The payment of salaries in the public sector for February is questionable due to the effects of the Government’s insolvency. As of January 19 (the last available data), the treasury account, which is precisely the Government’s liquidity, amounted to 604 million dollars, and at least 700 million dollars per month is needed for salaries alone.

The risk of non-payment of public wages to suppliers and GAD is in the environment, as explained by Alberto Acosta Burneo, during the talk “The Storm in the Making: Political and Economic Scenarios 2024 and 2025”, dictated by Acosta Burneo and Walter Spurrier, both Weekly analysis. For Acosta Burneo, at the moment “there is a danger that he will not be able to pay the local authorities, which would leave his contractors and employees unpaid. That he also does not pay IESS, which jeopardizes the payment of pensions. “This could lead to the impossibility of paying salaries in the public sector.” In this scenario, the Government could be forced to put into circulation treasury certificates (Cetes) that would serve as a complementary means of payment”, he indicated.

The risk of salary payments was also announced by the statements of the Deputy Minister in the Government, Esteban Torres, who explained in a radio interview: “There is a terrible deficit, which was created not only by the previous Government, but also by past governments, for which they need approximately 8,000 million dollars to they only get through this year… At this moment, we are still not sure if 100% of the public salaries for January will be paid. The fiscal coffers are really affected,” admitted Torres.

According to Acosta Burne, the fiscal crisis is taking its toll on the rest of the economy. With the risk of the country that, although this was 1,750 on January 24 (289 points less than on January 9, when it reached a peak of 2,309 points), the treasury does not receive enough external financing to close the fiscal gap that reached 5.7 billion dollars in 2023

Therefore, the Government reached out to all domestic sources of liquidity. In November 2023, CFN needed $139 million to complete payroll, money that should have been channeled into productive loans. Look for payment contracts with private service providers and even pay with Cetes. As part of what Acosta calls “financial gymnastics,” the government sold gold from international reserves, which brought in $250 million.

Companies also had to make a voluntary advance payment of income tax. This process took place through the SRI, which asked the companies for an advance tax, but with the payment of 10% interest. In this way, 200 million dollars were collected. The oil-backed loan is still outstanding: between $600 and $800 million.

Private banking is also a source of liquidity. As of December 2023, it has increased its investment in government securities by $915 million (to a total of $6,000 million). The share of these papers increased by 2.1 percentage points to 70.3% of the total investments of private banks. From June 2023, the Monetary Board allows banks to accept securities from the Ministry of Finance up to 20% of total requirements (Res. No. JPRM-2023-013-M dated June 30). It is a rigged scheme for the Central Bank to finance the Government again.

In this sense, the need to increase permanent revenues in the budget is stronger. During the aforementioned conversation, Acosta also referred to the official announcement by Guillermo Avellán, manager of Central Band, about the measures to be taken. An ECB official said: “We have two possible scenarios for 2024: if VAT is not increased to 15% and production from the ITT oil block ceases, the economy would enter recession and record an annual decline of 1% in 2024. If the Government succeeds increase VAT and have more funds for neutralizing organized crime; and in addition, it is possible to continue production at ITT and have access to external financing, the growth of the Ecuadorian economy could exceed 2%.”

There are no easy ways out for Acosta. If the government is financed by internal means, for example through taxes, this will reduce the purchasing power of citizens.

If it concerns loans to financial entities, the loans available to the private sector, both companies and consumers, would be reduced.

In either case, the economy could fall into a deep recession, he lamented.

Walter Spurrier also made an analysis of the world economic panorama. According to the report, the World Bank (WB) believes that the global economy will be smaller than in 2023. While the world economy had a growth of 1.5% in 2023, it will reach 1.2% this year. Within this panorama, the contractions of the USA and the European Union carry a lot of weight. Nevertheless, Latin America will not shrink, but will grow very slowly: from 1.2% in 2023 to 1.5% in 2024. China would grow by 4.5%, although the figure would not be entirely reliable.

A fall in international exchange rates is not expected this year; rather, a downward adjustment could occur around 2025.

There is no high inflation in Ecuador and the increase in VAT, as well as the reduction of fuel subsidies, is expected to generate inflation, but temporarily.

This year, sales were affected in the first half of January. The accommodation and catering sector is particularly affected. Because of the curfew, there is less insecurity and more control on the streets. Companies are talking about a drop in sales in January.

The issue of the closure of ITT is another matter of concern because of its impact on growth and the destruction of at least 31,688 jobs.