  - 2028: 0.3
  - 2029: 0.4
  - 2030: 0.5
  - 2031: 0.5
  - 2032: 0.5
  - 2033: 0.5
  - 2034: 0.5
- Real interest rate and relative inflation (Percent):
  - Series labeled Real interest rate and Real interest rate repeated: 2024: 1.4; 2025: 1.2; 2026: 1.6; 2027: 1.7; 2028: 1.7; 2029: 1.7; 2030: 1.7; 2031: 1.6; 2032: 1.5; 2033: 1.4; 2034: 1.4
- Real growth rate (Percent):
  - 2023: -1.3
  - 2024: 0.2
  - 2025: -0.9
  - 2026: -1.0
  - 2027: -1.3
  - 2028: -1.3
  - 2029: -1.3
  - 2030: -1.2
  - 2031: -1.1
  - 2032: -1.0
  - 2033: -1.0
  - 2034: -0.9
- Other identified flows (Percent of GDP):
  - 2023: -4.5
  - 2024: -1.1
  - 2025: -0.5
  - 2026: -0.8
  - 2027: -0.7
  - 2028: -0.6
  - 2029: -1.0
  - 2030: -1.3
  - 2031: -1.3
  - 2032: -0.7
  - 2033: -0.2
  - 2034: 0.0
- (minus) Interest Revenues (Percent of GDP): constant at -1.3 for 2023 through 2034
- Other transactions (Percent of GDP) selected years:
  - 2023: -3.2
  - 2024: 0.3
  - 2025: 0.9
  - 2026: 0.6
  - 2027: 0.7
  - 2028: 0.8
  - 2029: 0.4
  - 2030: 0.0
  - 2031: 0.0
  - 2032: 0.6
  - 2033: 1.1
  - 2034: 1.3
- Gross financing needs (GFN) (Percent of GDP):
  - 2023: 8.3
  - 2024: 6.7
  - 2025: 6.6
  - 2026: 6.4
  - 2027: 5.9
  - 2028: 5.2
  - 2029: 4.9
  - 2030: 5.5
  - 2031: 5.3
  - 2032: 4.9
  - 2033: 4.5
  - 2034: 4.2
- Of which: debt service (Percent of GDP):
  - 2023: 6.9
  - 2024: 7.3
  - 2025: 7.7
  - 2026: 8.7
  - 2027: 8.7
  - 2028: 8.4
  - 2029: 8.2
  - 2030: 7.2
  - 2031: 9.5
  - 2032: 9.1
  - 2033: 8.8
  - 2034: 8.5
- Memo items (selected exact values):
  - Real GDP growth (percent): 2023: 2.4; 2024: -0.4; 2025: 1.6; 2026: 1.8; 2027: 2.4; 2028: 2.5; 2029: 2.5; 2030: 2.5; 2031: 2.5; 2032: 2.5; 2033: 2.5; 2034: 2.5
  - Inflation (GDP deflator; percent): 2023: -0.4; 2024: 1.7; 2025: 2.2; 2026: 1.5; 2027: 1.5; 2028: 1.5; 2029: 1.5; 2030: 1.5; 2031: 1.5; 2032: 1.5; 2033: 1.5; 2034: 1.5
  - Effective interest rate (percent): 2023: 3.9; 2024: 4.3; 2025: 4.3; 2026: 4.5; 2027: 4.6; 2028: 4.7; 2029: 4.9; 2030: 5.0; 2031: 5.1; 2032: 5.2; 2033: 5.2; 2034: 5.3

### Realism of baseline assumptions and comparator analysis
- Commentary: The program fiscal plan features a large fiscal adjustment, large compared to historical and cross-country comparisons. Avoiding policy slippages is important to achieve specified debt reduction goals.
- Fiscal multiplier scenarios illustrated: multiplier = 0.5 (baseline), multiplier = 1, multiplier = 1.5 (shown in realism charts).
- Distributional percentile notes:
  - 3-year debt reduction above 75th percentile: 5.9 ppts of GDP (percentile rank 54).
  - 3-year adjustment above 75th percentile: 2 ppts of GDP (percentile rank 87).

### Medium-term risk assessment metrics (Figure 6 exact values)
- Debt fanchart module:
  - Fanchart width (percent of GDP): 81.7
  - Contribution (1/): 1.2
  - Probability of debt non-stabilization (percent): 24.9
  - Contribution (1/): 0.2
  - Terminal debt-to-GDP x institutions index: 35.8
  - Contribution (1/): 0.8
  - Debt fanchart index (DFI): 2.2
  - Risk signal: High
- Gross financing needs (GFN) module:
  - Average baseline GFN (percent of GDP): 6.0
  - Contribution (1/): 2.0
  - Initial Banks' claims on the gen. govt (pct bank assets): 4.9
  - Contribution (1/): 1.6
  - Chg. In banks' claims in stress (pct banks' assets): 13.6
  - Contribution (1/): 4.6
  - GFN financeability index (GFI): 8.2
  - Risk signal: Moderate
- Medium-term index:
  - Final assessment: Moderate
  - Prob. of missed crisis, 2024-2029, if stress not predicted: 18.2 pct.
  - Prob. of false alarms, 2024-2029, if stress predicted: 25.0 pct.
- Commentary: The two medium-term tools assess sovereign risk as moderate, mostly driven by the width of the confidence interval in the debt fanchart tool.

### Long-term modules and natural resources
- Commentary:
  - Ecuador faces sizeable amortizations in the medium-term.
  - Following program completion, maintaining a fiscal stance consistent with a debt stabilizing primary balance would ensure that debt remains below the COPLAFIP limit.
  - The module highlights that large fiscal imbalances as experienced in the past decade could lead to a rapidly increasing debt ratio.
- Natural resources module commentary: "Ecuador does not face immediate pressures from depleting oil resources."

### Annex III — Interest Rate Ceilings in Ecuador (key findings)
- History and methodology:
  - Since official dollarization in 2000, Ecuador established interest rate ceilings (IRC) applicable to all financial intermediaries.
  - Methodologies evolved: initially based on LIBOR adjusted for country risk plus 4 percent operating margin; by 2007 ceilings were imposed on specific credit portfolios and banks were banned from charging certain fees and commissions.
  - As of July 2007: ceilings based on weighted average of market rates plus two standard deviations, using the average effective interest rate (Tasa Efectiva Activa - TEA).
  - December 2007: new methodology reflecting several factors including average cost of funds and credit risk.
  - Most recent overhaul established in 2021 but not fully implemented, causing lags in adjustment of lending caps to market conditions, particularly during 2023.
  - Current temporary formula: reverting to two standard deviations above the observed average for consumer and commercial credits to alleviate constraints on lending margins.
- Empirical findings on effects of IRCs:
  - Astorga and Morillo (2010): introduction of IRCs reduced the probability of access to credit for small borrowers from an average of 55 percent in 2006 to 31 percent in 2007.
  - Cuevas (2020): reported an increase of US$528 in average loan size following the 2007 reform.
  - Asobanca (2019): growth in average loan size post-2018 was three times greater compared to 2006.
  - Overall conclusion from several studies: IRCs lead to a decline in credit supply and an increase in average loan size, hindering financial deepening and inclusion.

*Source: Fund staff.*

### 3.      Analysis carried out by the 2023 FSAP also suggested negative effects of IRCs on

### 3.      Analysis carried out by the 2023 FSAP also suggested negative effects of IRCs on

### Impact of IRCs on financial inclusion (study scope and methodology)
- Scope: 27 banks across various sizes; focus on "newly banked borrowers" defined as individuals or firms without credit operations prior to 2015.
- Methodological approach:
  - Measuring the binding nature of IRCs.
  - Exploring correlations between IRC gaps and outcomes such as new borrowers and average loan sizes.
  - Performing regression analysis.

### Key empirical findings
- The IRC gap is narrower in the productive segment compared to microcredit.
- Significant differences in IRC gaps exist across various credit sub-segments.
- Following the reduction of IRCs in microcredit in January 2018, banks shifted focus to customers in segments with wider IRC gaps.
  - This shift coincided with:
    - A decrease in newly banked borrowers.
    - An increase in loan sizes.
- Regression-result magnitudes:
  - A 1 percentage point reduction in the IRC gap correlates with a 10 percent decrease in new borrowers.
  - A 1 percentage point reduction in the IRC gap correlates with a 14 percent increase in average loan size.
  - Larger elasticities were observed in large and state-owned banks and the consumer credit segment.

### Policy recommendations from the 2023 FSAP
- Gradually simplify IRCs to reduce credit segmentation.
- Improve transparency in the determination of lending caps.
- Migrate to a market-wide usury rate.

### Risk Assessment Matrix (select thematic risks and policy responses)
- Conjunctural shocks and scenarios (relative likelihood and possible impact summarized):
  - Intensification of Regional Conflicts: High likelihood; Medium possible impact. Policy response includes gradually reduce dependency on oil through economic diversification and promote private sector-led growth; continue to diversify export markets.
  - Commodity Price Volatility: High likelihood; High possible impact. Policy response includes pursuing fiscal consolidation, gradually reduce dependency on oil, promote private sector-led growth, closely monitor financial sector stability, and work with IFIs on financing needs.
  - Global Growth Slowdown: Medium likelihood; Medium possible impact. Policy response includes diversifying the economy and export markets.
  - Global Growth Acceleration: Low likelihood; Medium possible impact. Policy response includes diversifying the economy and export markets.
  - Monetary Policy Miscalibration: Medium likelihood; Medium possible impact. Policy response includes strengthening (financial) crisis preparedness and management.
- Systemic and domestic risks:
  - Systemic Financial Instability: Medium likelihood; Medium possible impact. Policy response includes pursuing fiscal consolidation and strengthening crisis preparedness and management.
  - Social Discontent: High likelihood; High possible impact. Policy response includes designing reforms that do not hurt the poor and vulnerable, prioritizing social spending, liberalizing trade, and improving the business climate.
  - Deepening Geoeconomic Fragmentation: High likelihood; Medium possible impact. Policy response includes improving resilience of trading relationships and implementing fiscal contingency measures if tensions reduce oil prices.
  - Climate Change: Medium likelihood; High possible impact. Policy response includes building resilience in infrastructure, investing to protect critical infrastructure, and building precautionary savings buffers.
  - Cyberthreats: High likelihood; High possible impact. Policy response includes ensuring critical systems are protected, having backup systems, and using insurance to mitigate fiscal risk.
  - Prolonged or Deeper Security Crisis: High likelihood; High possible impact. Policy response includes ensuring adequate fiscal spending on security and implementing contingency fiscal measures.
  - Renewed Political Impasse: High likelihood; High possible impact. Policy response includes designing socially protective fiscal reforms and engaging the public to build reform support.
  - Unexpected and Large Disruptions in Oil Production: Medium likelihood; High possible impact. Policy response includes investing in maintenance of oil infrastructure and advancing diversification and SOE governance agendas.

