Washington: An International Monetary Fund (IMF) mission led by Ms. Ceyda Oner held virtual meetings with Ecuador’s representatives from July 29 to August 27, 2020 to discuss IMF support for the authorities’ policy plans following the dual COVID-19 and oil price shock.
At the end of the mission, Ms. Oner issued the following statement:
“I am pleased to announce that the Ecuadorian authorities and the IMF team have reached a staff-level agreement to support the authorities’ economic policies with a new 27-month Extended Fund Facility (EFF) with a requested access of SDR 4.6 billion (equivalent to US$6.5 billion). The EFF follows Fund emergency support to Ecuador in May this year (US$643 million) and the previous EFF approved by the IMF Executive Board in March 2019 that was canceled in May 2020.
“The new EFF arrangement will support Ecuador’s policies to expand the coverage of social assistance programs, protect the vulnerable segments of the population, ensure fiscal and debt sustainability, and strengthen domestic institutions to lay the foundations for strong, durable and inclusive growth. The agreement is subject to the approval by IMF management and the Executive Board in the coming weeks, contingent on the implementation by the authorities of prior actions, fulfillment of the criteria for the IMF to provide financing exceeding normal access, and assurances from international partners, including bilateral creditors, on their financial commitments.
“Ecuador’s already fragile economy has been further hit by a confluence of shocks, including the COVID-19 pandemic and the sharp slump in oil prices, which is expected to lead to a record decline in economic activity. The economy is expected to contract by 11 percent in 2020, and many Ecuadorians are being pushed into poverty.
“Against this backdrop, the Fund-supported program is aimed at first helping the Ecuadorian authorities stabilize the economy and protect the lives and livelihoods of the Ecuadorian people, and then preparing the ground for economic recovery and promoting sustainable and inclusive growth.
“The economic slowdown caused by the pandemic, coupled with a rise in essential public health spending needs are straining the cash balances of the government. As a result, the fiscal deficit and debt are expected to grow in 2020. The upfront financing to be provided under the new EFF will help cushion the downturn and protect fiscal balances from further strain.
“Going forward, to ensure fiscal sustainability and meet Ecuador’s legislated public debt limits, the authorities are committed to taking early action to improve public finances once the economy begins to recover. This includes rolling back crisis-related spending next year and implementing a fiscal reform package that includes a moderation of current and capital spending, a smart and comprehensive tax reform, and improved governance of public spending, while continuing to expand the coverage of social protection.
“The authorities are also committed to advancing reforms that would support economic recovery and lay the foundation for strong, durable and inclusive growth. The modernization of the public finance management framework, improving cash and debt management, enhancing debt transparency and spending efficiency are among their top priorities. Efforts aimed at combatting corruption will include the strengthening governance and anticorruption frameworks.
“The Fund-supported program would also strengthen the dollarization regime and seek to protect the purchasing power of all Ecuadorian families and ensure adequate access to credit. To this end, reforms include strengthening the institutional foundations of the central bank, and enhancing financial sector supervision.
“The new arrangement complements a successful and market-friendly debt exchange of US$17.4 billion in global bonds between the authorities and their bondholders, and is expected to catalyze additional bilateral and multilateral financial support. “We are grateful to the Ecuadorian authorities for the candid and constructive dialogue.”