IMF Executive Board Discusses the Ex-Post Evaluation of Ecuador’s Exceptional Access Under the 2020 Extended Fund Facility

IMF News, December 4, 2023

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Published: December 4, 2023

Background and program timeline

The Executive Board met on November 29, 2023 to discuss the Ex-Post Evaluation (EPE) of Ecuador’s Exceptional Access Under the 2020 Extended Fund Facility (EFF).
The 2020 EFF arrangement was approved by the Executive Board on September 30, 2020 (Press release No. 20/302).
The 2020 EFF followed Fund emergency support to Ecuador in May 2020 and the previous EFF arrangement approved in March 2019 that was canceled in May 2020.
The 2020 EFF was a 27-months arrangement.
The EFF concluded on December 14, 2022.
In the early months of the pandemic, Ecuador used the Fund’s Rapid Financing Instrument (RFI) to meet urgent balance of payments needs and to support healthcare and social protection, and conducted a successful debt exchange with external bondholders.

EPE’s principal findings

The EFF program achieved its primary objective of restoring macroeconomic stability against the backdrop of a historic economic downturn.
Most of the program conditionality was eventually implemented, despite some delays to fiscal and structural reforms.
The authorities strengthened fiscal buffers, taking advantage of higher oil prices.
Fiscal structural reforms comprehensively revamped Ecuador’s fiscal framework, although successful implementation will hinge on building and retaining institutional capacity.
Passing the COMYF reform was a major achievement to strengthen the Central Bank’s independence and the dollarization regime.
Market access has not been restored due to political uncertainty and remaining large fiscal vulnerabilities, including the strong reliance of government revenues on volatile oil prices.
Extensive technical assistance provided to the authorities has helped to strengthen capacity in critical areas, especially fiscal accounting.
Ultimately, reform efforts will need to be reinvigorated to ensure fiscal sustainability and restore market access.
The EPE finds that Fund policies and procedures for financing under exceptional access were followed.

Executive Board assessment and observations

Directors welcomed the EPE of Ecuador’s 2020 EFF and noted that the large and frontloaded financing was instrumental in supporting the country during the COVID-19 pandemic, stabilizing the economy, and accommodating mounting financing needs, especially spending on health and social protection.
Directors welcomed that the program catalyzed financing from other international financial institutions and a successful debt restructuring.
Directors agreed that policy implementation under the EFF was broadly in line with program objectives.
Directors welcomed implementation of the reform agenda to boost fiscal resilience and strengthen institutions, including amendments to the monetary and financial code that helped strengthen central bank independence and the dollarization regime.
Directors noted that vulnerabilities persist and more reforms will be needed to restore market access.
Directors highlighted:
- The importance of contingency planning in initial program design when uncertainty is high.
- The importance of appropriate political assurances to protect against policy reversals.
Directors observed that saving the windfall from higher-than-expected oil prices and expenditure restraint supported by the program allowed Ecuador to rebuild fiscal and external buffers.
Directors underscored that non-oil revenues remain relatively low and noted that conditionality could have put greater emphasis on the quality and composition of fiscal consolidation.
Directors considered that the suspension of the fuel subsidy reform following social unrest and the redesign of the tax reform during the program hindered consolidation efforts and allowed vulnerabilities to linger.
Some Directors pointed out:
- The significantly frontloaded disbursements and backloaded conditionality, which pushed some of the fiscal consolidation beyond the program duration.
- The staff’s assessment that reform implementation could have benefited from extending the program.
Directors generally agreed that frontloading the disbursements was necessary for program success; some Directors supported the authorities' view that an extension was not necessary as the program achieved its objectives.
Directors noted that more careful sequencing of the reforms and clearer communication regarding social measures to offset the impact of the fuel subsidy reform could have been beneficial.

Assessment of exceptional access policies

Directors welcomed the EPE’s finding that the exceptional access policy was applied in line with Fund practices.
Directors agreed that, while Ecuador clearly met criteria for exceptional access at the start of the program, assessment of some exceptional access criteria—particularly with regard to market access and implementation capacity—became increasingly difficult as the program proceeded.
Directors noted that the EPE’s findings should provide a valuable input for future implementation of the EA framework and looked forward to the outcomes of the ongoing IEO evaluation.

Implementation, capacity development, and technical assistance

The program was highlighted as a good example of successfully integrating capacity development and program design.
Directors encouraged continued collaboration between the authorities and the Fund.
Extensive technical assistance helped strengthen capacity in critical areas, especially fiscal accounting.

This summary reflects the Executive Board discussion of the Ex-Post Evaluation of Ecuador’s Exceptional Access Under the 2020 Extended Fund Facility.

References

release No. 20/302](https://www.imf.org/en/News/Articles/2020/10/01/pr20302-ecuador-imf-executive-board-approves-27-month-extended-fund-facility)