The International Monetary Fund (IMF) has drawn several lessons after an ex post evaluation of the financial agreement it signed with Ecuador and which was developed between 2020 and 2022. Although overall the IMF considers that the objectives of the financing program that delivered USD 6.5 billion have been met -$4.0 billion to Lenín Moreno’s administration and $2.5 billion to Guillermo Lasso’s administration-, mentions several obstacles that arose during this period.

What was delivered to Ecuador was equivalent to 900% of the country’s quota in the institution. When a country has loans to the IMF in an amount greater than 600% of its quota, it is subject to subsequent evaluation.

In a report presented on December 4 this year, the IMF indicates that, in addition to determining compliance or non-compliance with the agreement, lessons are drawn from what happened “for the Fund’s future commitments to Ecuador, as well as for the design of the Fund’s programs in a more general sense.”

The IMF also explains that the report is being published now because the 12-month deadline stated in the previous answer is about to expire. It has nothing to do with the fact that there is a new government.

However, he says the lessons learned from the report “show that deeper reforms are needed to ensure fiscal sustainability, restore Ecuador’s access to international debt markets and increase the country’s growth potential.” However, he clarifies that the report is fundamentally focused on the past. Therefore, “the report does not attempt to analyze the economic policy priorities for the new government.”

For the IMF, there was the first problem for fiscal consolidation (deficit reduction and strengthening of finances): low non-oil revenues, namely taxes. The IMF reminds that after the presidential elections in 2021, the authorities gave up on the planned increase in the value added tax (VAT) and instead tried to reduce consumption, which was difficult to achieve.

Second, remember that the civil unrest led the authorities to halt fuel subsidy reform, a policy that was in place before the 2020 deal, but which was key to the planned fiscal adjustment.

For the IMF, the fiscal balance was close to the goals, but actually due to the larger oil balance, “while the indicators of fundamental fiscal consolidation did not reach the initial goals of the program,” he maintains.

According to Alberto Acosta Burne, it is interesting that among the conclusions, more emphasis should have been placed on the composition and quality of fiscal consolidation. This is because although good results were achieved in 2022, a strong deficit reappears in 2023. The explanation is that the high oil price contributed to the improvement, but not real structural reforms.

The IMF also indicates that since 2008, that is, during the government of Rafael Correa, Ecuador has gone through a “prolonged period of unsustainable fiscal expansion and limited Fund participation.” As the IMF reminds, Ecuador defaulted on its global bonds in 2008, but regained market access in 2014. The government took advantage of large windfalls from high oil prices and new loans (including from China, the Inter-American Development Bank, CAF and directly from the central bank). to finance a major fiscal expansion. Although indicators of social inclusion and poverty have improved, the unsustainable fiscal trajectory has undermined the sustainability of the dollarization regime,” he says.

The report also contains some observations of the Ecuadorian authorities regarding the ex post report. Therefore, the authorities indicate that it is important to emphasize that the program, which contained an ambitious fiscal consolidation plan and a solid reform agenda with a large number of structural reference points, was implemented by two successive administrations, “both with weak legislative support and significant political constraints.”

It also indicates that there is concern on the part of the authorities about the suggestion in the report that an extension of the program would be desirable. “In our view, there is no reason to make such an observation, as we have met all quantitative targets and almost all significant structural benchmarks, and the very few that were not met were for reasons beyond our control.” They point out that the reduction of fuel subsidies is a “historic achievement”. “We would have liked to continue cutting fuel subsidies, but we faced a fierce social and political backlash that could not be ignored,” they explain.

Meanwhile, the IMF explains the scope of the report by stating that it was prepared by a team of IMF technical staff, led and composed almost exclusively of officials who had not previously worked on Ecuador-related issues.