Debt to the IESS and liquidity facilities pushed aggregate debt up, according to new methodology

Two main items are brought by the new public debt methodology presented the previous Friday by the Ministry of Economy and Finance. The largest and most global is the Aggregate Public Debt of the Non-Financial Public Sector. This debt, according to the debt bulletin published up to August, amounts to $ 73,873 million.

This aggregate debt includes the external debt that is in $ 44,574 million and the internal one that reaches $ 29,069 million, and even mentions other liabilities for $ 5,074 million, with which the obligations reach $ 78,900 million. It is a figure never before transparent, which includes among other items liquidity facilities from the Central Bank of Ecuador (BCE) to the State, State debts to the BCE, obligations with the Public Bank, with other budgets already closed and with Social Security.

Within these items, precisely, the domestic debt is the one that registers a significant increase with respect to the previous aggregate debt methodology. It is that until June 2021 the aggregate internal debt was at $ 16,064.6 million. In other words, the new methodology increases about $ 13,000 million in this area.

For example, liquidity facilities delivered to the Central Bank amounting to $ 3,665 million, the internal bonds of the Ecuadorian Social Security Institute (IESS) for $ 8,277 million and the closed budget items that are $ 2,726 millions, among others.

The second important item, and that will serve as a reference to calculate the percentage of GDP debt, is called “Indicator of Public Debt and Other Obligations of the Non-Financial Public Sector and Social Security”, which reaches $ 62,066.82 million ($ 44,136 million of external debt and $ 15,644 million of internal debt), but also adds $ 2,285, 7 million from an item called “Other Liabilities”. These items added, compared with a GDP of $ 105,404.60 represent 58.88%.

According to the Public Finance Planning Code (Coplafip), the “consolidated” balance of public debt and other obligations may not exceed 40% of GDP. Consolidated debt is understood to be all debt, deducting debt and other obligations between non-financial public sector entities and Social Security. This item, according to the law, should be reduced to 57% of GDP until the year 2025; 45% of GDP until 2030; and to 40% of GDP until 2032 and onwards.

According Alfredo Arízaga, dean of the Business School of the SEK International University, the new debt methodology denotes an intention of transparency, but it significantly inflates the item of aggregate debt, even taking into account factors that other countries do not account for. In this sense, he says, “They are being more papist than the pope” and this could generate country risk problems if the country is seen so indebted.

For Arízaga, the aggregate debt is a scandalous figure. In any case, on the debt indicator that is now 58.8%, explained that it is a manageable indicator and that it could, with great effort, gradually decrease until reaching 40% as indicated by law, in 2032. Arízaga explained that the changes made correspond to Ministerial Agreement 77 of July 2021.

According to Former Minister of Economy Mauricio Pozo, the fact that there is a new way of registering the debt to show greater transparency is important. However, he opined that further dissemination and explanation is required. There are concepts that must be clarified for citizens, what is a delay and what happens when it passes to the next fiscal period, what is a Treasury certificate, what is the debt of the central government and that of the non-financial public sector (which includes debt from companies, decentralized autonomous governments (GAD), Social Security, among others). For Pozo, even with this transparency exercise, there are still other items that do not appear, such as health debt.

It also considers that although the law indicates that the debt must reach 40% in certain years, it is not enough to look at the debt in nominal terms, but the most important thing is to look at the debt structure. He said that having a debt of 40% at 50 years and 2% is not the same as having a debt at 40% but at 4 years and 10%. In the second case, a country would be bankrupt. He explained that currently the debt structure is much better, since 42% comes from multilaterals, while a few years ago it was 29%. “The debt has undoubtedly grown, but it has a cheaper and longer-term structure, part of it due to the renegotiation that was carried out.”

For Alberto Acosta Burneo, editor of Weekly Analysis, what Finance is doing is adding more information, more complete, of the obligations that the Government has. Previously there was a narrower view of debt, he said. Consider that Changes go hand in hand with the transparency goals of the International Monetary Fund (IMF). According to Acosta, having more information also means being able to make better decisions regarding whether or not to continue borrowing.

It is Friday, the Ministry of Economy and Finance will make the second installment of the debt bulletin with a cutoff to September 2021 (based on the new calculation methodology), after such information had not been published since July. The first delivery was made last Friday, cut to August). The ministry has said that it will deliver the information gradually until the first week of February when the country will already have data until December 2021. (I)