### Implementation progress on key 2023 FSAP recommendations (select developments)
- Enhance capitalization, promptly recognize loan losses, and address unviable financial institutions:
  - Authorities required banks to retain a larger share of profits during 2021–23. Two small banks under intensive supervision were recapitalized; two other weak banks are expected to follow.
- Improve credit information:
  - Since November 2023, credit data from BIESS has been transmitted periodically and in a timely manner to private credit bureaus.
  - Progress made to improve access to credit registry data to BCE and SEPS, including creating a unique artificial identifier for clients of banks and credit cooperatives.
- Implement Basel III buffers and borrower-based measures:
  - Basel III regulations on capital surcharges for D-SIBs and the countercyclical capital buffers for both banks and credit cooperatives were issued in November 2024.
  - A minimum Tier 1 capital requirement of 6 percent was established.
  - Resolution No. SB-2023-02562 issued the Methodology for Calculating the Liquidity Coverage Indicator; Circular No. SB-IG-2024-0016-C communicates the technical note for its implementation.
- Institutional and supervisory improvements:
  - A Financial Stability Committee was created to facilitate inter-institutional coordination and decision-making.
  - Ongoing technical assistance (TA) on stress testing delivered in parallel to five institutions (JPRF, JPRM SB, SEPS, BCE).
  - Authorities requested TA on consolidated supervision and risk-based supervision; the Superintendency of Banks is developing methodology for corporate governance evaluation and consolidated supervision.
- AML/CFT:
  - An AML/CFT Law was approved in July 2024; authorities are preparing secondary regulations for implementation.
- Financial safety net and resolution:
  - A scoping TA on the financial sector safety net in August 2024 proposed an implementation plan.
  - The Superintendency of Banks is setting up a dedicated team to deal with resolution matters; JPRF issued regulations for ordinary and extraordinary mergers and to improve P&A, with further refinements required.
- Market development and lending caps:
  - Ad hoc formulas were implemented in some credit segments to alleviate constraints on lending rates.
  - The Financial Stability Committee tasked the BCE with preparing a study to assess the impact of lending caps and establish a gradual move towards a market-determined system.
  - Since the FSAP, two additional loan forgiveness programs were mandated by Presidential Decree.
  - A TA on domestic bond market development was planned for December 2024.

*Source: 1ecuea2024002-print-pdf (selected sections).*

### 2021. Following the 2023 shocks and the resulting

### 1ecuea2024002-print-pdf - 2021. Following the 2023 shocks and the resulting

### Fiscal consolidation and revenue measures
- Authorities embarked on an ambitious fiscal consolidation plan under the 2024 EFF and implemented bold fiscal measures, including a significant revenue package and gasoline subsidy reform.
- Objective: Reduce the reliance of public finances on volatile oil revenues.
- Following some policy setbacks in 2023, the authorities implemented a very ambitious plan that successfully raised non-oil revenues in 2024.
- Contain expenditure through slower nominal growth of the wage bill (including by rolling back one-off crisis measures) and modernize procurement processes.
- Historical progress on the wage bill: efforts during the 2020 EFF reduced the nominal wage bill by about 1 percent of GDP by the end of 2022 compared to 2019.
- Further efforts to contain the wage bill are envisaged as part of the ongoing EFF-supported program.

### Public financial management, arrears, and transparency
- Implement new public financial management frameworks by operationalizing COPLAFIP reforms; monitoring and clearing arrears.
- COPLAFIP reforms completed, including establishing the MTFF and revamping fiscal risk management and cash management planning.
- IMF technical assistance is being received on various areas to implement changes associated with the law.
- PFM improvements are built into the 2024 EFF, with end-October 2024 SBs to publish an updated MTFF and a MTDS in line with program targets.
- Authorities prepared a strategy to clear and prevent the resurgence of budgetary central government’s payment arrears (end-November 2024 SB).
- Enhance transparency and governance around the use of public resources and debt:
  - Completed and published audits of COVID-19 public expenditures.
  - Published procurement contracts including information on ultimate beneficiary ownership.
  - Enhanced online publication of asset declarations of high-level public officials.
  - Ongoing work on the National Control System (SNC) to enhance transparency in public procurement, with a goal to establish a timeline to operationalize the SNC by December (end-December 2024 SB).
- Anti-corruption and AML/CFT:
  - COIP amended to meet international best practices and standards.
  - New AML/CFT law approved in July 2024 (end-February 2025 SB) to strengthen the AML/CFT framework in line with FATF standards.

### Social protection and coverage expansion
- Increase the coverage of social protection.
- During the 2020 EFF, the social registry was comprehensively revamped and coverage of social transfer schemes increased to cover over 80 percent of vulnerable households.
- Recent expansion: met the end-August 2024 indicative target of having approximately 1.19 million families covered by the cash transfers programs.
- First Review achievement: brought an additional 23,489 new lower-income families into the social safety net (as reported in the Letter of Intent).

### Financial sector reforms and supervision
- Strengthen public banks, including implementing AQRs, identifying governance issues, and revising banks’ business models (see Annex V referenced in source).
- Revise lending rate caps to widen financial inclusion and enhance supervision (see Annex V referenced in source).
- Close regulatory gap between cooperatives and banks: capital, loan classification and provisions, and liquidity requirements of cooperatives have been harmonized with banks; differences remain in reserve requirements and contributions to the liquidity fund.
- On monetary and financial data, authorities resumed transmission of FSIs for banks; authorities are working to include credit cooperatives in FSIs transmitted to the Fund.

### Structural reforms, SOE governance, and growth bottlenecks
- Address longstanding bottlenecks to growth and private sector development and reduce labor market rigidities:
  - New Free Trade Agreements signed, including with China and Costa Rica.
  - Government passed the VEL in 2023 aiming at closing the gender gap in the labor market.
  - End-2023: new PPP framework introduced to boost private sector-led growth, prioritizing projects in road infrastructure, renewable energy, and transport logistics.
- Align governance and operations of SOEs to private company standards to improve efficiency and limit contingent liabilities:
  - Authorities closed the Public Enterprise Coordinating Company (EMCO) and seek to reform several SOEs’ collective labor agreements.
  - Working on completing the 2019 and 2020 financial audits of Petroecuador and Petroamazonas to share with IMF staff (end-March 2025 SB).

### Climate, natural disaster resilience, and use of windfalls
- Enhance climate and natural disaster resilience, in part using savings from oil windfall, and reduce dependence on oil.
- Published the Implementation Plan for the NDC in 2021 and the National Adaptation Plan in 2023.
- In 2024, presented a new National Climate Change Mitigation Plan and are working on a National Plan for the Transition to Decarbonization.
- Completed a debt-for-nature swap for the conservation of the Galápagos in 2023.

### Data adequacy, statistical updates, and capacity development
- Annex VII: Data Adequacy Assessment for Surveillance — median ratings: National Accounts A; Prices B; Government Finance Statistics B; External Sector Statistics A; Monetary and Financial Statistics B; Inter-sectoral Consistency B; overall Median Rating B.
- Changes since the last Article IV: Central Bank of Ecuador conducted a benchmark revision to 2017 disseminated in December 2023; new annual and quarterly series compiled including backcasted series.
- Ongoing and planned TA and CD priorities:
  - National accounts TA mission in August 2024 worked on improving quarterly GDP estimates of demand components in volume terms.
  - TA on import and export price indices needed to obtain quarterly volume terms of imports and exports.
  - Project to update the PPI is ongoing with IMF Statistics Department TA.
  - Authorities are working to include credit cooperatives in FSIs transmitted to the Fund.
- Data shortcomings noted:
  - CPI (2014 =100) weights from the 2011/12 National Survey do not reflect current consumption patterns.
  - PPI (2015=100) weights from 2013 Supply and Use Tables with base year 2017 should be updated with new benchmark revision results.
  - Shortcomings in breakdown of private external debt by remaining maturity.
  - SOE debt time series and integration of stocks and flows need improvement; SOE coverage could be expanded to include electric and communications public corporations.
  - Climate emissions data outdated (last official emissions data year 2018).
  - Authorities working on improving the register of social programs.

### Letter of Intent and program financing
- Letter of Intent dated Quito, December 6, 2024 highlights:
  - Progress on implementation of the 48-month EFF arrangement approved May 31, 2024, building on the 2020 EFF.
  - Addressed acute liquidity challenges in early 2024 and strengthened public finances; inflation remained low; international reserves recovered; historic drought created electricity shortages.
  - Commitment to fiscal sustainability that protects the most vulnerable; disbursements from IMF and other development partners critical for budget needs, clearing domestic arrears, and enhancing social protection.
  - All quantitative performance criteria and indicative targets for end-August 2024 were met.
  - Request for completion of the First Review under the EFF and associated disbursement of SDR 375.9 million (about US$500 million) for budget support to address the electricity crisis and continue reforms.
  - Commitment not to impose or intensify foreign exchange restrictions or multiple currency practices, and request to retain the existing exchange restriction arising from the tax on transfers abroad (ISD) for balance of payments purposes with intent to phase it out gradually.

*Source: 1ecuea2024002-print-pdf - 2021. Following the 2023 shocks and the resulting (IMF PDF).*

### 1. Ecuador made significant progress in implementing important structural and fiscal

### 1. Ecuador made significant progress in implementing important structural and fiscal reforms in recent years.

### Progress on structural and fiscal reforms
- The 2020 EFF supported recovery from the pandemic, strengthened fiscal sustainability, supported the dollarization regime, and advanced transparency and anti-corruption agendas.
- Key structural reforms enacted:
  - Updated the Organic Budget Code (COPLAFIP) establishing a prudent fiscal framework and reinforcing public financial management (PFM).
  - Enacted legislation that criminalized acts of corruption (COIP).
  - Reformed the Organic Monetary and Financial Code (COMYF) to strengthen the independence and governance of the Central Bank of Ecuador (BCE).
- Social safety net expanded: increased social assistance spending and made it more geographically inclusive.

