Crude oil prices, higher collection and credit leveraged a lower deficit in 2021

Greater oil resources due to the price increase; Increase in tax collection due to economic reactivation and financing from multilaterals are the pillars on which the Ecuadorian economy settled in 2021, and that it would allow the Government to close with a deficit of less than 4% (lower than the calculated one, which was 4.8%), and which represents a positive figure if it is remembered that in 2020 the deficit was 7%.

Despite the problems that were generated in the last month with the stoppage of oil pumping due to regressive erosion, and the lack of the last disbursement of the year by the IMF ($ 700 million); the Government says it closes the year with a more comfortable liquidity position that allowed it to avoid arrears. “So much so that when this Government assumed power, the amount of arrears in payment to private providers was, as of December 2020, $ 394 million, and in December 2021 it is expected to close at 0,” said the Ministry.

The fact is that the Government has had some points in its favor: the price of raw top to that calculated by the Government. In the 2021 proforma, the price was calculated in $ 59,80, But crude oil has reached high prices that averaged between January and October the $ 62,95. According to the latest ECB data, the October price stood at $ 76,77.

The Ministry indicated that in 2021 it closed with about recorded oil revenues of $ 7,300 million, of which $ 2,700 million finances the operations of the general budget of the State and the rest are used to cover the expense of the Deficit Derivatives Financing Account (CFDD) for the acquisition of derivatives. Of this income, approximately S 600 million have been additional to those estimated in the 2021 proforma and they respond to better oil prices, of which around $ 125 million correspond to resources for PGE operations.

The signs of reactivation, on the other hand, have been evidenced in the year-on-year sales growth (21.3% as of October 2021) in trade and manufacturing, and in the recovery of tax collection (12% year-on-year growth as of November), where the fight against evasion has also served.

This last aspect was reinforced with the issuance of the Economic Development and Fiscal Sustainability Law, in which reforms were proposed to combat evasion and avoidance, says the Ministry. On this subject, the tax expert Napoleón Santamaría explained that VAT collection, which is a good thermometer to understand the growth of the economy, has improved. Thus, the result of adding September October and November 2020 and comparing it with 2021 was a growth of 28%. Furthermore, this result is also higher than that registered in 2019 by 17%, in other words, they already exceed pre-pandemic levels.

Third, Ecuador has maintained a good relationship with multilateral organizations, which has allowed it to have debt income, but with the characteristic of low rates and long terms. Not expensive debt like the one contracted in the correista government.

In 2021 there were disbursements for $ 3,154 million, of which $ 2,600 million came in the current government period.

However, this year there were two events that complicated the finances: the lack of the last disbursement from the IMF and the paralysis of the pumping of crude (which has just been resumed) due to the effect of regressive erosion. On this subject, the Ministry explained that the change of government and the negotiations of the program with the IMF delayed the first disbursements, and with that the entire previous schedule. As for the IMF disbursement, which is pending for $ 700 million, it will be made effective once the revision of the Ecuadorian figures is completed, which will be done in this month of January.

The Ministry also clarified that regarding the stoppage of the pumping of crude generated in December, its impact on income will be reflected in the first quarter of 2022, due to the fact that there is a lag between the sale of crude oil and the income that is perceive. However, on the spending side for this year, as preliminary figures, they estimate an impact of up to $ 70 million due to an advance on the import of derivatives.

Fausto Ortiz, former Minister of Finance of the Government, explained that according to the budget execution of the Ministry, 2021 closed with the lowest fiscal deficit in nine years. In general, if the cold figures are reviewed, it is excellent news, since in 2020 the deficit was $ 6,488 million and in 2021 it was $ 2,916 million. However, he said that possibly there would have been a better result in the growth of the year if it had decided to provide more liquidity to the economy, meeting its obligations and generating fewer arrears.

The arrears in general closed at $ 1.7 billion, he indicated. These accumulated more in Social Security and in public investment. For Ortiz, it is expected that the following year, having already met reserve goals, this liquidity can be transferred to the economy and generate greater growth.

Former minister Mauricio Pozo said that in 2020 the country decreased by 7.8% and now it will grow 3%, it is a very low growth, which is not enough to reactivate employment, he added. This occurs because the country already had a fiscal crisis and stagnation of five previous years. He considered that the country in 2021 It had external factors that have helped it, such as IMF financing and the price of crude oil. This has allowed him to go out, however, he assured that 40% of social security is not covered and there are a kind of medium-sized liabilities that must be covered.

He also explained that at the level of economic management “There has been lime and sand in the results.” Among the positive issues, the Government decided to continue with the Agreement with the IMF and sought to insert in external markets, through trade agreements. He also started a reduction of tariffs, all of which is going in the right direction. However, he thinks that certain episodes have occurred that have weakened the program and that go against fiscal consolidation: “The freezing of derivatives prices was a mistake, it was a setback and this was already a structural reform ”, he asserted.

Another issue that could be considered a mistake, Pozo said, It is to have raised the salary without a technical analysis, but a political one. This left out a technical formula that had been built with the help of the World Bank. Another problem is to lower the credit rates of the public bank to 1% and 30 years. He explained that the cost of funding is 4% in the best of cases, so when it goes down to 1% it is being subsidized through the state. (I)

Obligation gaps with GADs are narrowing

The Gaps in the Government’s obligations with the Decentralized Autonomous Governments (GAD) are closing. Regarding the debt with the GAD for the refund of VAT, the Ministry of Economy and Finance said that it was planned to close by covering the obligations of resolutions issued and notified to the MEF until July 30, a value that amounts to approximately $ 200 million. The State Portfolio explained that to date 100% of these resolutions have been canceled from the Parish Councils, Small Municipalities and, partially, to Medium Municipalities, but there is a previously established technical schedule for these disbursements.

Until November, the MEF had transferred for the concept of Territorial Equity Model, approximately $ 2,430 million of which, more than $ 1,545 million, correspond to amounts paid from the possession of the Government.

On the subject, the Association of Municipalities of Ecuador (AME), chaired by Franklin Paredes, stressed that there is a will and the capacity for dialogue to agree on payments from the Government both on allocations and transfer of resources that are pending with the Municipal GADs. The AME said that up to the month of November, $ 1,607 million had been transferred to the municipalities and for the VAT payment owed in December, $ 103 million had been canceled.

The amount to be canceled was calculated based on the information provided by the municipalities until the end of October 2021, who did not send the supporting documentation on time, they have to wait for the corresponding resolution of the SRI and the allocation by the Ministry of Finance in the next fiscal period, the AME said. He also highlighted that an increase in credit quotas has been announced by the Development Bank of Ecuador.

On another topic, the AME recalled that the GAD budgets were cut in the period between May and September 2020 ($ 592 million). This cut was due to the fall in tax and oil revenues due to the pandemic, however, the AME said it will insist on holding talks to reach recognition agreements and payment of the same as provided by the Constitutional Court.

On the other hand, the AME indicates that a debt of $ 165 million from the Development Fund for Amazon Sustainability. (I)