With minimal liquidity and few options for obtaining extraordinary additional revenues to compensate for the short and medium term, President Daniel Noboa and the newly appointed Minister of Economy Juan Carlos Vega Malo get the country’s fiscal accounts.

Reduced fiscal cash that recorded only 179.7 million dollars this November 17, the successive decline in tax collection and oil revenue leads to fears that at the end of the month the treasury will not have enough money to pay salaries or meet other obligations.

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According to Jaime Carrera, executive secretary of the Observatory for Fiscal Policy, the dynamics of this fiscal fund consists of receiving oil resources and taxes from week to week. But they also fall in order of cost priority.

The priority is debt, followed by bonds for human development, social security of the police (Isspol) and the armed forces (Issfa), in order to keep them calm, he says. Not so, the Ecuadorian Social Security Institute (IESS) with which there are delays. Wages are paid at the end of the month with what is left over.

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He explains that in the month of October there was no money for that payment and Social Security was forced to buy $500 million. The operation was registered on November 1. In this sense, Carrera suggests that there would not be enough liquidity for wages at the moment, unless an oil pre-sale or some other type of extraordinary income was decided upon.

Only the monthly expenses for salaries amount to about 800 million dollars, while in December, due to the additional December salary (thirteenth in the public sector), the figure rises to 1.3 billion dollars.

But what are the options that are seen in the very short term to get out of the current fiscal hole?

There is currently no quick exit in sight. President Daniel Noboa announced a tax reform that would reportedly reduce revenues. However, according to analysts, this would rather generate the opposite effects of this moment of low liquidity.

He also spoke during the campaign about taking funds from international reserves, a practice that has already caused negative effects on the dollarized economy and requires legal reform. It could use fuel subsidies, but that would not be well received by the population.

According to Cordes, it is important that President Daniel Noboa and the new economy minister seek to correct the fiscal situation and not take measures to worsen it.

“It is important to set aside measures that imply a new drop in tax revenues and whose supposed benefits for economic activity are uncertain (reduction of VAT on construction materials or profit tax),” Cordes points out in his analysis.

It also advises the president to avoid patchwork measures such as seeking financing from the private financial system or the Central Bank, which do not address underlying problems and may have negative effects in the short term.

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Structural correction, according to Cordes, would entail costs, and in this sense, he considers it important to re-discuss the issue of targeting fuel subsidies, which have proven to be regressive and ineffective. This must come with adequate compensation for the most vulnerable households.

Additionally, there is no likelihood of accessing foreign sources from financial markets with a country risk of 1,925 points. This indicator, which measures the risk of a country defaulting on its debt obligations, increases due to the country’s complex fiscal situation and is linked to political ups and downs.

Statements by President Noboa in the United States of America (days before his inauguration) about the need for funding and a sort of condition for multilateral organizations to give him a bridging loan to avoid default In 2026 and 2027, the country risk increased even more, above 2000 points.

But the indicator fell when it became known that the president gave up on appointing Sariha Moya to the economy portfolio, who had extensive academic education but little experience in such positions.

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As for oil resources, Miguel Robalino, an energy analyst, explains that they are directly related to production and how they will determine the price of a barrel pro forma in 2024. However, he assures that by 2024 production will decline. This is because there are no drilling or well rehabilitation programs, nothing planned to sustain production, and added to that are the effects of the ITT block closure following a public consultation held last August.

He also believes that the problem is that no one with experience in hydrocarbon issues has been appointed to the Department of Energy and Mining.

Robalino also talks about a possible pre-sale of the oil, which could happen in the future. However, at this point in time, the subsequent sale of crude oil has already been completed, investing $11.2 million a barrel through March 2024.

In any case, this analyst believes that the upside is that the price will remain high due to the effects of the war in Ukraine and the conflict in Israel, which are causing fears of shortages.