Russia’s invasion of Ukraine caused a rise in the price of crude oil worldwide. The price per barrel was established this Tuesday, March 8, at $130.59; Brent crude and WTI —Ecuadorian crude marker— at $127.42. This increase represents an increase in oil revenues for exporting countries; but, in the case of Ecuador, it could only help reduce the need for indebtedness, according to experts consulted.
So far, the Executive has stated that You don’t know how much additional revenue will be from the price increase.but that there is already a resolution according to which they will be directed to the social and education area and that they cannot go to the fixed expense.
Presidential spokesman Carlos Jijón maintains that the conflict in Ukraine due to the Russian offensive “is not only going to cause an oil surplus, but also affects Ecuadorian exports.”
“Some $1.2 billion in exports of bananas, flowers, fishing will be affected, and what is earned may be lost in non-oil exports. And it is a matter of concern for the Government, which is already looking for new markets to replace those affected”, he indicated.
The economic analyst Alberto Acosta Burneo mentions that the country receives around $50 million for every dollar that the price of a barrel of crude rises in a year. Therefore, the additional income with which the Ecuadorian treasury would benefit could be between $1,000 and $1,600 million, depending on how long the high values are maintained.
However, Acosta Burneo says that This additional income is not money that the State can dispose of. He refers that it is not the first time that the price of crude exceeds $100, but that the current environment is very different from previous years.
“In those years, before 2014, the treasury could use that income because it was extra money. Currently they are no longer, because the current budget depends on indebtedness, which has a giant gap that must be covered with financing“, it says.
The expert reiterates that, if this additional amount is obtained, it does not translate into extra money to decide what to spend and increase public spending, and that it just means that less funding will be needed to close the gap.
“With these revenues, the hole, the gap will be smaller, and the country will have to borrow less,” he points out and emphasizes that public fiscal finances depend on indebtedness. For reference, he mentions that in 2021 the need for public financing was more than $6 billion, adding that the country’s fiscal situation remains very precarious.
Fernando Santos Alvite, former Minister of Energy, explains that Ecuador exports 140 million barrels a year and imports in derivatives (gasoline, diesel and gas) the equivalent of 70 million barrels a year: the positive balance for the country is 70 million barrels.
“If we assume that in the budget it has been put at $60 a barrel and it is sold on average for the year at $90, it means that there is an extra income of $2,000 million, which is good news. The bad news is that the country, the treasury needs to finance $7 billion a year: $3 billion of fiscal deficit and $4 billion of debt. So, an extra $2 billion compared to $7 billion means relief and it only means that we are going to need $2 billion less to balance the State’s finances”, he points out.
He agrees with Acosta Burneo in that, the previous time there was an increase in the price, Ecuador did not have such a deficit.
“You have to make a difference: the previous time, when it exceeded $100, there was the president (Rafael) Correa (…), who believed that this bonanza would last for many years and with this money he got into pharaonic projects that They cost a fortune and were useless. The difference is that the president (Guillermo Lasso) is a sensible man and is not delusional with this extra money, and he realizes that the dire situation in the country becomes bad, that is, it improves a little bit, nothing more, ”he explains. he.
Santos adds that “the country’s debt is over $70,000 million; when there was the previous price increase, the debt did not exceed $7,000 million, likewise, the budget was $4,000 million; today it is about $40,000 (…). All extra income does not even cover the deficit and the payment of the debt”.
However, it stresses that citizenship yes, you can get to perceive a tangible benefit of this bonanza, and that is that fuel prices continue to be frozen (extra, diesel and gas) and the extra money is used to cover the subsidy.
Fausto Ortiz, former Minister of Finance, also mentions that the Government could decide on this income; that it should be called extra, because it is not budgeted, but that in principle “what it does is replace the need for financing.”
“The government can say: ‘Well, from that extra income I want to allocate so many hundreds of millions of dollars to take care of certain activities,’ such as damaged highways, hospitals, schools, things of this type,” says Ortiz, and explains that it could even decide that it be the full amount, but considers that it is somewhat complicated due to the situation in the country.
“If we see the country risk, it is above 700 points; that means the new debt could be 10%. Then, the Government will say: ‘To take on a debt of only 10%, I better use my own oil resources, a part to finance and another for some work’”.
In a situation like the current one, when the COVID-19 pandemic has further complicated the picture, Ortiz mentions that it would be a sign of little sensitivity for the Government not to use part of this bonanza to attend to certain urgent issues, more than anything on the social side..
However, he explains that this additional income can also be used by Petroecuador EP to pay certain debts or make investments.
On the other hand, Acosta Burneo explains that, in the event that the price drops, the Government will have to “seek more financing, one of the biggest challenges it faces.”
Remember that the head of the Finance portfolio, Simón Cueva, has already mentioned his intentions to return to the capital market this year, which he may not have to resort to due to the additional money received for oil, and he would do so next year. anus.
“If the price drops, the country will have to think about entering the capital market and seeking support from the International Monetary Fund to extend the program, not so much for financing, because we have already reached the top, but to get support from multilateral organizations. ”. (I)
Source: Eluniverso
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