The Ecuador’s financing program with the International Monetary Fund (IMF) is still in force, but neither the fourth review nor the disbursement planned for December of the year past are still materializing, despite the fact that we are already in March.
While the Ministry of Economy and Finance has said that it is a delay both due to logistical issues due to COVID-19 and a delay in time in general due to the transition of the Government, experts say they do not know what is the factor that delays the completion of the new revision. This without counting the world situation derived from the warlike confrontation between Russia and Ukraine.
In any case, the good figures for oil and taxes, the order in public finances, suggest that the program that began in the government of Lenín Moreno for $ 6,500 million, and that continued with the relaxation of goals with the government of Guillermo Lasso, it will be successfully closed.
The financial agreement will end in 2022 and to date the Moreno government has received the first $4 billion in 2020. In 2021, the Lasso government took over, but the expected $800 million disbursements in April and August (second and third review) were received in September, so $700 million from December remained outstanding, while in 2022 the country should receive $1 billion more.
When carrying out a general analysis of the country’s economic situation, international investment banking Barclays considers that Ecuador currently has more space to manage its financing needs, this having achieved a strong reduction in the fiscal deficit in 2021, with high oil prices and a possible renegotiation of the debt with China. The central government deficit fell to 3.2% of GDP in 2021, from 7.2% of GDP in 2020.
For Barclays, this scenario makes it very likely that the Government will exceed the objectives of the IMF program. By 2022, says the report, the Government aims to reduce the central government deficit to 2% of GDP, which seems very likely to be met or even exceeded.
However, he also points out that in the future it will be difficult for a new financial agreement to be reached with the IMF, since Ecuador already had extraordinary access. However, technical support from the IMF would be expected, which could contribute to market confidence and thus also help maintain access to financing from other multilateral organizations. In any case, the lack of flows from the IMF should be compensated with foreign investment, although by 2023 the idea of returning to international markets could be reactivated.
On the near horizon each additional dollar of higher oil prices generates approximately $80 million in revenue. Even discounting the effect of higher fuel subsidies, the net impact could be around $50 million. Thus, considering the difference between the price of oil and that used in the budget, the Government could receive more than $1,000 million in additional oil revenues.
On the current situation with the IMF, Augusto de la Torre, former head for Latin America and the Caribbean at the World Bank, commented that from what is known the Government wants to continue with the programbut apparently there has been a delay Due to the issue of the IESS and Biess figures, it has been up to the members of the technical team and the IMF to review historical issues. Apparently, there are certain mistakes that have accumulated, but these have not been in bad faith. The IMF has auditors who are checking the issue and establishing corrective measures.
Meanwhile, he considered that the lack of disbursements it does generate a liquidity problem, but “not so serious because fortunately there has been a barrel of crude oil that has been close to $90″. Over the weekend it broke the $100 barrier for the war.
In any case, he clarified that these extra resources do not go entirely to the budget, because the more the price of crude oil rises, the gasoline subsidy also increases. For De la Torre, it is possible that the government is waiting for a board meeting in March and the disbursement will be in this same quarter.
In accordance with Mauricio Pozo, former Minister of Finance in the Moreno government, from what can be seen the program with the IMF is maintained and there is no sign that there was any kind of rupture. What is more, the support of the World Bank (WB) and that it will disburse us in the next few days $700 million is a sign that the commitment to the IMF is still present.
However, it is “strange” that to date the disbursement has not occurred. Pozo says that although he has tried to meet him, he has not been able to get information on the reason for the delay. He assumes that it is a quantitative problem, which must be related to the payment of the debt to the IESS or arrears.
Well considers that The high price of crude does help the Ecuadorian economy, but it also indicates that imports of derivatives are becoming more and more expensive. Additionally, there is the problem of freezing gasoline prices. Pozo stresses that IMF funds are necessary to cover the fiscal deficit. There is still uncertainty about what will happen to the National Assembly, governance and the new planned laws: the investment law that is currently in the hands of the legislature and the possible labor reform that would be socialized before the citizenry, before its delivery in the Assembly.
On future challenges, Barclays says that governance remains an important issue for Ecuador. Additionally, it states that more resources are expected from potentially higher foreign direct investment (FDI) inflows in 2023, which will be a way to compensate for lower multilateral financing.
Ecuadorian bonds appreciate and low country risk
The international markets have reacted positively to the Ecuadorian debt. An article published by Bloomberg says that at a time when bond investors are feeling trouble virtually everywhere, a developing nation known as a serial defaulter (Ecuador) “has emerged as a surprising bright spot.”
The report says that the bonds in dollars from Ecuador have had a return of 6.4% this yearcompared to an average loss of 4.2% for emerging markets, according to data compiled by Bloomberg. They have done even better since the election of President Guillermo Lasso in April, with a jump of 45%, the best in emerging markets.
Barclays has said that Ecuador could have the possibility of being upgraded by the rating agencies. Moody’s could be the first to react.
In any case, the country risk has been reduced, with a behavior different from that of the rest of the oil-producing countries or those of the region, comments Bernardo Orellana, Deputy Minister of Finance. As of December 31, 2021, the risk was at 869 points, but this February 25 it closed at 746 points.
Orellana indicates that if our indices and bond securities were compared with emerging market indices, “Ecuador it is one of the few countries that has had positive returns”.
For Orellana, this is due to issues such as fiscal consolidation, better growth than expected (4%), more transparency on the issue of debt, the price of crude oil, greater contact with investors. (I)
Source: Eluniverso
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