### Recent shocks and political constraints
- Political uncertainty in most of 2023 constrained financing options and fiscal and other reform efforts.
- Oil revenue declined due to lower production and prices.
- Interest payments on external public debt with floating rates increased amid global monetary policy tightening.
- Economic slowdown, weaker fiscal position, and sharp declines in treasury deposits and international reserves during 2023.

### Security crisis and its economic impact
- Surge in criminal activities tied to international organized crime and drug trafficking in recent years.
- Government declared a 60-day state of emergency in early January 2024 (later extended for another 30 days) and an internal armed conflict, including curfews and mobility restrictions.
- Addressing security is identified as a key priority to protect population welfare and reactivate the economy.

### Policy actions taken in early administration (2024)
- Fiscal measures:
  - Implemented a three-percentage point value added tax (VAT) rate hike.
  - Additional revenue measures totaling about 2 percent of GDP.
  - Introduced limited tax incentives to stimulate growth and youth employment.
  - Steps to encourage private participation in electricity generation.
  - Announced intention to target fuel subsidies to the most vulnerable (January), with subsequent actions implemented in June 2024.
- Security measures:
  - Reoriented current expenditure to boost the security envelope and enhanced the role of the military.
  - Referendum in April 2024 approved measures to tackle the security situation.
- Market reaction:
  - Sovereign debt spreads declined by over 700 basis points since December 2023 to around 1,300 basis points as of late November 2024.

### Electricity crisis and energy policy response
- Root cause: climate change effects on hydroelectric power; hydro normally provides around 70 percent of total generation capacity.
- Short-term plan to reduce energy deficit:
  - Incorporate 1,276 MW through the purchase or lease of land-based or floating thermal generation in 2024.
- Medium-term measures:
  - Two laws enacted in January and October 2024 to stimulate private investment in energy generation, allowing the Ministry of Energy and Mines to directly delegate projects of up to 100 MW in non-conventional and transitional renewable energy.
  - Twelve projects awarded expected to add approximately 820 MW to the system in the medium term.
  - Promotion of diversification of the energy matrix through conventional and non-conventional renewable energy projects.

### Strengthening fiscal sustainability — objectives and framework
- Fiscal strategy guided by reducing public debt and protecting vulnerable groups.
- Commitment to:
  - Place public debt ratio on a firmly downward trajectory.
  - Maintain manageable gross financing needs.
  - Respect expenditure growth rules and the debt limit of 40 percent of GDP by 2032 enshrined in COPLAFIP.
  - Allocate fiscal space to protect vulnerable populations and priority investment projects.
- Medium-term fiscal framework (MTFF) published and aligned with EFF-supported program (end-October 2024 structural benchmark, met).

### 2024 fiscal plan and near-term fiscal measures
- 2024 fiscal plan envisages reducing the non-financial public sector (NFPS) overall fiscal deficit by 1.8 percentage points of GDP to 1.8 percent of GDP.
- Plan accommodates a moderate increase in capital spending and urgent spending needs for security and the electricity crisis while protecting vulnerable groups.
- Measures to improve liquidity and credibility:
  - Begun clearing domestic payment arrears.
  - Prepared and shared a projected monthly cash flow and financing plan for the budgetary central government for the remainder of 2024 (prior action).
  - Elaborated a contingency plan as a prior action for program approval in May 2024.

### Medium-term fiscal targets and consolidation path
- Fiscal targets:
  - Reduce NFPS overall deficit to 1.3 percent of GDP in 2025.
  - Reach an overall surplus of 0.6 percent of GDP by the end of the program in 2028.
  - Achieve a surplus in the NFPS primary balance of 0.9 percent of GDP in 2026.
  - Achieve a cumulative consolidation of about 5.5 percentage points of GDP in the non-oil primary balance including fuel subsidies (NOPBS) over 2024-28 relative to end-2023.
- Policy mix to achieve consolidation includes:
  - Non-oil revenue mobilization: plan to replace temporary measures with permanent high-quality ones, mainly through streamlining inefficient tax expenditures and exemptions (mid-November 2024 structural benchmark, met).
  - Oil revenue reforms: reform of the price-setting mechanism for domestic sales of low-octane gasoline enacted in June 2024, aligning domestic prices with international prices; expected to boost oil revenue by about 0.4 percent of GDP in steady state. Initiatives to increase net oil revenues include gradual production increases and enhancing refinery capacity.
  - Public sector wage bill containment: limit increases in headcount and wages; norm issued to cap all public sector wages below the salary of the President, while ensuring needed hiring for police and domestic security forces.
  - Procurement reforms: operationalization of the 2022 Procurement Law via SERCOP norms (July 2023); measures include cataloguing procurement processes and prices, standardized and bulk purchases, and creation of the National Control Subsystem (SNC). Timeline to operationalize the SNC: end-December 2024 structural benchmark (met). Proposed structural benchmark: prepare and share conceptual and operational framework to upgrade SOCE by end-July 2025, with IDB support.
  - Capital expenditure prioritization and PPPs: prioritize projects by social and economic impact, promote PPPs and concessions, channel multilateral/bilateral resources via the Ecuadorian Development Bank. Undertook a Public Investment Management Assessment (PIMA) and a climate-related C-PIMA in 2023 and intend to implement recommendations gradually.

### Annual budgeting, arrears clearance, and benchmarks
- Given 2025 election year, 2024 budget extended into 2025 per COPLAFIP; measures enacted to align 2025 fiscal plan with EFF-supported program and MTFF (early December 2024 structural benchmark, met).
- Commitment to clear domestic arrears:
  - Multi-year fiscal financing plan includes clearance of budgetary central government (PGE) arrears with the private sector.
  - Prepared and shared with Fund staff a plan for clearing and preventing PGE arrears, including obligations to the private sector and intra-public sector claims (end-November 2024 structural benchmark, met).

### Financing strategy and public debt management
- Near-term reliance on bilateral and multilateral sources while seeking to regain market access when conditions allow and developing domestic financing sources.
- Published a new medium-term debt management strategy (MTDS) aligned with EFF-supported program (end-October 2024 structural benchmark, met).
- Active dialogue with official bilateral partners to secure continued financial support.
- Aim to return to international capital markets as soon as market conditions allow and to develop domestic capital markets.

### Social safety nets and inclusion measures
- Principle: fiscal consolidation should not be borne by the poor and vulnerable.
- Measures and results:
  - Upgraded social registry and expanded social protection coverage with World Bank assistance.
  - Plan to cover all families in the lowest three deciles of the income distribution throughout the country (end-October 2024 structural benchmark, met).
  - As of October 2024, over 1.2 million family units from the bottom three income deciles already benefit from social protection transfers.
  - Target to extend coverage for 47,000 additional family units per year, aiming to ensure almost all families in the bottom two income deciles and the majority in the third decile are covered by the end of the IMF-supported program.
  - Ongoing institutional strengthening for permanent updating of the social registry, including coordination with subnational governments (GADs).
  - MIES campaign to increase the use of banking services by social protection beneficiaries.
  - Social protection will continue to increase through multiple social assistance transfer programs listed in the TMU.

### Institutional framework, governance, and transparency improvements
- Fiscal statistics and transparency:
  - COPLAFIP reforms require timely collection, accurate compilation, and transparent publication of fiscal data with adequate subsector coverage.
  - Established a dedicated statistics unit at the Ministry of Economy and Finance (MEF) for government finance statistics compilation.
  - With IMF TA, updated GFS training curriculum and produced a training schedule for ongoing staff training in fiscal data recording, reconciliation, and verification.
  - An IMF long-term expert (LTX) worked for one year with the statistics unit to improve MEF capacity in compiling, verifying, and reconciling government finance and debt statistics.
  - Objective to increase NFPS coverage by including public companies in the electricity sector and expanding the statistical sample of local government companies.

*Source: 1ecuea2024002-print-pdf*

### 17. Currently fiscal statistics are disseminated monthly according to a pre-established

### 17. Currently fiscal statistics are disseminated monthly according to a pre-established publication calendar, which is updated once a year

### Fiscal statistics, NFPS reporting, and analytical publication
- Fiscal statistics are disseminated monthly according to a pre-established publication calendar, which is updated once a year.
- Time series data on revenues, expenditures, and transactions in financial assets and liabilities by each subsector of the NFPS are published monthly with indication whether the data is preliminary or definitive.
- An analytical report on the Budgetary Central Government GFS has been created in collaboration with the IMF’s Statistics Department and is published alongside the monthly time series.

### Social Security Fund (IESS) historical revisions and budget treatment
- Historical balances of the Social Security Fund (IESS) were revised working closely with the IMF’s Statistics Department.
- Compilation process of the IESS was adjusted and transfers from the central government to IESS for accrued pension liabilities were corrected going back to 2013.
- Expenditure and debt statistics now incorporate additional healthcare transfer obligations to IESS based on a conservative estimation while healthcare audits are pending.
- Central government 2024 budget and medium-term fiscal framework include accrued pension transfer obligations and the estimation of healthcare transfer allocations to the IESS; conservative estimates will continue to be recorded in future budgets.

### Healthcare claims settlement mechanism and auditing
- Commitment to establish a revised mechanism to settle healthcare claims from IESS to provide legal predictability for auditing and clearing verified obligations.
- Plan to establish an updated agreement between the MEF and IESS on transfer of healthcare obligations (including internal and external providers), building on the December 2022 agreement (end-October 2024 structural benchmark, proposed to be reset for end-March 2025).
- The updated MEF/IESS agreement will stipulate the audit and settlement process for 2022 healthcare obligations and will be implemented to prevent future arrears, improve fiscal statistics reliability, and strengthen IESS sustainability.
- Procurement to hire the external auditor to review the 2023 and 2024 healthcare obligations to IESS was finalized (end-December 2024 structural benchmark, met).

### Cash management, arrears monitoring, and PGE payments
- With IMF PFM expert assistance, cash management planning capability and horizon expanded to encompass the full length of the annual budget cycle.
- Remaining challenge: develop capability to update cash management planning on a 12-month rolling basis from any given point in the budget year.
- New monitoring system implemented to evaluate the existing stock of domestic payment arrears of the central government and selected relevant NFPS entities.
- In January 2022, a methodology to estimate the stock of arrears and reporting templates for public sector entities was published.
- Estimated stock of potential claims on PGE, including with the IESS, GADs, private sector, or others (if any) by type of expenditure, year, and beneficiaries.
- Monthly arrears data started being published in public debt bulletins, as per COPLAFIP law.
- MEF will design a policy to gather monthly information on arrears from other NFPS entities, as mandated by COPLAFIP.
- Plan to implement an automatized process for PGE payments, including arrears’ payments (proposed structural benchmark for end-March 2025).

