IMF Executive Board Completes First Review of the Extended Fund Facility Arrangement for Ecuador

IMF News, December 22, 2020

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Canonical URL: IMF Executive Board Completes First Review of the Extended Fund Facility Arrangement for Ecuador

The IMF Executive Board completed the first review of the extended arrangement under the Extended Fund Facility (EFF) for Ecuador, allowing an immediate disbursement of SDR 1.42 billion (about US$2 billion).
The disbursement brings Ecuador’s total disbursements for budget support under the arrangement to about US$4 billion.
The 27-month EFF arrangement was approved by the Executive Board on September 30, 2020 for SDR 4.615 billion (about US$6.5 billion or around 661 percent of Ecuador’s quota).
Program objectives: stabilize the economy and protect lives and livelihoods, expand coverage of social assistance programs, ensure fiscal and debt sustainability, and strengthen domestic institutions to lay the foundations for strong, job-rich, and long-lasting growth that benefits all Ecuadorians.

The Ecuadorian economy is showing nascent signs of economic recovery after bottoming out in the second quarter.
Economic activity is now projected to contract by 9½ percent in 2020, an improvement over the 11 percent contraction anticipated at program approval.
New COVID-19 infections and deaths have moderated compared to the high levels seen in the Spring, reflecting the authorities’ decisive actions to contain the outbreak.
All end-September quantitative performance criteria and indicative targets were met with large margins.

The authorities continued to expand and improve well-targeted social assistance, bringing in more than 270,000 low-income families into the social safety net since July, ahead of their end-December goal.
These measures are intended to help mitigate the impact of the crisis on the most vulnerable groups.

The National Assembly approved near unanimously amendments to significantly enhance the anti-corruption framework.
The authorities have expanded public access to asset declarations of politically exposed persons.
Steps to strengthen the foundations for dollarization include aligning the central bank’s internal audit function to best international standards and finalizing amendments to the organic monetary and financial code (COMYF) for submission to the National Assembly.
The authorities have adopted regulations on fiscal rules and the medium-term fiscal framework under the organic budget code and developed a financial plan for next year—measures expected to improve public financial management and support fiscal sustainability.

Rebuilding buffers and swiftly enacting the reform amendments to COMYF will strengthen the underpinnings of the dollarized system.
Continuing to prudently apply regulatory and supervisory tools will help the financial system withstand economic stress in the post-pandemic period.
Important priorities include vigilantly monitoring credit risk accumulation, ensuring the liquidity fund has the resources to provide emergency liquidity as intended, and strengthening the legal framework for the financial system, including enhanced contingent arrangements.

Further reprioritization of spending as the recovery takes hold will buttress fiscal sustainability and reduce public debt as a share of GDP.
A credible medium-term fiscal strategy that includes an ambitious and progressive tax reform, and better aligns Ecuador’s spending levels to regional peers, would reduce the debt burden on future generations.

The EFF-supported program continues to face considerable risks. Globally, uncertainty about the depth and duration of the pandemic still lingers.
Domestically, building a broad-based consensus and buy-in across the political spectrum for key program objectives and policies would help mitigate significant program implementation risks.
With continued capacity development and close coordination across public sector agencies, the authorities can achieve their objectives and deliver a robust, job-rich recovery that benefits all Ecuadorians.

Press Release No. 20/387 — IMF, December 21, 2020.