The newly elected president, Daniel Noboa, announced in Washington that Ecuador risks defaulting on its public debt in 2026 or 2027 if the country does not increase public revenues. These public revenues would increase, as Noboa himself indicated, through the tax reform that should be approved in December. This is stated in the report of the economic agency Bloomberg, which reported on the visit of the newly elected president to the USA.

Noboa said that the first two laws that he will present to the Assembly will be the tax reform to increase taxes, and the second law on energy that will be sent in January. Previously, President Nobo said that he would seek the adoption of several urgent economic laws during the one and a half year mandate he was elected to.

In addition, Noboa assured that he will need a bridge loan for nine months from lenders and foreign countries.

According to Alberto Acosta Burne, editor of Analysis Weekly, the most relevant thing in Noboa’s statements is that he mentions that tax reform will be implemented in December to increase tax revenues to avoid defaults. For Acosta Burne, the statement is completely worrying, because if Ecuador goes bankrupt, the financial market would be closed again.

But the solution proposed by Noboa Azín is also worrisome, says Acosta Burneo, because he believes that the increase of fiscal resources through taxes is contrary to the reactivation of the economy, reduces investments and savings of society. For Acosta, Noboa should work to reduce public spending. But what is seen right now is that it is growing by at least $1.5 billion. He urged the new president to consider the political cost of a reform of this kind and that other politicians would take advantage of the deep loss of popularity that the tax increase would represent.

This, he says, was already seen with the previous tax reform that President Laso approved, but which, for example, Correismo did not reject (restrained). Ultimately, these types of reforms benefit those who want a bigger state, he added.

Additionally, he believes that it could be considered good news for investors and multilaterals that tax reform is being worked on, as it would guarantee future debt payments.

Regarding the bridging loan that Noboa Azín mentioned, Acosta Burneo said that it should be understood as quick financing that can be requested based on the quotas that exist because part of the debt has been paid.

On this topic, Jaime Carrera, executive secretary of the Fiscal Policy Observatory (OPF), believes that if the newly elected president needs help from multilaterals, what should be done is to present a serious and sustainable fiscal program and explain what measures the government is taking to make this plan tenable.

However, in order to do that, he says that the new government must first tell the citizens how the country receives public accounts, obligations to suppliers. With this clear data, you must draw up a fiscal program for 2024 and the following year 2025.

Regarding the appointment of Sariha Moya as the new Minister of Economy and Finance, Carrera said that she is not a well-known person, so we should expect her to take office in order to know how she behaves with regard to the fiscal situation, which is extremely critical. In any case, he believes that what is needed at this time is strong leadership and the conviction of the Government to manage public accounts responsibly.

The fiscal situation of the country that the Government is leaving is complex, what is even worse, it is noticed that “irrationality and ignorance about the fiscal crisis reigns” from various social and political sectors, he comments. He explains, for example, that GAD’s request for fiscal funds has no basis. This is because the law requires that the government must set aside 21% from taxes and 10% from crude oil. If these resources are reduced due to the effects of lack of production and lower prices of that raw material, there is no other option but to liquidate again. However, they file complaints. “Sectoral governments based on autonomy believe that resources come from trees,” he says. He warns that Lasso has this problem and Noboa will have it as long as the accounts are not viable.