### State-owned enterprises (SOEs) efficiency and fiscal risk monitoring
- Seven public companies deemed not managed efficiently are in the process of closure; example: Public Enterprise Coordinating Company (EMCO) was closed this year.
- For remaining SOEs: strengthen operational framework, reform collective labor agreements, and implement best practices to improve efficiency and limit contingent liabilities to the budget.
- Support for a structural cost-optimization strategy, including a comprehensive efficiency assessment of the state to curtail unproductive activities and obtain efficiency gains.

### Public debt transparency and Debt Bulletin
- New debt methodological definition and technical assistance from WB and Fund led to development of a new Debt Bulletin published monthly on the MEF website.
- The Bulletin includes detailed information on previously not included past obligations related to internal debt, arrears, accounts payable, and previous unregistered budgetary obligations.
- Current public external and internal debt profile and amortization profile by source and operation are published.
- The detailed database supporting the Bulletin is now accessible on the MEF website.

### Tax administration reform and technical assistance
- 2023 assessment of tax administration produced; Tax Administration Diagnostic Assessment (TADAT) undertaken with IMF support.
- Plan to implement an institutional model under the TADAT methodology to close gaps against best international practices, focusing on control processes.
- Implementation, with IDB support, will focus on process integration, transparency, tax registration, data intelligence, and information management.
- IDB technical assistance requested for National Customs Service of Ecuador (SENAE) to enhance its modernization process.

### Strengthening BCE institutional framework and dollarization safeguards
- 2021 COMYF revision measures supported the dollarization regime by: eliminating direct and indirect central bank financing of the government; restoring full reserve coverage of private and public financial institutions’ deposits at the BCE; giving technical and managerial autonomy to the BCE.
- Revised law removed legacy assets from the 1999 banking crisis, established an audit committee, appointed external auditors, and required publishing audited BCE financial statements on the BCE website.
- Additional steps: capacity development program for auditors; certification of audit departments and individual auditors by the Institute of Internal Auditors; implementation of peer-review audit recommendations; modification of BCE organizational structure to strengthen technical areas.

### Contingent liquidity access and international facilities
- In 2023, FLAR granted BCE access to a contingent credit line of up to US$230 million.
- In 2022, FRBNY granted BCE access to a FIMA Repo Facility of US$1 billion for exclusive central banking operations.
- BCE renewed contingent liquidity facility with BIS for up to US$840 million as a precautionary measure in case of dollar liquidity shortages.

### National accounts base year change and methodological updates
- BCE concluded and disseminated in December 2023 the update of Ecuador’s Annual and Quarterly National Accounts: changed fixed base methodology to a moving base with reference year 2018.
- New methodology includes a broader source of statistical indicators and implements latest international statistical practices and standards.
- IMF provided technical assistance to strengthen calculation methodology for demand components of the Quarterly National Accounts.

### International reserves reallocation and gold sale
- BCE sold 241,124.26 troy ounces of gold into US$494 million, which are being invested in safe and liquid financial instruments.
- Transaction reduced volatility of monetary gold in IR and increased BCE’s revenues and liquidity.
- Capacity-development agreement signed with IDB to enhance BCE’s technical capabilities for IR management.

### BCE profitability and buffers
- BCE’s net profit reached a maximum of US$683 million in 2023, double the amount reported in 2022 and triple the value reached in 2021.
- In line with COMYF, BCE equity was strengthened: equity of US$100 million and a general reserve fund of US$500 million attained.

### Financial System Stability Assessment (FSSA) and implementation priorities
- 2023 FSSA assessed credit and liquidity vulnerabilities, financial sector oversight, macroprudential policies, safety nets, crisis preparedness, payment systems oversight, preconditions for capital market development, and access to finance.
- Key recommendations: (i) strengthen financial sector oversight and coordination among agencies; (ii) enhance prudential framework governing capital and liquidity; (iii) foster financial deepening and capital market development.
- Gradual implementation of FSSA recommendations ongoing to align prudential regulatory framework and oversight with international standards.

### Financial oversight coordination and Financial Stability Committee (FSC)
- Financial Stability Committee (FSC) established comprising BCE, MEF, Financial Board (JPRF), Monetary Board (JPRM), Superintendency of Banks (SB), Superintendency of Popular and Solidarity Economy (SEPS), Superintendency of Companies (SCVS), and Deposit Insurance Corporation (COSEDE) (end-September 2024 structural benchmark, met).
- FSC aims to facilitate coordination and information exchange for holistic financial sector surveillance and prompt policymaking.
- Plan to establish an inter-institutional group within FSC (BCE, MEF, JPRF, JPRM, SB, SEPS, COSEDE) to coordinate bank resolution reforms and strategies (proposed structural benchmark for end-January 2025).

### Prudential framework enhancements: capital and liquidity
- Methodologies prepared to identify systemically important financial institutions.
- Plan to issue macroprudential regulations on capital buffers, including surcharges on systemically important institutions and countercyclical capital buffer (end-November 2024 structural benchmark, met).
- Phased implementation of Liquidity Coverage Ratio expected to be achieved by 2028.
- COSEDE issued a new operative manual for the Liquidity Fund’s trust fund.
- Plan to phase out regulatory forbearance at an appropriate pace.

### Financial inclusion, interest rate caps, and study of interest rate system
- Banks and credit cooperatives are subject to ceilings on lending rates differentiated by credit types and, for commercial loans, by borrower firm size.
- 2023 FSSA noted caps in a higher interest rate environment led to margin compression, distortions in credit supply, and restrictions to financial inclusion.
- Recent revision updating interest rate caps on commercial and corporate loans provided some relief; effects are being assessed.
- Commitment to undertake and share with Fund staff a study of the system of interest rates (end-March 2025 structural benchmark). The study will include recommendations to reform the interest rate system to alleviate unwarranted credit constraints, enhance financial inclusion, and support economic growth while preserving financial stability.
- Based on study recommendations, plan to establish an implementation strategy to improve the system.

### Domestic capital market development and market infrastructure
- Primary placements of government securities with private domestic stakeholders currently take place through the Guayaquil and Quito Stock Exchanges.
- Started standardizing government securities and developing a domestic yield curve.
- Actions planned to improve domestic capital market infrastructure and begin regular auctions of government securities as market conditions allow.
- Reforms expected to develop a deeper domestic capital market to channel resources to government and private sector, contributing to increased investment, productivity, and growth.

### BCE central securities depository (DCV) and payments system investments
- Plan to sign a contract to implement a new platform for BCE’s central securities depository (DCV) to modernize compensation, liquidation, and custody functions in line with international standards (end-November 2024 structural benchmark, proposed to be reset for end-January 2025).
- Work to enhance payments system by improving RTGS at BCE to facilitate national payments interoperability between different payment networks, reduce transaction costs, mitigate cash-use risks, encourage digital commerce, and promote revitalization of economic activity.

### Competitiveness, investment climate, and trade agreements
- National Policy (decree issued June 2024) announced to make competitiveness-enhancing regulatory improvements.
- Measures to facilitate environmentally sustainable investment in mining and boost electricity supply.
- 2024 National Assembly ratified trade agreements with Costa Rica and China:
  - 84 percent of Ecuadorian products exported to Costa Rica will be exempted from tariffs; other products will benefit from gradual tariff reductions over the next five to fifteen years.
  - 99.6 percent of Ecuadorian exports to China will benefit from immediate or gradual tariff reductions.
- Ecuador is negotiating agreements with South Korea and Canada.
- Trade deals expected to increase potential for productive FDI inflows.

### AML/CFT legislative reforms and strategic actions
- New AML/CFT legislation adopted to strengthen framework in line with FATF standards (end-February 2025 structural benchmark). Legislation originally developed with IMF technical support.
- Necessary regulations will be issued to implement the new AML/CFT legislation to ensure effective entry into force in line with FATF standards.
- Efforts to enhance governance and independence of UAFE and its capabilities to produce comprehensive financial intelligence for law enforcement dissemination.
- Launched a Joint Investigation Unit to align public institutions’ efforts against money laundering, tax fraud, and other illegal activities financing organized crime.
- With IMF technical support, will approve and publish a summarized AML/CFT Strategic Action Plan establishing actionable policy priorities to mitigate money laundering and terrorist financing risks identified in the 2024 National Risk Assessment, including measures focused on tackling organized crime-related illicit financial flows (proposed structural benchmark for end-September 2025).

*Source: 1ecuea2024002-print-pdf - 17. Currently fiscal statistics are disseminated monthly according to a pre-established publication calendar, which is updated once a year.*

### 38. We remain committed to bringing more accountability and transparency to the public

### 1ecuea2024002-print-pdf - 38. We remain committed to bringing more accountability and transparency to the public

### Public sector integrity and transparency
- Issued first holistic policy on public sector integrity: “National Policy of Public Integrity 2030”, covering SOEs; strategic lines include transparency in public spending and conflict of interests.
- AML/CFT law introduced an enhanced asset and interest declaration framework.
- Draft Law to Prevent Conflict of Interests in Public Administration (prepared by the General Comptroller together with the Anti-Corruption Secretariat) was submitted to the National Assembly in 2022:
  - Once in force, would expand asset declarations of politically exposed persons (PEPs) to detect and enforce against illicit enrichment and detect/prevent conflicts of interest.
  - Would mandate online public access to information on assets, incomes, liabilities, and interests in declarations.

### Public procurement and beneficial ownership
- SERCOP requires Ultimate Beneficial Ownership (UBO) information for companies awarded public procurement contracts:
  - State suppliers must submit UBO information through an electronic form to facilitate continuous publication on SERCOP’s website.
  - Within the SOCE, SERCOP maintains an updated section with UBO information for the most recent public contracts, accessible for public consultation.
- SRI is developing a Registry for Ultimate Beneficiaries with new regulations issued in September 2024:
  - Registry will serve as a central repository of UBO information and cross-reference with SERCOP and the Superintendency of Companies.

