IMF Executive Board Concludes Fourth and Fifth Reviews of the Extended Fund Facility for Ecuador
IMF News, June 25, 2022
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- IMF Executive Board Concludes Fourth and Fifth Reviews of the Extended Fund Facility for Ecuador
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- Published: June 25, 2022
Program summary and objectives
- 27-month Extended Fund Facility (EFF) arrangement for Ecuador approved on September 30, 2020 for SDR 4.615 billion (about US$6.5 billion or around 661 percent of Ecuador’s quota).
- Program aims:
- support Ecuador’s economic recovery from the pandemic,
- restore fiscal sustainability with equity,
- generate sustainable and inclusive growth with high quality jobs,
- stabilize the economy,
- ensure fiscal and debt sustainability,
- expand coverage of social assistance programs to protect the vulnerable,
- promote transparent management of public resources,
- lay foundations for sustainable and inclusive growth.
Executive Board decision and disbursement
- The Executive Board concluded the combined fourth and fifth reviews of the extended arrangement under the EFF.
- Decision allows for an immediate disbursement of SDR 710 million (about US$1 billion).
- The Ecuadorian authorities plan to use the disbursement for budget support.
- The Executive Board approved the authorities’ request for a waiver of non‑observance of the end‑December 2021 performance criterion on the overall balance of the budgetary central government (PGE) and the oil derivatives financing account (CFDD) based on corrective actions taken and committed.
Economic developments and outlook
- The economy rebounded with a 4.2 percent growth in 2021, supported by a successful vaccination campaign and good macroeconomic management.
- Ongoing war in Ukraine is adversely affecting some export sectors, while higher oil prices are improving Ecuador’s external and fiscal balances.
- Fiscal and external balances have improved due to higher oil prices.
Social assistance and equity measures
- Social assistance expansion: 8 in 10 low‑income families now receive government support, up from 3 in 10 two years ago.
- Enactment of a progressive tax bill last year marked an important milestone for improving fiscal sustainability with equity.
- Fuel subsidy reform has been suspended, but authorities remain committed to improving fiscal sustainability and equity.
- Authorities have enacted decrees to improve spending efficiency and plan to prioritize growth‑enhancing investment in physical and human capital.
Financial sector and stability
- The financial sector appears liquid and ready for crisis measures to be gradually rolled back, with continued vigilance to promote stability.
- Recommendation: Gradually closing the regulatory gaps between banks and cooperatives to enhance the sector’s resilience.
Governance, transparency, and anti‑corruption
- Continued improvement in public financial management and advances in transparency and anti‑corruption would strengthen efficiency and accountability of the public sector.
- Authorities’ commitments highlighted as welcome:
- enhance asset declarations of politically exposed people,
- strengthen the AML/CFT framework,
- provide further transparency on ultimate beneficiary ownership for procurement contracts.
- Following delays, authorities are moving forward with bringing more transparency to state‑owned oil companies and remain committed to working with the Fund in this regard in the future.
- Improving timeliness, reliability, and consistency of fiscal statistics remains a priority.
Performance data issue, findings, and remedial actions
- The Executive Board reviewed a report from the Managing Director on the provision of inaccurate data on the overall balance of the budgetary central government (PGE) and the domestic derivatives financing account (CFDD), which led to a noncomplying purchase by Ecuador in September 2021 and a breach of obligation under Article VIII, Section 5 of the IMF’s Articles of Agreement.
- Cause of inaccurate data: under‑recording of PGE pension and healthcare transfer obligations to the social security fund (IESS).
- Corrective actions already undertaken by the authorities:
- publishing revised historical data with explanations for revisions;
- recording of a conservative estimate for the PGE healthcare transfer obligations to the IESS for 2017‑22, while healthcare audits are pending;
- signing an agreement between the Ministry of Economy and Finance (MEF) and the IESS to initiate a procurement process for firm(s) to undertake the medical audits.
- Remedial measures committed to be undertaken in the coming months:
- hiring of an independent medical audit firm(s);
- identifying and sharing with staff the existing stock of PGE potential obligations;
- publication of the revised historical PGE and NFPS data back to 2013;
- finalizing medical audits for 2020 and 2021;
- including PGE pension and estimated healthcare obligations to the IESS in both the 2023 budget and the medium‑term fiscal framework;
- establishing a dedicated statistics unit at MEF headed by a senior Chief Statistician and updating the training curriculum in government finance statistics;
- developing a time‑bound action plan to undertake legal reform and administrative actions aimed at strengthening the legal framework of the state obligations on healthcare expenditures and related audits.
IMF assessment and conclusion
- In view of the corrective actions already undertaken and remedial measures committed, the Executive Board decided to waive the nonobservance of the performance criterion.
- The Executive Board determined that no further remedial action is required in connection with the breach of obligations under Article VIII, Section 5.
IMF Communications Department — Press Release No. 22/228 (June 24, 2022).