Ecuador is facing challenging economic conditions amid a security crisis and severe liquidity and fiscal pressures. Upon IMF Executive Board approval, the new IMF-supported program—called an “Extended Fund Facility” (EFF)—will provide access to SDR 3 billion (about US$4 billion) over a 4-year period.
In line with the Fund’s lending policies, these resources may be used to support the public budget. The new EFF will also help mobilize additional resources for Ecuador from other development partners.
The IMF-supported program will therefore help improve the liquidity and fiscal situation, safeguard dollarization and macroeconomic stability, and foster sustainable and inclusive growth. Importantly, the policies supported by the new EFF focus on protecting the most vulnerable, as well as on enhancing governance and transparency. The ultimate goal of the program is to promote a stable economy and better living standards for all Ecuadorians.
The new EFF program will prioritize social protection. Importantly, it does not call for social spending cuts. It will support the authorities’ economic policy plans to help strengthen the public finances, safeguard macroeconomic stability and dollarization, and foster sustainable and inclusive growth. In addition to social protection, the program aims to support needed priority spending on security and public investment.
The previous EFF arrangement with Ecuador (which started in 2020 and concluded in 2022) also prioritized social protection by supporting greater coverage of social assistance programs to protect the most vulnerable. The new EFF arrangement will build on that work.
In response to a country member’s request for the use of IMF financial resources, a staff-level agreement (SLA) denotes the agreement reached between IMF staff and the authorities on a package of policies that may be backed by an IMF-supported program to help the country address its balance of payments problems. The SLA is subject to IMF Management and IMF Executive Board approval.
Once an SLA has been reached and all applicable IMF policies are complied with, the policy program underlying an arrangement is presented to the IMF’s Executive Board, including the authorities’ “Letter of Intent” and “Memorandum of Economic and Financial Policies.” If approved by the Executive Board, the country may request financing under the IMF arrangement in tranches subject to the regular review of the member’s program performance and policy implementation.
The SLA with Ecuador followed the IMF’s routine engagement with member countries on program discussions. As part of the process, an IMF team visited Quito in early April and met with stakeholders from the public and private sector. As usual, an IMF report will be published shortly after the IMF Executive Board’s meeting to consider this new arrangement.
When a member country has more than 600 percent of its quota in outstanding credit to the Fund, it is subject to the IMF’s Exceptional Access Policy. Before the approval of the new EFF lending arrangement, Ecuador’s total credit outstanding to the Fund was above 800 percent of its IMF quota, thus making the new EFF subject to the exceptional access policy.
To grant exceptional access, the Fund evaluates some criteria. These include, for example, that the country has good prospects to regain access to international capital markets. A detailed discussion of the exceptional access criteria is included in the IMF report that will be published shortly after the IMF Executive Board meets to consider the new arrangement for Ecuador.
In 2022, Ecuador successfully concluded an Extended Fund Facility (EFF) arrangement (subject to the IMF’s exceptional access policy) that disbursed about US$6.5 billion since its approval in September 2020. Under another EFF arrangement that was approved in 2019 but ended in 2020, Ecuador received about US$1.4 billion.
An IMF Ex-Post Evaluation of the 2020-22 EFF arrangement, published in 2023, found that the program achieved its primary objective of restoring macroeconomic stability against the backdrop of a historic economic recession triggered by the COVID-19 pandemic.
In recent years, Ecuador also had access to IMF emergency financial assistance, under another lending arrangement called the “Rapid Financing Instrument” (RFI ). An RFI for about US$364 million was approved in 2016 after an earthquake caused significant damages. Another RFI for about US$643 million was approved in 2020 during the COVID-19 pandemic to help support Ecuador’s healthcare and social protection systems.
When warranted, measures to strengthen governance may become part of an IMF lending program. These measures might call for strengthening controls on public spending; reducing discretion in revenue administration; and issuing audited accounts of government agencies, central banks, and state-owned enterprises.
Other measures may focus on increasing the transparency of natural resource management, enhancing bank supervision, or stepping up efforts to combat corruption and money laundering.
As a means of safeguarding its resources, the IMF assesses the governance and transparency frameworks of central banks of countries to which it lends money.
In its capacity development efforts, the IMF also works with countries to strengthen their economic institutions by providing technical assistance and training on critical macroeconomic issues.