### Transparency in the oil sector — audits of national oil company
- Independent top-tier audit firm hired in January (with support from the IDB) to audit national oil companies.
- Audits will cover:
  - 2019 and 2020 financial statements of Petroecuador and Petroamazonas,
  - 2021 financial statement of the now merged entity (Petroecuador).
- Commitments and deadlines:
  - Plan to complete and share with IMF staff the 2019 and 2020 audit results (end-March 2025 structural benchmark).
  - Government will gradually address any issues identified in the audits going forward.

### Private investment, PPPs, and sectoral initiatives
- New PPP framework:
  - Law approved by the National Assembly in December 2023; complementary regulations issued in February (year implied).
  - PPP pipeline prioritizes road infrastructure and renewable energies.
  - Fiscal risk unit within the MEF to evaluate PPP viability, quantify risks to the public sector’s balance sheet, propose mitigation, and present risks in fiscal risk statements annexed to annual budgets.
- Mining and oil:
  - Interinstitutional committee created to fight illegal mining and update the mining cadaster.
  - June 2024 decree issued a new regulatory framework for natural gas projects.

### Energy shortages and renewable generation
- Electricity shortages since late 2023 attributed to climate change effects on hydroelectric generation and underinvestment.
- Immediate actions:
  - Undertake essential maintenance on existing plants, including through private investment.
  - Recover existing generation plants, rent barges, and buy generators.
- Legal and institutional steps:
  - October 2024: National Assembly approved an Organic Law to Promote Private Initiative in the Transition to Renewable Energies to boost private sector participation.
- Renewable generation pipeline and financing:
  - Government developed 12 projects for electricity generation through Non-Conventional Renewable Energies (NCRE)—solar, wind, and hydroelectric—with support from the IDB.
  - These generation projects will contribute 833 MW of power, backed by private investments.
  - Mechanism to cover commercial revenue risks, state commitment, and an IDB guarantee have attracted private investors and international development financial institutions to upcoming bidding processes for electric generation and transmission projects.
  - Environmental licenses approved for several renewable energy projects.
  - With IDB support, execution started for a plan to strengthen electricity interconnection with Peru.

### Climate resilience and climate finance
- Strengthening adaptation and mitigation is a macroeconomic imperative for Ecuador.
- World Bank’s Country Climate and Development Reports (CCDR) published in September 2024 analyze challenges facing Ecuador.
- Institutional and financing actions:
  - Institutional committee on climate finance established within MEF with IDB support.
  - Expanded several protected areas, including the Galapagos marine reserve.
  - May 2023: secured long-term financing for Galapagos protection as part of the world’s largest debt-for-nature swap on record.
  - Ongoing exploration of options to mobilize climate financing with international partners.

### Program monitoring framework and review schedule
- Program monitored through quantitative performance criteria, indicative targets, and structural benchmarks; definitions and data requirements in the attached TMU.
- EFF arrangement review schedule:
  - Triannual reviews during 2024-25 and shift to semiannual reviews during 2026-28.
  - Second and third reviews occurring on or after March 15, 2025, and July 15, 2025, respectively.

### Key quantitative performance criteria and indicative targets (selected exact figures from Table 1)
- Quantitative performance criteria (US$ million, unless otherwise indicated):
  - 1. Non-oil primary balance of the budgetary central government (PGE) (floor) — End-Dec. 2024 Program/Adj.: -1,078; End-Apr. 2025 Program: -1,078; End-Aug. 2025 IT: 899; Status: Met; Additional program numbers listed: -2,295; -341; -1,220; -2,452.
  - 2. Overall balance of the PGE and CFDD (floor) — End-Dec. 2024 Program/Adj.: -2,200; End-Apr. 2025 Program: -2,108; End-Aug. 2025 IT: 200; Status: Met; Additional program numbers listed: -4,213; -1,041; -2,628; -3,868.
  - 3. Accumulation of NFPS deposits at the central bank (floor) — End-Dec. 2024 Program/Adj.: 200; End-Apr. 2025 Program: -58; End-Aug. 2025 IT: 1,756; Status: Met; Additional program numbers listed: 360; 0; -5; 1,070.
  - 4. Non-accumulation of external payments arrears by the NFPS (continuous performance criterion) — Target: 0; Status: Met.
  - 5. (No new) Central bank direct and indirect financing to the NFPS (continuous performance criterion) — Target: 0; Status: Met.
- Indicative targets (selected):
  - 6. Overall balance of the NFPS (floor) — End-Dec. 2024 Program/Adj.: -1,628; End-Apr. 2025 Program: -1,537; End-Aug. 2025 IT: 1,795; Status: Met; Additional numbers: -2,442; -89; -1,103; -1,570.
  - 7. Non-oil primary balance including fuel subsidies (NOPBS) of the NFPS (floor) — End-Dec. 2024 Program/Adj.: -4,100; End-Apr. 2025 Program: -4,192; End-Aug. 2025 IT: -1,865; Status: Met; Additional numbers: -6,528; -1,151; -3,070; -5,751.
  - 8. Change in the stock of NIR (floor) — End-Dec. 2024 Program/Adj.: -200; End-Apr. 2025 Program: -458; End-Aug. 2025 IT: 1,573; Status: Met; Additional numbers: 65; -34; 46; 1,038.
  - 9. Stock of PGE arrears to the domestic private sector (ceiling) — End-Dec. 2024 Program/Adj.: 862; End-Apr. 2025 Program: 322; Status: Met; Additional numbers: 662; 600; 400; 262.
  - 10. Number of families in the first three income deciles nationwide covered by cash transfer programs (floor) — End-Dec. 2024 Program/Adj.: 1,192,713; End-Apr. 2025 Program: 1,192,883; Status: Met; Additional numbers: 1,212,984; 1,228,660; 1,244,336; 1,260,012.

### Structural benchmarks (selected with due dates and status)
- Public Financial Management:
  - 1. Publish an updated Medium-Term Fiscal Framework (MTFF) in line with program targets. Due: End-October 2024. Status: Met.
  - 2. Publish a Medium-Term Debt Management Strategy in line with program targets. Due: End-October 2024. Status: Met.
  - 3. Implement an automatized process for budgetary central government (PGE) payments, including arrears’ payments. Due: End-March 2025. Status: Proposed.
- Domestic Arrears:
  - 4. Share with Fund staff an updated plan to clear and prevent the resurgence of domestic arrears of the PGE. Due: End-November 2024. Status: Met.
- Tax Reform:
  - 5. Prepare and share with the Fund a plan to mobilize non-oil fiscal revenues. Due: Mid-November 2024. Status: Met.
- Fiscal Strategy:
  - 6. Enact regulation on revenue and/or expenditure measures to ensure the 2025 fiscal plan aligns with program and MTFF commitments. Due: December 6, 2024. Status: Met.
- Social Safety Net:
  - 7. Share with the Fund a plan to complete the social registry to cover families in the lowest three deciles. Due: End-October 2024. Status: Met.
- Governance:
  - 8. Establish an updated MEF–IESS agreement on transfer of healthcare obligations and decision about the 2022 healthcare audits. Due: End-October 2024. Status: Not met. Reset to end-March 2025.
  - 9. Establish a timeline to operationalize the National Control Subsystem (SNC) to increase transparency in procurement. Due: End-December 2024. (Status field blank in source.)
  - 10. Prepare and share conceptional and operational framework for upgraded Official System of Public Procurement (SOCE). Due: End-July 2025. Status: Proposed.
- Transparency and Governance:
  - 11. Initiate tender to select auditor for 2023 and 2024 healthcare audits (based on MEF/IESS agreement). Due: End-December 2024. Status: Met.
  - 12. Complete audits of the 2019 and 2020 financial statements of Petroecuador and Petroamazonas and share results with Fund staff. Due: End-March 2025. (Status field blank in source.)
- Anti-Money Laundering Framework:
  - 13. Enact new AML/CFT legislation to strengthen the framework in line with FATF standards. Due: End-February 2025. (Status field blank in source.)
  - 14. National AML/CFT Coordination Committee to approve and publish a summarized AML/CFT Strategic Action Plan based on the 2024 National Risk Assessment. Due: End-September 2025. Status: Proposed.
- Financial Sector:
  - 15. Establish a Financial Stability Committee (BCE, MEF, JPRF, JPRM, SB, SEPS, SCVS, COSEDE). Due: End-September 2024. Status: Met.
  - 16. Establish inter-institutional group within the Financial Stability Committee to coordinate resolution reforms. Due: End-January 2025. Status: Proposed.
  - 17. Issue macroprudential regulations on bank capital buffers, including surcharges on systemically important institutions and a countercyclical capital buffer. Due: End-November 2024. Status: Met.
  - 18. Prepare and share with Fund staff a study of the system of interest rates with recommendations. Due: End-March 2025. (Status field blank in source.)
- Domestic Capital Market Development:
  - 19. Sign contract to implement a new platform for the BCE’s central securities depository (DCV). Due: End-November 2024. Status: Not met. Reset to end-January 2025.

### Technical Memorandum of Understanding (TMU) — program mechanics and exchange rates
- TMU defines PCs and ITs, assessment methods, and information requirements for monitoring targets.
- Program exchange rates (values as of April 23, 2024, from Table 1):
  - US Dollar to Euro 0.94
  - US Dollar to Renminbi 7.11
  - US Dollar to Yen 154.82
  - US Dollar to SDR 1.31
  - US Dollar to British Pound 0.80
  - US Dollar to South Korean Won 1,380.60
  - US Dollar to Swiss Franc 0.91
  - US Dollar to Canadian Dollar 1.37
  - US Dollar to Danish Krone 6.99
  - US Dollar to Swedish Krone 10.87
  - US Dollar to Norwegian Krone 10.99
  - US Dollar to Australian Dollar 1.55
  - US Dollar to Mexican Peso 17.00
  - US Dollar to Colombian Peso 3,924.82
  - US Dollar to Gold prices (US$/ounce) 2,313.00
- TMU references standard Fund statistical methodology (Government Finance Statistics and Balance of Payments Manual) for undefined variables and clarifies "days" indicate calendar days unless stated otherwise.
- Definitions excerpt:
  - Budgetary central government = Presupuesto General del Estado (PGE); excludes social security, public banks, SOEs, and decentralized autonomous governments.
  - Non-oil primary balance of the PGE = total revenues of the PGE excluding oil revenues and interest revenue, minus total non-oil expenditure of the PGE excluding interest expense.
  - Non-oil primary revenues are recorded on a cash basis and explicitly include:
    - Tax revenues (ingresos tributarios);
    - Other revenues (otros ingresos), including transfers, dividends, administrative fees, proceeds from asset monetization, and other.

