The Government will not have IMF resources until December, which complicates the end of the year, experts say
The The country would again issue foreign debt bonds, in international markets, in the first quarter of 2022. This was announced by the President of the Republic, Guillermo Lasso, in an interview with the media carried out last Monday. He also assured that relations with the multilaterals are in good condition and explained that by January some $ 1.4 billion: $ 700 million from the IMF and another $ 700 million from the World Bank. The president also indicated that two more IDB loans are in the pipeline for $ 500 million and from CAF for $ 200 million more.
The announcement raises several questions in experts. In accordance with Jaime Carrera, executive secretary of the Fiscal Policy Observatory (OPF), the Government has not yet explained sufficiently why it was not possible to approve the December review of the agreement with the IMF and it has been moved to January.
An IMF mission was in the country between November and December and the plan was that after that visit a technical agreement would be announced, but this has been delayed until January. This also means that the expected disbursements for December: $ 700 million from the IMF and $ 700 million from the World Bank, would be left by the end of January or the first days of February.
The announcement of the The government has been that due to the omicron variant, times have changed and the IMF will review the program it maintains with Ecuador in January.
For Carrera, this issue can bring certain complications and generate delays for the end of the year. Indeed, December is a month known for the demand for liquidity to pay double salary and meet other obligations.
In any case, Carrera said that to leave in the month of December the Government seems to have succeeded in renewing the bonds by the IESS and is seeking to place Cetes. The third way would be to accumulate arrears to be able to cover them as soon as the liquidity of the multilaterals arrives.
On the possibility of going out to international markets to seek financing through bonds, Carrera said it would not be a good message for the international community. Under current conditions, the Government would reissue junk bonds, which are those rated BB or B- downwards. He believes that it would be better than with the income that would flow in January, and doing the math with the new tax reform, try to manage fiscal sustainability.
The university professor Roberto Apunte, a full-time professor at the UISEK Business School, considers that the announcement can be read, on the one hand in the sense that the Government is planning and after reviewing its numbers he concludes that it is going to need financing, this even regardless of the conditions in which this loan is obtained.
But nevertheless, He explains that it is not clear why this indebtedness would be required. In this sense, he considers that it would be appropriate for the Government explain what will be the destination of these resources. This, above all, considering that the budget proforma was approved under the conditions that the Government itself proposed. In the same sense, it has already been approved tax reform under calculated conditions by the Government and finally eThe price of crude oil remains likely to rise or maintain the price, above what is calculated in the proforma. The government also plans to sell assets.
For Apunte, if the financing goes towards investment issues it could be understandable, but if this is going to be to cover current spending, it would be very detrimental to fiscal sustainability and it would be to continue in the same mistakes of the last 14 years.
The expert also believes that it is not advisable to send messages to the debt issuance markets as much in advance as the president has done now, since the market could pressure to keep the rate high. He explains that under current conditions in Ecuador, one of the best scenarios would be to obtain financing in markets at rates lower than 10%.
Carrera, for his part, maintains that Ecuador does not have the conditions to obtain financing in good condition at this time. Well, for this, it would require that the country risk be between 300 and 400 points and it should demonstrate that it has fiscal sustainability until 2025, taking into account that from 2026 it will have to start paying the bonds renegotiated by the Lenín Moreno government. The government should not re-issue junk bonds, Carrera says.
Another option that could be handled by the Government ands issue bonds, but based on a guarantee generated a few days ago by the Inter-American Development Bank (IDB) and that could support to lower the rate. (I)
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