President-elect Daniel Noboa Azín (ADN), who will take office this Thursday, November 23, will have 90 days to draft his budget pro forma, which would be valid until December 31, 2024, and then could be extended until May 24 2024. 2025. because it is already an election year.
This pro forma will experience several challenges when it receives a country with a significant deficit that would exceed $6,000 million, and with financial needs in 2024 that would be on the order of $11,000 million, according to the calculations of the Executive Secretary of the Observatory for Fiscal Policy, Jaime. Carrera. Until this happens, the 2023 pro forma (approved in December 2022) for the amount of $31,502 million will be the one that will be applied on an extended basis.
The thing is that after the death of the cross, which was not supported by regulations to deal with different circumstances, such as how to continue with the construction of the proforma after the abrupt termination of the Government, the Ministry of Economy and Finance had to issue a circular (MEF-MEF-2023-0004- C 31 May 2023) which establishes the procedure to be applied in this particular case.
The analysis of Finance was that this cannot be taken as a normal year of the Government, but as a change of mandate, since the Constitution and the Law on Public Finance Planning have two moments for the construction of the pro forma. The fact is that Article 295 of the Constitution mandates that the executive must present the pro forma budget 90 days after receiving it. And in the following years, it will do so 60 days before the end of the year (November 1). In this case, the ministry could not send the proforma on November 1 because there was no Assembly to present the mentioned public finance instrument. Therefore, the alternative was chosen to be issued in 90 days.
The Ministry also states that, in order for the rule to be better structured, a proposal was made through the regulation of the law on public finances, to determine what should happen when a circumstance such as death by cross occurs. But, like many other proposals, the Constitutional Court did not accept it. The possibility of regulating such matters through an executive order that could be issued by the president is still under consideration.
According to Jaime Carrera, Daniel Noboa will have no cash until the end of 2023. Moreover, as soon as he takes office, he could have problems paying salaries. And in December, even salaries and bonuses. For 2024, however, he says that there is no prospect of financing the deficit. “Finding financing or reducing the deficit will be practically impossible,” he says.
Noboa’s revenues until 2024 will be affected by tax cuts such as the Foreign Exchange Outflow Tax (ISD), which was already reduced to 2% in December, and special levies on company assets. Furthermore, the government of Guillermo Lasso ended up sending decree laws, during his period after the death of the Crusader, in which certain taxes were lowered.
Next year, consumption would be pressured by the problems generated by the El Niño phenomenon, by wage expenditures that would be increased by the effect of the law that raised those wages, and by greater employment of personnel (police, doctors, teachers). Having an inflexible deficit, it is unlikely that it can be reduced.
By the end of the year, unpaid obligations could amount to $2.5 billion or $3 billion, he says. As of November 17, so-called debt (the difference between accrued and paid expenses) was $1.921 million. The amount collected up to this date reaches $23.973 million, but what has actually been paid is $22.052 million. Among the main items awaiting payment are delayed goods and services of $231 million and transfers and donations, including those from the Ecuadorian Social Security Institute (IESS), amounting to $712 million. In addition to outstanding liabilities, there are outstanding social security debts, bonds, among others.
The government’s financial platform was visited these days by various sectors who protested with signs and shouts due to non-payment. Among them is a group of retirees from the Ministry of Health, as well as government suppliers.
In this sense, for Carrera, what the new government should tell the citizens is how they will receive the country and articulate a national agreement to understand the problem of lack of resources, and to find the citizens’ agreement on how to reliably build and implement the fiscal and economic program. In this way, you eliminate doubts about non-payment of debt in the future.
Vicente Albornoz, in his television program Economy for all, commented that the months of November and December will be complex for President Nobo. As soon as you take office, you will have to find the means to pay the salaries. And in December, double pay. He explains that normally the average cost each month is 1.6 billion dollars, but that it doubles in December, for example in December 2022 the cost was 3.25 billion dollars. He explained that every year January records a rather low expenditure, precisely because at the end of last year numerous expenditures were made, and the fiscal fund was exhausted.
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