*Source: Excerpt from IMF staff report (1ecuea2024002-print-pdf).*

### 8.      Non-oil primary expenditures are recorded on an accrual basis. Expenditures explicitly

### 8.      Non-oil primary expenditures are recorded on an accrual basis. Expenditures explicitly included are:

### Coverage of non-oil primary expenditures
- Expenditures recorded on an accrual basis include:
  - Wages and salaries (sueldos y salarios);
  - Purchases of goods and services (compra de bienes y servicios);
  - Transfers to international organizations, decentralized autonomous governments (GADs), IESS, other social security institutions (ISSFA and ISSPOL), SOEs, and the private sector. Transfers to private sector explicitly include the “account 99” (cuenta 99) expense items;
  - Social assistance benefits;
  - Employment-related social benefits; and
  - Transactions in nonfinancial assets.

### Estimated transfers to IESS for healthcare expenses
- PGE transfers to the IESS will include US$337 million in accrued estimated expenses for 2024.
- This estimated amount will increase every year in line with projected average annual CPI inflation and will be updated as soon as the agreement on the treatment of future healthcare expenditures between MEF and IESS is operational.

### Treatment of government-funded PPPs
- Government-funded, public-private partnerships (PPPs) will be treated as traditional public procurements.
- PGE obligations that are accrued on PPPs will be:
  - Recorded transparently in budget data and measured as part of the PGE deficit as they accrue.
  - The accrued but not settled obligations related to these PPPs will be transparently recorded either as public debt or as a contingent liability of the government (e.g., public guarantees) depending on the nature of the obligation.

### Costs recorded as expense
- Costs associated with divestment operations, liquidation of public entities, or awards as part of lawsuits shall be recorded as expense. Examples include:
  - Cancellation of existing contracts;
  - Severance payments to workers;
  - Awards related to unfair dismissal trials.

### Account 99 treatment
- All expenditures recorded as a credit in “Account 99” (due to lack of corresponding budget allocations) will be recorded in the year the obligation was accrued or, if information on the year is not available, in the year the obligation is credited to Account 99.

### Monitoring of fiscal data
- All fiscal data referred to above and needed for program monitoring purposes 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.

---

### B.  Floor on the Overall Balance of the Budgetary Central Government and CFDD

### Definitions and perimeter
- The budgetary central government and CFDD, for program purposes, consist of:
  - PGE and the oil derivatives financing account, Cuenta de Financiamiento de Derivados Deficitarios (CFDD).

- The overall balance of PGE and CFDD is defined as the net lending/borrowing (NLB) of the PGE and CFDD, calculated as total revenues of the PGE and CFDD minus their total spending.

### Revenues (recorded on cash basis)
- Revenues explicitly included:
  - Revenues from oil exports;
  - Revenues from the domestic sales of oil derivatives;
  - Tax revenues (ingresos tributarios);
  - Other revenues (otros ingresos), including transfers, dividends, interest, administrative fees, proceeds from asset monetization, and other;

### Expenditures (recorded on accrual basis except interest)
- Expenditures explicitly included:
  - Wages and salaries (sueldos y salarios);
  - Purchases of goods and services (compra de bienes y servicios);
  - Interest expenses (intereses) — recorded on a cash basis;
  - Transfers to international organizations, local governments (GADs), IESS, other social security institutions (ISSFA and ISSPOL), SOEs, and the private sector. Transfers to private sector explicitly include the “account 99” (cuenta 99) expense items;
  - Social assistance benefits;
  - Employment-related social benefits; and
  - Transactions in nonfinancial assets.

### Reiterated items
- Estimated transfers to the IESS for healthcare expenses:
  - PGE transfers to the IESS will include US$337 million in accrued estimated expenses for 2024.
  - This estimated amount will increase every year in line with projected average annual CPI inflation and will be updated as soon as the agreement on the treatment of future healthcare expenditures between MEF and IESS is operational.
- Government-funded PPPs treatment and costs associated with divestment/liquidation/lawsuits are described as above.
- Account 99 recording rules apply as described above.

### Monitoring
- 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 the lag of no more than 30 days after the end of each month.

### Adjustor on oil prices (overall balance)
- The floor on the overall balance of the budgetary central government and CFDD 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$178.9 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.

- Ecuador mix crude oil price (US$ per barrel): 68.52
- Nov. 2024

---

### C.  Floor on the Accumulation of Non-Financial Public Sector Deposits at the Central Bank

### Definitions
- The Non-Financial Public Sector (NFPS, Sector Público No-Financiero) for the program consists of:
  - PGE and CFDD, Decentralized Autonomous Governments (municipal, provincial, parish boards), Social Security Funds (IESS, ISSFA, ISSPOL and BIESS), Non-Financial SOEs (detailed in Table 4), Development Bank of Ecuador (BEDE), and accounts related to payments to private operators of oil concessions (Ministerio de Energía y Recursos Naturales no Renovables).
- The Central Bank of Ecuador (BCE) falls outside the NFPS perimeter.

- Deposits of the NFPS at the BCE include all depository liabilities (time and on-call deposits) at the BCE of the NFPS, as defined above.

### Monitoring of NFPS deposits
- The accumulation of NFPS deposits at the BCE at each test date will be measured as the change in the stock of deposits between the beginning of the year and the last day of the corresponding test date month as shown in Table 2.
- NFPS deposits at the BCE data will be provided to the Fund at weekly frequency within 5 business days following the end of the week.

### Adjustor on external borrowing (NFPS deposits)
- The floor on the accumulation of NFPS deposits will be adjusted upward/downward by the amount of NFPS borrowing from non-residents above/below that envisioned under the program (Table 5), net of issuances related to liability-management operations that have no net impact on fiscal financing.
- External borrowing comprises issuance of international bonds and other borrowing with non-official external creditors.

- Total external borrowing consistent with program targets 1/: 0.0; 0.0
- Dec. 2024
- Apr. 2025

### Adjustor on disbursements from the IMF and other multilateral institutions (NFPS deposits)
- The floor on the accumulation of NFPS deposits will be adjusted upward/downward by the amount of the excess/shortfall in program loan disbursements from the IMF and other IFIs (IDB, World Bank, CAF, and FLAR), relative to the baseline projection in Table 6.
- Program loan disbursements are defined as external loan disbursements (excluding project financing disbursements) from official creditors that are freely usable for financing NFPS budget operations.

- Expected disbursement of IMF credit 1/: 1,500; 417
- Expected disbursements of program loans by other IFIs 1/: 2,600; 400
- Dec. 2024
- Apr. 2025
- 1/ Cumulative from January 1 of each year.

### Adjustor on oil prices (NFPS deposits)
- The floor on the accumulation of NFPS deposits will be adjusted upward/downward by US$11.93/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$178.9 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.

---

### D.  Ceiling on External Payment Arrears by the Non-Financial Public Sector

### Definitions of external debt and debt forms
- External debt determined by residency criterion except for debt securities, where criterion is place of issuance.
- “Debt” defined as a current liability created under a contractual arrangement requiring future payments in assets or services; includes:
  - Loans (deposits, bonds, debentures, commercial loans, buyers’ credits, repurchase agreements, official swap arrangements);
  - Suppliers’ credits (deferred payments for goods/services);
  - Leases (present value at inception of all lease payments expected excluding operation/repair/maintenance).

### Arrears, penalties and damages
- Under the debt definition, arrears, penalties and judicially awarded damages from failure to pay under contractual obligations that constitute debt are debt.
- Failure to make payment on an obligation not considered debt under the definition (e.g., payment on delivery) will not give rise to debt.

### Definition of external payment arrears for program monitoring
- External payment arrears are defined as:
  - (i) external debt obligations (principal and interest) falling due after May 1, 2024 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 and exclusions
- Performance criterion covers the NFPS.
- Does not cover:
  - (i) arrears on short-term trade credit or letters of credit;
  - (ii) arrears on debt subject to renegotiation or restructuring;
  - (iii) arrears from nonpayment of commercial claims that are the subject of litigation initiated prior to May 1, 2024.

### Monitoring
- This performance criterion (PC) will be monitored on a continuous basis.

---

### E.  Ceiling on BCE Direct and Indirect Financing to the NFPS

### Definitions of BCE financing
- BCE direct financing and indirect financing through public banks includes:
  - Overdraft transfers from the BCE to NFPS entities;
  - Advance distribution of unrealized profits from the BCE;
  - BCE acquisition of government debt on the primary market or by purchase from public institutions;
  - BCE lending to public banks for the purpose of acquisition of government debt on the primary market or by purchase from public institutions.

### Monitoring
- This PC will be monitored on a continuous basis.
- Monthly data on amortizations and disbursements of BCE credit to NFPS and to publicly owned banks for financing the NFPS will be provided within five business days to the Fund.

---

### Indicative Targets (IT): Definition of Variables

### A.  Floor on The Non-Oil Primary Balance Including Fuel Subsidies of the NFPS

#### Definitions and scope
- NFPS defined as above.
- Non-oil Primary Balance of the NFPS = primary non-oil revenues minus primary non-oil spending.

#### Primary non-oil revenues (recorded on cash basis)
- Include:
  - Tax revenues of the PGE and of GADs;
  - Social security contributions;
  - Other revenues (otros ingresos), including administrative fees, sales of market and nonmarket establishments, and other Transfers not elsewhere classified.

- Primary non-oil revenues explicitly exclude interest, proceeds from sale of financial assets, revenues from privatization of government-owned entities, revenues from oil exports, and revenues from domestic sales of oil derivatives.

#### Primary non-oil spending (recorded on accrual basis)
- Comprises:
  - Wages and salaries (sueldos y salarios);
  - Purchases of goods and services (compra de bienes y servicios), excluding purchases of goods and services and investments (“servicios petroleros”) of Petroecuador, CFDD and payments to private oil companies (SHE);
  - Grants;
  - Social benefits, including social security benefits (beneficios de seguridad social), social assistance, and employment-related social benefits;
  - Dividends paid by social security funds;
  - Current and capital transfers, including “Account 99”;
  - Transactions in nonfinancial assets.

