Oil and tax revenues, which have been seriously reduced in the first seven months of this year, are a kind of ‘tax salary’. Depending on its behavior, the state meets payments or piles up arrears (around $1.7 billion). That salary is deposited into the treasury account every month, which recently hit a minimum of $270 million.
But what kind of behavior is that?
Year-to-date crude oil foreign trade figures have been pretty bad, says Alberto Acosta Burneo, editor Weekly analysis. Thus, from January to July, crude oil worth 4,082.4 million dollars was exported, while in the same period in 2022, 6,136.3 million dollars was exported, according to the website of the Central Bank.
This decrease of 33 percent was mainly due to the drop in the price of crude oil, although the export volume also fell by 5 percent, he points out. In any case, in July this production amounted to 477,000 barrels, which is 4,900 barrels less than last year. The situation with crude oil was so complex in the first six months of this year that it ceased to be in the first place in the primary export. Oil was dethroned by shrimp, which recorded 4,396 million dollars in exports from January to July, about 300 million dollars more than oil in the same period.
The international price of oil is now rising
In recent days, the price of crude oil has increased due to the reduced supply agreed by the Organization of the Petroleum Exporting Countries (OPEC). In this regard, the price of WTI (crude oil marker for Ecuador) reached 91.03 dollars on Friday, while Brent oil was 94 dollars.
Acosta considers it good news that the price is now rising and that remaining around $90 can provide some relief to public finances, although it is not known whether the losses from the beginning of the year can be recovered.
At the same time, oil production recovered compared to the first months of this year. As of September 20, production was at 486,900 barrels per day, while, for example, in February 2023 there was a sharp drop with an average of 443,000 barrels per day.
Part of the current increase in production is due to an increase of around 3,000 to 4,000 barrels from the ITT block, which produced 55,000 barrels in previous months. As of September 20, this block is producing 59,063 barrels. In addition, for Acosta, the biggest concern is that the oil problem will be exacerbated by the closure of Yasuní, which could happen next year (as a result of the “yes” vote in the consultation).
What mining creates
Mining exports have grown significantly. According to the data of the Central Bank, between January and July 2023, they reached 1,952 million dollars, which is a figure of 344 million dollars higher than the exports registered in the same period in 2022 (1,608 million dollars), which, although not produced directly by the state, is to generate taxes and royalties, exports increased both in volume and price. Acosta argues that both oil and mining receive different treatment from the state, since the law stipulates that the state will earn revenue equal to 51%.
Despite this, Acosta Burneo is concerned because he says there are no new mining projects. This is because there are legal obstacles to its operation. Currently, two mining projects are in limbo, after the Constitutional Court overturned the decree regulating environmental consultation. Since this regulation is no longer in force, several projects – not least mining – are stuck. There will be no higher mining production, exports or royalties in the future. In this sense, investments in mining, which used to be one of the pillars of the balance of payments, are now reduced. In 2022, 190 million dollars were disinvested, the Mining Chamber reported. Mining tax payments are expected to reach $936 million this year.
What about taxes?
Another source of income for the state treasury is, of course, tax collection. According to SRI data, during the first eight months of 2023, the Tax Administration (SRI) collected 12,189 million dollars, or 410 million dollars more compared to the same period of the previous year.
Francisco Briones, General Manager of SRI, reports that these results are greatly supported by the amounts recorded for sales through July 2023, which reached $129,872 million. That is, more than 3% of sales for the same period in 2022 and an additional 21% compared to 2021.
It also shows that VAT collected $5,652 million from January to August 2023, up 7%, while Income tax collected $4,253 million, up 11%. All this despite the abolition and reduction of 15 taxes, including the one decreed by President Guillermo Lasso in the Family Economy Law, which has been in force since July of this year.
However, he admits that tax refunds have also seen more growth over the past five years. So far in 2023, $152.9 million has been returned to seniors and $27.5 million to people with disabilities, an increase of 53.1% and 83.3%, respectively, compared to the same period in 2022.
The state “is missing about 400 million dollars every month”
According to Jaime Carrera, executive secretary of the Fiscal Policy Observatory, each month the state receives about $1,500 to $1,600 million in tax and oil and other revenue (including financing) and spends more than $2,000 million each month. In this sense, about 400 million dollars are missing every month. So, having no money, he piles up debts.
As an example, he cites what is happening with the Ecuadorian Institute for Social Security (IESS), which has already begun to publicly complain about non-payment, and even had to buy bonds from the state in order to get liquidity: on the one hand, the Government, and on the other, IESS is being killed by insolvency.
State debt to IESS of $10.151 million puts pension payments at risk and weakens fund, authorities warn
This Friday, it was learned that this 2023, the government stopped paying IESS about $1,250 million for 40% contributions and other pension items, while Biess invested approximately $1,627 million in Ecuadorian government bonds during the same period. Therefore, according to the letter from the employers’ representative in the Social Security Board, María de los Ángeles Rodríguez: “The IESS financed the general state budget in an approximate total value of 2.877 million dollars with funds from affiliates, retirees and IESS beneficiaries at the national level.”
Carrera explains that the previous year the treasury accounts were better because there was a flow of loans from multilateral organizations such as the International Monetary Fund (IMF); but in the last year there are almost none. In this sense, the average on that account is reduced. He also confirms that the decrease in reserves in these months was due to the payment of external debt: “The government had to scratch the pot and accumulate debts, it’s terrible.”
Regarding collection, he states that despite the optimistic report of the SRI on taxes, according to Carrera, the tax revenues that actually enter the state coffers are much lower, precisely because of higher tax refunds.
Alia is a professional author and journalist, working at 247 news agency. She writes on various topics from economy news to general interest pieces, providing readers with relevant and informative content. With years of experience, she brings a unique perspective and in-depth analysis to her work.