Washington, USA – The executive board of the International Monetary Fund (IMF) approved today a 27-month extended arrangement under the Extended Fund Facility (EFF) for Ecuador, with access equivalent to SDR 4.615 billion (661 percent of quota, equivalent of US$6.5 billion). The Board’s approval allows for an immediate disbursement equivalent to US$2 billion, available to the budget. The EFF arrangement follows Fund emergency support to Ecuador in May this year (67.3 percent of quota, equivalent of US$643 million) and the previous EFF arrangement 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 stabilize the economy and protect lives and livelihoods, expand the coverage of social assistance programs, ensure fiscal and debt sustainability, and strengthen domestic institutions to lay the foundations for strong, job-rich, and long-lasting growth that benefits all Ecuadorians.
Following the executive board’s discussion on Ecuador, Kristalina Georgieva, managing director and chair, issued the following statement:
“The Ecuadorian authorities have undertaken bold actions to address the deep economic and health crisis triggered by the COVID-19 pandemic. Early containment measures were key to slowing and stabilizing the spread of the virus. The authorities’ policy response appropriately combined short-term measures to contain the adverse impact of the crisis, including significant liquidity support and increased cash transfers, with decisive early steps towards long-term sustainability of public finances.
“The successful debt exchange with external bondholders has provided substantial liquidity relief to Ecuador. The authorities have also obtained financing assurances from official creditors, commitments from international financial institutions, and are committed to complementing them with ambitious, yet realistic, fiscal consolidation as the recovery takes hold. The ongoing and decisive expansion of social assistance programs will strengthen social safety nets and allow the government to extend relief to vulnerable groups in a timely manner.
“Against this backdrop, the IMF-supported program under the Extended Fund Facility has two main objectives: first, mitigate the crisis by protecting lives and livelihoods, and restore macroeconomic stability; and second, ensure the sustainability of public finances and strengthen domestic institutions to lay the foundations for strong, job-rich, and long-lasting growth that benefits all Ecuadorians.
“The authorities have committed to unwind the crisis-related measures as the economy starts to recover. Fiscal sustainability would be anchored on the debt ceiling under the homegrown organic budget code (COPLAFIP) of 57 percent of GDP by end-2025. It would be underpinned by a combination of a progressive tax reform over the medium-term and expenditure measures that aim to align Ecuador with regional peers. The ongoing operationalization of COPLAFIP will enforce timely and accurate provision of fiscal data by non-financial public sector entities, improve fiscal monitoring and enhance public financial management. Formulating a debt management strategy early on of near-term obligations would help improve the maturity and cost structure of amortization payments in 2022.
“Strengthening fiscal transparency and promoting governance are key planks of the authorities’ reform agenda. These include adopting robust cash management practices, improving transparency in public procurement, and promoting debt transparency. In addition, enforcing the rule of law, including through the adoption of landmark anti-corruption legislation by end-year, would protect the public purse, catalyze private investment, promote job creation and boost growth potential.
“Timely implementation of the envisaged reforms to promote the autonomy of the central bank and strengthen its institutional framework more broadly will be needed to back the commitment to Ecuador’s dollarization regime. The authorities are committed to continue monitoring credit risk developments and to closely supervise financial institutions in the post-pandemic period. These efforts would require strong coordination among oversight bodies, which would be facilitated by establishing a Financial Coordination Committee.
“Uncertainty about the depth and duration of the pandemic remains high globally. Domestically, close coordination among government agencies, broad-based social dialogue and buy-in across the political spectrum for the program objectives and policies would mitigate significant implementation risks. Timely implementation of the program’s prior actions to strengthen institutions and policy frameworks and efforts to secure broad public support for the program are steps in the right direction. These efforts have helped meet the criteria for the IMF to provide financing exceeding normal access.”