#### Petroleum product subsidies
- Include subsidies for gasoline, diesel, liquefied petroleum gas, and sectoral subsidies (including jet fuel and fuel oil).
- Subsidies defined as the difference between the distributor sale price and the cost of the product.
- Cost of the product is a weighted average between cost of imported petroleum derivative products and cost of domestically produced petroleum products, cost of transportation, storage, and commercialization.
- For domestically produced products, the export price of Eastern crude (opportunity cost) is considered as raw material, as well as the cost of refining.
- Import cost includes price at FOB value plus freight and insurance.

#### Non-oil primary balance including fuel subsidies
- Defined as the non-oil primary balance of the NFPS minus spending on subsidies on petroleum products.

#### PPPs, divestment costs, and Account 99
- Government-funded PPPs, costs from divestments/liquidation/lawsuits, and Account 99 recording follow the rules described in earlier sections.

### Monitoring for the non-oil primary balance IT
- All fiscal data needed for program monitoring will be provided to the Fund within 60 days from the end of each test date as shown in Table 2.
- Data submission will include fuel subsidies expenditures provided by Petroecuador, and below-the-line data.
- Preliminary monthly data will be provided with a lag of no more than 45 days after the end of each month.

### Adjustor on oil prices (non-oil primary balance IT)
- The floor will be adjusted downward/upward 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$178.9 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.

---

*Source: 1ecuea2024002-print-pdf - excerpt provided.*

### 50.      The Non-Financial Public Sector (NFPS) is defined as above.

### The Non-Financial Public Sector (NFPS) and Program Monitoring (excerpts)

### NFPS definition and overall balance
- The Non-Financial Public Sector (NFPS) is defined as above.
- The overall balance of the NFPS is defined as the net lending/borrowing of the NFPS.
- Calculation of the overall balance:
  - non-oil primary balance of the NFPS (defined above)
  - plus the oil balance of the NFPS
  - plus interest revenues of the NFPS
  - minus interest expenditures of the NFPS
- Recording conventions:
  - NFPS revenues and interest expenses are recorded on a cash basis.
  - NFPS primary expenditures are measured on an accrual basis.

### Oil balance of the NFPS
- The oil balance of the NFPS is defined as:
  - (i) revenues from oil exports and domestic sales of oil derivatives,
  - minus (ii) expenditures on imports of oil derivatives (CFDD),
  - minus (iii) payments to private oil companies (SHE),
  - minus (iv) goods and services expense and investments of Petroecuador, including “servicios petroleros”.

### Data submission and monitoring timelines
- Fiscal data for program monitoring:
  - Provided to the Fund with a lag of no more than 90 days after the end of each test date as shown in Table 2.
  - Preliminary data with a lag of no more than 60 days after the end of each month.
  - Data submission includes revenue, expenditure, and below-the-line data.
- Specific monitoring lags:
  - Below-the-line fiscal data for PGE accounts payable: lag no more than 60 days after each test date and preliminary data within 45 days after each month.
  - Monthly data on social assistance coverage and registry updates: lag no more than 30 days after the end of each month.
  - Export price of Ecuador mix crude oil: lag no more than 20 days after the closing of each month.
  - Detailed balance of payments data: no later than 90 days after the end of the quarter.

### Adjustors to fiscal and reserves 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$178.9 million at corresponding test dates.
  - The average 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 borrowing (NIR floor):
  - The floor on net international reserves will be adjusted upward/downward by the amount of borrowing from non-residents above/below what is envisioned under the program, as reported in Table 5 and net of issuances related to liability-management operations that have no net impact on the outstanding stock of NFPS debt.
  - External borrowing comprises issuance of international bonds and other borrowing with non-official external creditors.
- Adjustor on disbursement from other multilateral institutions (NIR floor):
  - The floor on net international reserves will be adjusted downward/upward by the shortfall/excess in loan disbursement by IFIs and grants, relative to the baseline projection reported in Table 6.
  - 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 floor):
  - The floor on NIR will be adjusted upward/downward by US$11.93/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$178.9 million at corresponding test dates.
  - The average Ecuador mix oil price calculation is the same as above.

### Net International Reserves (NIR) — definitions and components
- NIR of the central bank are computed as:
  - the US dollar value of the usable gross international reserve assets of the BCE
  - minus (i) gross reserve-related liabilities of the BCE to nonresidents
  - minus (ii) the reserve holdings of domestic banks and deposits of other financial institutions held at the BCE
- Non-U.S. dollar foreign assets and liabilities are converted into U.S. dollar at the program exchange rates.
- Usable gross international reserve assets include:
  - (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;
  - (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 (including assets tied up in repurchase agreement transactions) insofar as those assets are not already excluded.
- 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 that imply the sale of foreign currency or other reserve assets.
- Reserve holdings of domestic banks 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), with the exception of deposits of the BEDE and BIESS, including those held in trust funds (fideicomisos BIESS y fideicomisos IESS).

### Measurement and reporting of change in NIR
- The change in NIR will be measured as the cumulative change in the stock of NIR between the beginning of the year and the last day of the corresponding test date month as shown in Table 2.
- 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.

### PGE payment arrears to the domestic private sector
- PGE definition: The PGE is defined as above.
- Arrears definition:
  - Arrears are other accounts payable included in the definition of PGE debt, which are overdue for more than 90 days from the date of accrual.
  - Stocks of “cartas de crédito” are explicitly excluded from the definition of arrears for this indicator test (IT).
- Monitoring:
  - Below-the-line fiscal data referring to PGE accounts payable provided with a lag of no more than 60 days after each test date and preliminary data within 45 days after each month.
  - Data to include breakdown by economic sector and an “of which” detail for amounts overdue by more than 90 days from the date of accrual.

### Floor on social assistance scheme coverage
- Definition of coverage:
  - Computed as the sum of all active beneficiary family units in the three bottom deciles of the income distribution that benefit from at least one social assistance program.
  - Poor beneficiary families are defined according to information in the RS2018.
- Programs counted toward coverage (in force on date of issuance of the program):
  - Bono de Desarrollo Humano (BDH)
  - BDH con Componente Variable (BDH-V)
  - Bono Joaquin Gallegos Lara
  - Pension Mis Mejores Años
  - Pensión Toda Una Vida
  - Bono para niños, niñas y adolescentes en situación de Orfandad por muerte violenta de la madre o progenitora
  - Cobertura de Contingencias
  - Bono para personas afectadas por eventos de origen natural o antrópico
  - Bono 1000 Días
  - and other monetary transfers that might be set into place to strengthen the social protection net.
- Benefit level constraint:
  - The level (size) of benefits, understood as number of family units, of any of the cash transfer programs in the bottom three deciles should not be reduced (with respect to their level on May 1, 2024).
- Monitoring:
  - Monthly data on (i) number of family units in the lowest three income deciles covered by the social assistance protection programs, and (ii) monthly numbers of registries with information updated and validated following RS2018 by income decile, provided with a lag of no more than 30 days after each month.

### NFPS debt definitions and reporting
- Debt definition references: IMF Government Finance Statistics Manual (GFSM) 2014 and Public Sector Debt Guide.
- Debt instruments considered (examples in GFSM):
  - Special drawing rights (SDRs);
  - Currency and deposits;
  - Debt securities;
  - Loans;
  - Insurance, pension, and standardized guarantee schemes;
  - Other accounts payable.
- For the program, Ecuador’s NFPS debt includes:
  - Deposit liabilities;
  - Debt securities including short term liquidity instruments (held by nonresidents, and by residents not included in the NFPS entities);
  - Loans;
  - Other accounts payables.
- Consolidation and netting:
  - Any liabilities issued by entities of the NFPS, held as an asset by another NFPS entity 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.
- Reporting requirement:
  - The data on NFPS stock of debt in US$ will be provided to the Fund monthly with a lag of no more than 90 days after the end of each month.
  - The data submission will include cross-holdings among NFPS entities.

### High-frequency and periodic data requirements (monitoring templates and timings)
- 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, at least including:
    - 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 (deposits, available funds, credit to the private sector, credit to the government).
  - BCE balance sheet and financial indicators: deposits of banks at the BCE.
  - Weekly monetary data in the agreed template.
  - Weekly data on international reserves and foreign currency liquidity in line with SDDS requirements.
- Monthly:
  - Data on stocks and flows (above- and below-the-line), disaggregated by each subsector of the NFPS using agreed templates (budgetary central government and CFDD, rest of the central government, subnational governments, SOEs and social security).
  - NFPS financing data compiled from detailed financial assets and liabilities (deposits, loans, securities, equities, other accounts payable including oil related), and their amortizations, disbursements, and arrears accumulation.
  - Data on amortizations and disbursements of credit from the BCE to NFPS and to publicly-owned banks within five business days from the end of the month.
  - PGE cash flow data for the fiscal year, with a lag of no more than 60 days after the closing of each month (including expected monthly amortizations and repayments on NFPS debt).
  - Data on social spending for named programs (BDH, BDH-V, Personas con discapacidad, Pensión para Adultos Mayores, Mis mejores años, Pensión Toda Una Vida, Bonos Mis Primer 1000 Dias, Bono para niños, niñas y adolescentes en situación de Orfandad por muerte violenta de la madre o progenitora, Cobertura de Contingencias, Bono para personas afectadas por eventos de origen natural o antrópico, Bono Joaquin Gallegos Lara).
  - Data to determine the latest net SDR position at the end of each month (total external liabilities with the SDR department for the central government; total SDR holdings for the central bank), denominated in SDRs.
  - Provision of detailed information on collateralized debt and debt with similar arrangements within 2 weeks of signing new contracts, including all contracts, escrow accounts overseas, creditor-level stock, terms, amounts pledged, and repayment schedules.
- Quarterly:
  - Detailed balance of payments data, no later than 90 days after the end of the quarter.

*Source: https://www.imf.org/-/media/files/publications/cr/2024/english/1ecuea2024002-print-pdf.pdf*

### 87.      Detailed fiscal and debt data by the subsectors of NFPS, no later than 90 days after the end

### Detailed fiscal and debt data by the subsectors of NFPS, no later than 90 days after the end of the quarter.

### Data requirements
- Provide detailed fiscal and debt data by the subsectors of NFPS, no later than 90 days after the end of the quarter.
- Data must include:
  - 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,
  - stock of gross debt.

