## Helping Ecuador Confront the Pandemic

_IMF News, October 5, 2020_

## Source details

**Canonical URL:** [Helping Ecuador Confront the Pandemic](https://www.imf.org/en/news/articles/2020/10/05/na100520-helping-ecuador-confront-the-pandemic)

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## Bibliographic details
- Published: October 5, 2020

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### Overview
- IMF Country Focus interviewed Ecuador mission chief, Ceyda Oner, about the new IMF financing and its role in managing the pandemic, its aftermath, and strengthening fiscal transparency and governance.
- IMF Executive Board approved a new $6.5 billion Extended Fund Facility arrangement on September 30, 2020.
- Ecuador is described as a South American country of 17 million.

### Economic impact of COVID-19 and oil shock
- Economic activity collapsed by a record 12.4 percent in the second quarter, compared to a 2.3 percent decline in the first quarter.
- Contractions driving the collapse included:
  - total investment: 18.5 percent
  - private consumption: 12 percent
- Unemployment jumped to 13 percent in June, ten points above the end of last year.
- Hundreds of thousands have been pushed into poverty.
- Fiscal and external financing needs for 2020 were estimated at 16 and 11 percent of GDP, respectively.

### Immediate policy response and social measures
- Government measures taken to mitigate impacts included:
  - creating a special cash transfer program
  - expanding the social safety net to more vulnerable people
  - temporarily broadening unemployment insurance
  - allowing delays on certain payments (tuitions, utilities, health insurance)
  - temporary price controls for basic food items
- Program immediate tasks: stabilize the economy, protect lives and livelihoods, and expand social assistance programs.

### Structure and timing of IMF support
- Total IMF arrangement: $6.5 billion Extended Fund Facility.
- Planned disbursement timing:
  - $4 billion of the total $6.5 billion is planned to be disbursed this year
  - half of that $4 billion disbursed immediately
- Rationale: large early disbursements reflect collapsed revenues, increased spending needs for health and social protection, falling oil prices, and loss of access to capital markets.
- IMF programs are described as flexible to adapt to country-specific financing needs.

### Debt, fiscal sustainability, and debt relief measures
- Two key challenges highlighted:
  - supporting the people of Ecuador through the crisis
  - reducing the debt burden
- Ecuador completed a successful international bond exchange expected to save $1.5 billion in interest payments just in 2021, and billions more in the coming years.
- Medium-term goal: bring public debt back to sustainable levels in accordance with Ecuador’s own debt targets now enshrined in law.
- Reducing debt will involve:
  - raising growth potential via comprehensive structural reforms over a long horizon
  - carefully calibrating revenue and expenditure measures to support growth while considering distributional effects

### Fiscal policy and reform priorities
- Revenue-side measures:
  - implement a smart and progressive tax reform to increase revenues and support businesses and job creation
- Expenditure-side measures:
  - improve efficiency and transparency in public investments and procurement (buying goods and services)
- Additional program objectives:
  - increase the number of low-income families receiving financial support
  - spend more on reactivating the economy and on essential services like health and education
  - pay off accumulated unpaid bills
  - improve transparency in public procurement
  - promote debt transparency
- As the economy recovers, the program will aim to ensure sustainability of public finances, strengthen domestic institutions, and lay foundations for a more dynamic and competitive economy that can generate more jobs and strong, lasting growth that benefits all Ecuadorians.

### Program duration and political engagement
- Program length: 27 months, designed to allow the new administration to develop its own reform program while counting on financial support through 2022.
- IMF engagement approach: standard practice to engage with a broad range of presidential candidates when programs straddle elections; mission reports broad appreciation from candidates for IMF support.

*Source: IMF — Helping Ecuador Confront the Pandemic*

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## References

- [https://www.imf.org/en/News/country-focus](https://www.imf.org/en/News/country-focus)
- [PRESS CENTER](http://presscenter.imf.org/)
- [Read the report](https://www.imf.org/en/Publications/CR/Issues/2020/10/02/Ecuador-Request-for-an-Extended-Arrangement-Under-the-Extended-Fund-Facility-Press-Release-49803?cid=em-COM-123-42090)
- [Read the press release](https://www.imf.org/en/News/Articles/2020/10/01/pr20302-ecuador-imf-executive-board-approves-27-month-extended-fund-facility)
- [IMF Extended Fund Facility](https://www.imf.org/en/About/Factsheets/Sheets/2016/08/01/20/56/Extended-Fund-Facility)
- [Blog on changes to debt restructurings](https://blogs.imf.org/2020/10/01/reform-of-the-international-debt-architecture-is-urgently-needed/)
- [Ecuador and the IMF](https://www.imf.org/en/Countries/ECU)
- [https://www.imf.org/en/home](https://www.imf.org/en/home)

_Source: https://www.imf.org/en/news/articles/2020/10/05/na100520-helping-ecuador-confront-the-pandemic_