Goals, reduction of spending and debt, among the topics of interest for review by the International Monetary Fund

The macroeconomic goals such as deficit and growth; spending control after having abandoned the structural reform on the elimination of the subsidy; and the debt issue would be the topics of interest within the review that runs in this month of January the International Monetary Fund (IMF) with the Ecuadorian economic authorities, in order to give continuity to the current financing program.

From what is known the The International Monetary Fund is already reviewing with the team of the Ministry of Economy and the Central Bank (BCE) the fulfillment of the December goals. However, it has not been fixed still an exact date for the IMF mission to visit the country in person, although it is not ruled out that it is done virtually, especially taking into account the development of the new variant of COVID-19 (omicron).

The $ 6,500 million agreement signed with the IMF by the previous government and which runs until 2022, contemplated the delivery of $ 4,000 million in 2020; $ 1.5 billion in 2021 and $ 1 billion in 2022.

However, according to Former Economy Minister Mauricio Pozo is currently awaiting the IMF’s disbursement of $ 700 million that should have been fulfilled at the end of December, in the initial schedule. This disbursement is subject to review by the IMF. The economic expert considers that the new review will have to do with the fulfillment of goals and the fiscal balance.

Well considers that they may have reconsidered goals in light of the government’s decision to freeze fuels, which was not part of the agreement, since this generates higher expenses to the State and therefore, a higher deficit. This must be compensated. Another important issue would be the issue of Social Security payments, an issue that has not yet been resolved.

Augusto de la Torre, director of the Center for Economic and Business Research at the University of the Americas and former head of the World Bank for Latin America, considers that lhe goals for December have been met “with mattresses”, that is to say to spare. This is because, on the one hand, the goals set by both the Ecuadorian authorities and the IMF have been conservative. For example, it was considered that the country’s growth would be 2.75% in 2021, but in the end the latest announcement from the Central Bank has been that it will grow at 4%. Regarding revenues, oil companies were above expectations and also tax collection.

However, for De la Torre There are two or three important points left for the IMF to verify. The first is tax reform. He explains that in his opinion the IMF will agree with the reform that is progressive, in which whoever has the most, pays the most, and which serves to cover the expenses of COVID-19. The bad thing is that it did not have the contingent of the Assembly: “the legislature could have improved the project,” he says.

The next thing will be to establish how the commitment to reduce spending will be met. One way to reduce was to continue eliminating the fuel subsidy, but this has not happened, rather the price was frozen. It would have been ideal, on the one hand, to eliminate the subsidy, but at the same time to implement a mechanism to substitute said subsidy, duly targeted, for example via public transport, or with transfer to low-income people.

Another delicate topic it is how to achieve fiscal balance in the future, in order to curb the burden of debt, said De la Torre.

The Public Planning and Finance Code (Coplafip) indicates that the consolidated balance of public debt and other obligations may not exceed 40% of GDP. However, in the Twenty-sixth Transitory Provision of the Code, it is stated that in order to achieve compliance with the debt rule the governing body of public finances shall progressively reduce the indicator of public debt and other obligations, up to the limit established in the respective article, considering the following limits: 57% of GDP until 2025; 45% of GDP until 2030; and 40% of GDP until 2032 and onwards.

Just this week the Ministry of Economy and Finance announced that they would change the debt calculation methodology. This, after the debt bulletins had not been published for five months. On Friday, Finance presented the data of the “Public Debt and other obligations of the NFPS and Social Security / GDP” with a cut to August amounting to $ 62,066.82 million, 58.88% of GDP. However, they also presented the Aggregate Debt of the Non-Financial Public Sector, which as of August was $ 73,206.3 million, in which multiple internal debt obligations are revealed, including an IESS payment agreement, as well as pending payment obligations.

According to De la Torre, this 2022 will be key to control spending. But this issue will come under pressure from a series of pre-allocated expenses and from the recovery of the economy itself.

For De la Torre, another pending issue, in the future, is the labor reform. He explains that the other reforms such as the ordering of Public Finance, the Defense of Dollarization and the tax reform have already been approved. (I)