### Ecuador — Staff report context and framework
- Document: STAFF REPORT FOR THE 2024 ARTICLE IV CONSULTATION AND FIRST REVIEW UNDER THE EXTENDED ARRANGEMENT UNDER THE EXTENDED FUND FACILITY AND FINANCING ASSURANCES REVIEW—INFORMATIONAL ANNEX.
- Prepared by: The Western Hemisphere Department (In Consultation with other Departments).
- Date on contents page: December 9, 2024.
- Fund relations snapshot (As of November 30, 2024):
  - Quota: 697.70 SDR Million (100.00 percent of quota)
  - IMF's Holdings of Currency (Holdings Rate): 6,988.51 SDR Million (1,001.65 percent of quota)
  - Reserve Tranche Position: 28.53 SDR Million (4.09 percent of quota)
  - SDR Department net cumulative allocation: 957.07 SDR Million (100.00 percent of allocation)
  - SDR Department holdings: 15.29 SDR Million (1.60 percent of allocation)
  - Outstanding Purchases and Loans:
    - Emergency Assistance: 117.43 SDR Million (16.83 percent of quota)
    - Extended Arrangements: 6,201.91 SDR Million (888.91 percent of quota)

### Key program context and recent developments
- Historical and program background:
  - Ecuador completed the 2020 EFF in December 2022.
  - Vulnerabilities reemerged in 2023 with declines in public sector deposits, higher domestic arrears, and sharp falls in international reserves.
  - New Fund-supported arrangement was requested and implemented by the current government (tenure started in late November 2023).
- Major policy actions in 2024:
  - VAT rate increased from 12 percent to 15 percent.
  - Price-setting mechanism for domestic sales of low-octane gasoline adopted, leading to gradual reduction of fuel subsidies.
  - Prudent expenditure execution and measures to rebuild fiscal buffers and clear some domestic arrears.
- Exogenous shocks in 2024:
  - Severe security crisis with marked negative effects on investment and consumption.
  - Unprecedented drought affecting hydroelectric generation (~75 percent of electricity) causing prolonged power outages:
    - In April and May: 12 days of electricity shortages lasting between six and 10 hours per day.
    - Since September: daily power outages lasting between six and 14 hours per day.
    - In total, in 2024 the population and industries endured over 90 days of power outages.

### Program performance and macro outlook
- Program implementation:
  - All quantitative performance criteria and indicative targets for the first review were met with margins.
  - Of the structural benchmarks for this review: nine met, two reset, four new proposed.
- IMF staff growth and inflation projections:
  - GDP: economic downturn of 0.4 percent in 2024 and recovery of 1.6 percent in 2025.
  - Inflation: projected to stand at 2.8 percent at the end of 2024.
- External sector and reserves:
  - Current account balance projected to reach 4.4 percent of GDP in 2024.
  - Current account projection compared with:
    - 2.1 percent of GDP envisaged at program approval,
    - average of 1.7 percent of GDP over 2019-23.
  - Gross international reserves: rose from US$4.5 billion at end-2023 to US$7.7 billion in mid-December 2024, compared with US$5.2 billion expected for end-2024 at program approval.

### Fiscal policy, revenue, and debt trajectory
- Fiscal consolidation anchors:
  - Fiscal plan anchored on consolidation of the non-oil primary balance including fuel subsidies of 5.5 percent of GDP over the program period.
  - Authorities on track to deliver consolidation of the non-oil primary balance including fuel subsidies of 2.1 percent of GDP in 2024 alone.
- Fiscal outcomes and targets:
  - Overall fiscal deficit expected to decline to 1.8 percent of GDP in 2024, down from 3.6 percent of GDP in 2023.
  - Public debt projected to continue declining from 55.4 percent of GDP in 2023 toward the 40 percent of GDP target for 2032 set in the organic budget code.
- Revenue and subsidy reforms:
  - Tax revenue expected to increase by about 15 percent in 2024, representing an annual rise of around 1.8 percent of GDP.
  - Gasoline pricing reform reduced long-standing fuel subsidies and lowered budget exposure to volatile oil prices.
- Policy design and social considerations:
  - VAT increase and gasoline pricing reform were implemented with compensation mechanisms and stakeholder engagement to enhance social acceptance.
  - Authorities introduced an automatic gasoline pricing formula and planned measures to stabilize higher revenue levels by replacing transitory measures with permanent high-quality ones.

### Fiscal management, arrears, and structural measures
- Fiscal governance and PFM measures:
  - October: updated Medium-Term Fiscal Framework (MTFF) published in line with program targets.
  - November: plan to mobilize non-oil fiscal revenues to stabilize revenues at higher level.
  - Actions to clear and prevent resurgence of domestic arrears; regulations enacted in early December to align the 2025 fiscal plan with program targets and MTFF commitments.
  - Steps to improve efficiency and transparency of public procurement and strengthen cash flow management and fiscal risk analysis.
  - Commitment to establish a plan to prevent future arrears of the government’s healthcare obligations to the Social Security Fund.
- Safeguards and central bank reforms:
  - 2024 update safeguards assessment in process.
  - BCE strengthened safeguards since 2019 notably through 2021 COMYF reforms prohibiting BCE financing of the sovereign and quasi-fiscal operations and establishing a “backing rule.”
  - Further work needed to align BCE annual financial statements with International Financial Reporting Standards, particularly for BCE-owned public debt.
  - Treasury Single Account (TSA) at the BCE is comprehensive with adequate controls.

### Financing strategy and debt operations
- 2024 financing execution:
  - 2024 financing plan fully executed relying on IFIs and bilateral creditors.
  - Program fully financed for 2025 with firm financing commitments from multilateral and official bilateral creditors.
- Debt management actions:
  - October: Medium-Term Debt Management Strategy published in line with program targets.
  - Authorities announced a debt-for-nature swap (third week of December) intended to allocate resources to protect the Amazon rainforest while reducing public debt stock.
  - Authorities aim to gradually regain market access starting in the second half of 2025; current sovereign spreads around 1,200 basis points.

*Prepared by The Western Hemisphere Department — STAFF REPORT FOR THE 2024 ARTICLE IV CONSULTATION AND FIRST REVIEW UNDER THE EXTENDED ARRANGEMENT UNDER THE EXTENDED FUND FACILITY AND FINANCING ASSURANCES REVIEW—INFORMATIONAL ANNEX (December 9, 2024).*

### 12.      The expansion of social assistance programs continues to strengthen the social safety

### 12.      The expansion of social assistance programs continues to strengthen the social safety net.

### Social assistance expansion
- A remarkable expansion of social assistance programs was achieved during the 2020 EFF arrangement, increasing the number of households in need receiving cash transfers from 30 percent to 80 percent.
- Authorities have increased the coverage of cash transfer programs in the lowest three deciles of the income distribution in line with program targets.
- A comprehensive plan was elaborated to revamp the social registry with the aim to better expand and target the existing cash transfer schemes.

### Financial Sector Policy
- Authorities committed to maintaining financial sector stability while acknowledging rising non-performing loans and deteriorating financial soundness in some institutions amid a weak economic environment.
- Actions committed:
  - Closely monitor institutions and undertake actions within the legal framework.
  - Ensure proper loan classification and provisioning going forward, following temporary regulatory forbearance measures adopted due to the electricity crisis.
  - Establish an inter-institutional group within the Financial Stability Committee to strengthen resolution frameworks and develop resolution reforms and strategies to effectively address unviable institutions.
  - Reform the complex system of caps on lending rates that has led to distortions and restrictions in the credit market.
  - Develop the domestic debt market and continue to implement the FSAP recommendations.
- Institutional developments and timing:
  - A Financial Stability Committee was established in August (in line with the 2023 FSAP recommendations) to enhance coordination among agencies involved in financial sector oversight and regulation.
  - In November the authorities issued macroprudential regulations on bank capital buffers.

### Structural reforms and electricity/climate strategy
- Top priority: restore electricity supply reliably and strengthen resilience to climate change, responding to the most severe drought in decades and the resulting electricity crisis.
- Short- and medium-term electricity actions:
  - Reformed legislation to allow greater private sector participation in electricity generation.
  - Increased public spending in emergency electricity generation solutions, mainly through expenditure reprioritization to ensure adherence to the existing fiscal envelope.
  - Medium-term plan to reliably increase generation capacity by diversifying generation sources with projects financed with a mix of public, public-private partnerships, and private funds.
  - Strengthen electricity interconnection with Peru through a strategic infrastructure project financed by the Inter-American Development Bank.
- Climate and economic diversification:
  - Assign high importance to proactively enhancing adaptation to climate change, reducing greenhouse gas emissions, and continuing to diversify the economy.
  - Given considerable climate investments needed in Ecuador, authorities are exploring options to catalyze climate financing.

### Crime, governance, and market efficiency reforms
- Authorities view combatting crime and promoting licit, efficient, and inclusive markets as crucial to boost potential economic growth.
- Responses to surge in insecurity linked to organized crime and drug-related violence:
  - Developed a multipronged approach that goes beyond direct policy actions, recognizing links between violent crime and governance deficiencies.
  - A new AML/CFT law in line with FATF standards was unanimously approved in July to enhance financial integrity tools and support mitigation of illicit flows, including those related to financing organized crime.
- Market and governance reforms:
  - Streamline regulatory processes and licenses to unlock potential in industries such as formal mining and energy.
  - Promote more flexible and inclusive labor arrangements.
  - High priority on improving transparency, accountability, and efficiency of SOEs to foster market efficiency and mitigate conflicts of interest and corruption.
  - On track to completing the 2019 and 2020 financial audits of the state-owned oil company.

### Concluding remarks and commitment to reforms
- Ecuador has considerably strengthened macroeconomic stability despite severe security and electricity crises.
- As a result of authorities’ swift and well-designed measures, the economy stands on a much stronger footing in December 2024 than a year ago.
- Authorities reaffirm:
  - Full commitment to the objectives of the EFF arrangement and ownership of the reform agenda, including during the upcoming presidential and legislative elections in the first half of 2025.
  - Continued commitment to a sound fiscal consolidation path and reducing dependency of public finances on volatile oil revenues.
- The Fund has been a crucial partner of Ecuador and the authorities are grateful for its continued financial, policy, and technical support.

*Source: 1ecuea2024002-print-pdf - 12.      The expansion of social assistance programs continues to strengthen the social safety net.*

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_Source: https://www.imf.org/-/media/files/publications/cr/2024/english/1ecuea2024002-print-pdf.pdf_