IMF Executive Board Concludes Second and Third Reviews of the Extended Arrangement Under the Extended Fund Facility for Ecuador, Approves US$498.4 Million Disbursement

IMF News, December 19, 2019

Source details

Canonical URL: IMF Executive Board Concludes Second and Third Reviews of the Extended Arrangement Under the Extended Fund Facility for Ecuador, Approves US$498.4 Million Disbursement

The Executive Board completed the combined second and third reviews of Ecuador’s performance under the economic program supported by the Extended Arrangement under the Extended Fund Facility (EFF).
Completion of both reviews allows the authorities to draw the equivalent of SDR 361.3 million (about US$498.4 million).
The 36-month Extended Arrangement has total access of SDR 3.035 billion (about US$4.2 billion), the equivalent of 435 percent of Ecuador’s quota in the IMF.
The Extended Arrangement was approved by the IMF’s Executive Board on March 11, 2019.

The authorities recalibrated the economic program to include a more moderate fiscal consolidation and international reserves’ paths to respond to recent developments and to protect pro-poor growth and social spending.
The recently approved tax reform is expected to raise revenues and make the tax system “more growth-friendly, simple, and equitable.”
Commitment to fiscal prudence is emphasized as key to fiscal sustainability.

Policy recommendations and priorities:

Maintain fiscal prudence to secure fiscal sustainability.
Implement the approved tax reform to raise revenues and improve tax system design.

Protecting the poor and increasing the social safety net are central priorities in the government’s program.
The authorities have introduced new measures to improve the adequacy and coverage of the social safety net.
Continued work is needed to upgrade the social registry to allow better targeting of social assistance spending.
To support authorities’ efforts, the program’s floor on social assistance will be raised.

Policy recommendations:

Upgrade the social registry to improve targeting of social assistance.
Increase the programmatic floor on social assistance to protect vulnerable populations.

Public financial management reforms are described as paramount to secure fiscal sustainability in the longer term.
The revised reform of the Organic Budget Code is expected to fortify expenditure controls, limit budget discretion, introduce mechanisms to address arrears, and improve the framework for fiscal rules.
Continued work is needed in debt management to reduce borrowing costs and ensure a more efficient allocation of resources.

Policy recommendations:

Implement the revised Organic Budget Code to strengthen expenditure control and fiscal rules.
Advance debt management reforms to lower borrowing costs and improve resource allocation.

Reform of the central bank aims to strengthen central bank autonomy, accountability, and governance.
Such reform is expected to support the dollarization regime, boost reserves, and ensure their prudent management.

Policy recommendation:

Finalize and implement central bank reforms to reinforce autonomy, governance, and reserves management.

The financial system continues to be stable; sustained reforms are needed to solidify the system.
Priorities include strengthening credit risk regulation and closing other regulatory gaps.
Upgrading banking and cooperatives’ supervision, building the macroprudential framework, and simplifying liquidity requirements will help reinforce the financial system in the longer term.

Policy recommendations:

Efforts to raise competitiveness should continue to focus on:
- Improving transparency,
- Strengthening governance,
- Increasing efficiency of the public sector,
- Creating conditions in the labor market to facilitate hiring and female participation.

Policy recommendations:

Pursue transparency and governance reforms.
Improve public sector efficiency and labor market conditions to boost hiring and female participation.

International Monetary Fund