Ecuador’s fiscal deficit in 2023 will surely reach 5 billion dollars. This astronomical figure, which occurs when the country has less income than expenditure, was confirmed by the brand new Minister of Economy and Finance, Juan Carlos Vega Malo, in his first official appearance with the President of the Republic, Daniel Noboa Azín. The official even justified urgent tax reform to get more revenue. This time, large economic groups will contribute the most, through self-taxation in advance and those who want to take advantage of the tax amnesty.

Several experts had already warned about the $5000 million deficit figure weeks before the end of Guillermo Lasso’s regime, however, the then Minister of Economy, Pablo Arosemena Marriot, insisted – until the last day of his administration – that the deficit would amount to 3% of the gross domestic product (GDP ), or about 3.4 billion dollars.

The government managed to pay salaries for November through ‘temporary liquidity management’, faced with cash problems

However, as of November 2023, the budget exceeded that amount. When taking into account the received revenues against the calculated costs, according to the data published on the Ministry of Economy’s own website (budget execution), it is evident that there is a difference of 3.912 million dollars between January and November 2023.

This result comes about because the received income amounted to 17,694 million dollars, but the accumulated costs already reach 21,606 million dollars.

On this topic, the executive secretary of the Observatory for Fiscal Policy, Jaime Carrera, assures that, although according to official data the deficit amounts to 3,912 million dollars, 393 million dollars from 40% of social security pensions and 163 million dollars of costs collected from the decentralized autonomous government (GAD) . In this sense, the real deficit in November reaches 4468 million dollars. Liabilities would amount to $2.967 million. Bills payable for 40% of pensions would be $1.039 million and for GAD $906 million.

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In this sense, he assures that the deficit will certainly exceed 5000 million dollars. It must be taken into account that there are many more expenses in December, such as salaries and awards, and that the Government is obliged to record all calculated expenses at the end of the year.

In addition, it should be taken into account that in Ecuador there were decreases in income compared to the previous year, and in addition, expenses are higher than last year. In the first case, oil and tax revenues decreased, but wage expenditures increased, and more interest was paid on the public debt as a result of the increase in interest rates in the United States.

The Treasury also received less than budgeted in 2023, as it was planned to sell Sopladora and get a profit from the sale of Banco del Pacífico. Neither of these happened.

For his part, Minister Vega Malo assured that the increase in the deficit is the result of several reasons. Among the external causes is the behavior of interest rates. And internally, precisely lower tax collection and lower revenues from oil.

The Minister of Economy, Juan Carlos Vega Malo, is looking for ways to cover the deficit with the help of multilateral organizations and the private sector

On the other hand, Víctor Hugo Albán, coordinator of Vision 20-30, a group of economists made up of several experts, academics and former ministers, indicates that the deficit problem is chronic and goes back to the time of Rafael Correa. He explains that the calculations of the former minister Arosemen are wrong, as well as the current minister’s. He says that the deficit will not be five billion dollars, but that it will reach 6.3 billion dollars. For Albán, the current Government is making the same mistake as Lasso, who worked with a club of friends and not with technical people.

He also warns that a big problem is that – despite the enormous deficit – there is no access to financing to cover it. He explains that international organizations could lend money to the country, but according to a clear plan, apart from using the funds for permanent consumption. He further criticizes the requirement for “overwhelming credit”, as such a category does not exist and instead should have been looking for emerging credit or emerging credit, with the necessary rigour. wait.

Country risk is again above 2000 points and is attributed to the price of crude oil

Albán sees that Ecuador currently has only one alternative to cover the deficit, namely development organizations. For an expert, there is a distance between politics and what the government should actually do. The economic bill that sent Nobo would be more political with regard to re-election. In this sense, he says that there is great concern that there could be complications on the monetary side.

The new Government believes that there will be problems in 2024 as well due to the lack of recapitalization, the reduction of foreign exchange outflow tax (ISD) and the withdrawal of the tax reform. He sees other cost risks due to El Niño issues, power outages and security costs.

The good and bad sides of the outgoing government: the ‘Lasso effect’ has been diluted

A deficit that must be financed with debt has been a structural problem for decades. However, starting in 2000, when Ecuador entered dollarization, financial stability and balancing of public finances were sought. But Ecuador has returned to a deficit economy since 2007. According to Jaime Carrera, “when expenses show irrationality and irresponsibility in governing the country, fiscal deficits are large, therefore there is a voracious increase in public debt.” Between 2007 and 2017, the sum of the national budget deficit was an unimaginable figure of 47,136 million dollars.

According to data from the Fiscal Policy Observatory, in 2007 the deficit amounted to 63 million dollars, but by 2009 it had already grown to 2,635 million dollars. By 2013, it amounted to 8,908 million dollars, and in 2014, the difference between income and expenses reached 10,550 million dollars.

In the government of Lenín Moreno, unsuccessful efforts were made to reduce the deficits, moreover, the effects of the pandemic were also felt, due to which the deficit reached 7774 million dollars in 2020. In 2022, already in the administration of Guillermo Lasso, the deficit ended at 1.853 million dollars. However, this year the difference has increased significantly.