Financing option of $1.3 billion, among the three modes of relationship that Ecuador would have with the IMF, according to analysts

Ecuador would have at least three ways to continue a close relationship with the International Monetary Fund. It is that in December 2021 the EFF agreement with the IMF for $6,500 million was successfully completed, so experts are already thinking about what the post-agreement relationship with this multilateral will be like. The issue was discussed in a workshop called “After the IMF, what?”, organized by Análisis Semanal.

According to Alberto Acosta, editor of Análisis Semanal, once the EFF program of the Monetary Fund had ended and in the absence of a successor program, at first the Fund would initiate a Post Financing Assessment. This is a follow-up that the IMF does to economies that, like Ecuador’s, exceed a certain threshold of indebtedness with this organization. The idea would be to make two annual reports.

You could also choose a unfunded program known as the Political Coordination Instrument, whichIt is a kind of accompaniment from the multilateral in terms of advice. A third option would be Ecuador’s access to a Resilience and Sustainability Fund (RTS) created by the IMF. This fund seeks to help smaller countries overcome the impact of the pandemic and Ecuador could receive $1.3 billion.

remembered that Jorge Salas, new resident representative of the IMF in Ecuador has indicated in a recent interview in El Universo that “Any new agreement, whether with or without financing, It will depend in the first place on the needs and options identified by the authorities”. For Acosta Burneo, the Ecuadorian authorities have already identified this need, so it is expected that he can access these resources.

Regarding other options to have financing for the country, Acosta explained that the capital Market, that Ecuador was analyzing, now is closed, especially because of the country risk. Although this indicator has been gradually falling (as of January 25 it is at 1,164 points, when last October it was at 1,945 points), it is still high. If the country currently went out to international markets, it would have to do so at more than 17%, which makes it prohibitive.

In this sense, Acosta said, the Government will seek to finance itself through internal resources, including the IESS and private banks. According to the figures of the Weekly Analysis, there would be some $2,397 million in state papers, of which 62% would be from the IESS and other buyers, including private banks, would buy $1,000 million more. It is not yet clear what will be the mechanism for the bank to buy said papers.

Additionally, arrears will continue to be a financing mechanism. In 2022 it ended with arrears of around $1.5 billion.

In general, the agreement with the IMF has brought greater order and fiscal prudence, as well as better coverage through bonds for the most vulnerable sector of society. There has been a surplus of the Non-Financial Public Sector (SPNF) which is the government budget but added to the public companies and the IESS. However, Ecuador still maintains a deficit in the general budget of the State. On this topic, Acosta recalled what are IMF recommendations and that they are important challenges for the Government, above all due to the political situation that afflicts it. It is that from now on it will take many years of fiscal surplus to reach the goal of 40% debt. In this direction, the IMF has suggested six tips to Ecuador, which may seem very logical, but which Ecuador has found difficult to comply with, especially due to the political opposition they generate:

• control the payroll
• Improve public purchasing processes
• Rebuild contingency funds
• Promote public investment with private capital
• Find a way to target subsidies
• Improve cash management to reduce tax arrears

Meanwhile, the workshop also analyzed what 2023 will bring us in terms of economic growth. In this sense, the president of the Weekly Analysis Walter Spurrier considered that although the first forecasts made at the end of 2022 spoke of a contraction of the world economy in 2023, it is now thought that this could moderate in the middle or end of the year. . So they are slightly more optimistic forecasts. Kristalina Georgieva, managing director of the IMF, said this month: “we believe we have bottomed out, we expect the trend to reverse towards a higher growth trajectory in 2024”.

As for Ecuador, Walter Spurrier said that both the IMF and the ECB agree that the economy will grow by 3% in 2023. This is a higher growth than other regional and global economies.