IMF Executive Board Concludes Second and Third Reviews of the Extended Fund Facility for Ecuador and 2021 Article IV Consultation

IMF News, September 30, 2021

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IMF Executive Board Concludes Second and Third Reviews of the Extended Fund Facility for Ecuador and 2021 Article IV Consultation

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• Published: September 30, 2021

Executive Board decision and disbursement

• The Executive Board concluded the combined second and third reviews of the 27-month Extended Fund Facility (EFF) for Ecuador, allowing for an immediate disbursement of SDR 568 million (about US$800 million).
• The disbursement brings Ecuador’s total disbursements under the arrangement to about US$4.8 billion.
• The Ecuadorian authorities plan to use the disbursement for budget support.
• Ecuador’s 27-month EFF arrangement was approved on September 30, 2020, for SDR 4.615 billion (about US$6.5 billion or around 661 percent of Ecuador’s quota).

Program objectives and fiscal stance

• Program aims:
  • Support the economic recovery from the pandemic.
  • Restore fiscal sustainability with equity by reducing public debt while expanding social safety nets.
  • Generate environmentally friendly sustainable growth with high quality jobs that benefits all Ecuadorians.
• The Executive Board granted a waiver of nonobservance of the end-April 2021 quantitative performance criterion on nonfinancial public sector deposits based on the minor nature of the nonobservance and corrective action taken by the authorities.
• Directors supported a more gradual fiscal consolidation to accommodate urgent pandemic-related spending needs this year, to expand social assistance programs, and to support the economic recovery.
• Directors stressed the need for strong revenue efforts, including a progressive tax reform, to complement the expenditure-led consolidation strategy.
• Directors encouraged contingency planning in case of financial shortfalls.

Governance, transparency, and structural reforms

• Continued improvement in public financial management and advances in transparency and anti-corruption would strengthen confidence in public institutions and boost private sector activity.
• Authorities have enacted a new anticorruption law and a new organic monetary and financial code to strengthen the anticorruption framework and the foundations of dollarization.
• Recommendations and priorities:
  • Enforce timelines for data submission and establish budget ceilings in key spending categories in the near and medium term.
  • Fully and swiftly implement the regulation adopted last year to collect and publish ultimate beneficial ownership information in public procurement contracts.
  • Improve asset declarations of politically exposed people, overhaul the AML/CFT framework, and conduct audits of taxes.
  • Progress with structural reforms to strengthen public financial management.
  • Reduce dependence on oil and pursue reforms informed by national dialogue to improve competitiveness and raise potential growth.
  • Forge new international trade deals and reform the labor market to foster private sector growth and foreign direct investment.

Financial sector and banking system

• The banking system appears ready for the removal of the crisis measures at the end of the year, as currently envisaged by the authorities.
• Closing regulatory gaps over time across the financial system will level the playing field and enhance resilience.
• Directors welcomed the authorities’ intention to unwind crisis measures in the banking system to preserve its health and avoid creating distortions.
• A planned third-party asset quality review for public banks would help identify provisioning and capitalization needs.
• Directors encouraged development of a plan to close regulatory gaps, level the playing field, and strengthen the overall financial system.
• Directors welcomed recent amendments to the central bank law to strengthen its independence and governance and commended progress in improving the central bank balance sheet and the foundations of the dollarization regime.

Social protection and pandemic response

• The COVID-19 and oil price shocks severely hit the Ecuadorian economy in 2020; recovery has been slow but aided by accelerating vaccinations, improving global economy, and funding from the IMF and other IFIs.
• Authorities have significantly expanded social assistance programs: Over 440,000 low-income families have been added to the social safety net since July 2020.
• Continued expansion of social safety nets, reaching families in the lowest income groups and in generally underserved locations, will be crucial to mitigate the impact of the pandemic on the most vulnerable.

Executive Board Assessment — key messages

• Directors commended measures taken to mitigate the economic and social impact of the pandemic and progress in implementing reforms.
• Directors welcomed continuation of the EFF-supported program and its objectives: supporting recovery, restoring fiscal sustainability, and generating green, inclusive growth with high quality jobs.
• Directors urged strengthening transparency and governance in public resource management to improve trust in public institutions and urged full implementation of ultimate beneficial ownership publication in public procurement.
• Directors emphasized the need to make progress on structural reforms to improve competitiveness, enhance the business environment, and accelerate environmentally friendly private-sector-led growth.

Ecuador: Selected Economic Indicators (Proj.)

• Output
  • Real GDP growth: 2020: -7.8, 2021: 2.8, 2022: 3.5
• Employment
  • Unemployment (%): 2020: 5.3, 2021: 4.6, 2022: 4.2
• Prices
  • Inflation, average (%): 2020: -0.3, 2021: 0.0, 2022: 2.1
• Public sector
  • Revenue (% GDP): 2020: 29.8, 2021: 33.2, 2022: 33.8
  • Expenditure (% GDP): 2020: 35.9, 2021: 35.5, 2022: (not displayed)
  • Overall fiscal balance (% GDP): 2020: -6.1, 2021: -2.3, 2022: 0.1
  • Non-oil primary fiscal balance (excl. fuel subsidies) (% GDP): 2020: -3.8, 2021: -4.4, 2022: -2.0
  • Non-oil primary fiscal balance (incl. fuel subsidies) (% GDP): 2020: -4.9, 2021: -5.8, 2022: -2.8
  • Public sector debt (% GDP) 1/: 2020: 61.2, 2021: 61.0, 2022: 59.9
• Money and credit
  • Broad money (% change) 2/: 2020: 6.0, 2021: 5.9, 2022: 5.2
  • Credit to the private sector (% change): 2020: 2.5, 2021: 9.9, 2022: 7.0
• Balance of payments
  • Current account (% GDP): 2020: 1.7
  • FDI (% GDP): 2020: -1.2, 2021: -0.8, 2022: -1.1
  • GIR (in months of imports of goods and services): 2020: 4.3, 2021: 3.9
  • External debt (% GDP): 2020: 54.9, 2021: 52.3, 2022: 50.3
• Exchange rate
  • REER (% change, depreciation-): 2020: -3.5

Sources noted in the original release: Central Bank, Ministry of Finance, National Statistical Institute (INEC), UNDP Human Development Indicators, World Bank WDI, and IMF staff calculations.

Press Release No. 21/278; September 30, 2021. IMF Communications Department.

References

• https://www.imf.org/en/about/senior-officials/bios/antoinette-monsio-sayeh
• Ecuador and the IMF
• IMF Policy Advice -- A Factsheet
• Press Releases
• PRESS CENTER
• https://www.imf.org/en/home