Washington, DC: The Executive Board of the International Monetary Fund (IMF) concluded today the combined fourth and fifth reviews of the extended arrangement under the Extended Fund Facility (EFF) for Ecuador. The Board’s decision allows for an immediate disbursement of SDR 710 million (about US$1 billion). The Ecuadorian authorities plan to use the disbursement for budget support.
Ecuador’s 27-month EFF arrangement was approved by the Executive Board on September 30, 2020 (see Press Release No. 20/302) for SDR 4.615 billion (about US$6.5 billion or around 661 percent of Ecuador’s quota). The program aims to support Ecuador’s economic recovery from the pandemic, restore fiscal sustainability with equity, and generate sustainable and inclusive growth with high quality jobs.
The Executive Board approved the authorities’ request for a waiver of non-observance of the end-December 2021 performance criterion on the overall balance of the budgetary central government (PGE) and the oil derivatives financing account (CFDD) based on the corrective actions the authorities have already taken and have committed to take. The Executive Board also reviewed a report from the Managing Director on the provision of inaccurate data on the overall balance of the budgetary central government (PGE) and the domestic derivatives financing account (CFDD), which led to a noncomplying purchase by Ecuador in September 2021 and a breach of obligation under Article VIII, Section 5 of the IMF’s Articles of Agreement. The under-recording of PGE pension and healthcare transfer obligations to the social security fund (IESS) gave rise to the noncomplying purchase.
Following the Executive Board discussion on Ecuador, Ms. Antoinette Sayeh, Deputy Managing Director and Acting Chair, issued the following statement:
“The economy rebounded with a 4.2 percent growth in 2021, supported by a successful vaccination campaign and good macroeconomic management. Macroeconomic and financial stability have been preserved. While the ongoing war in Ukraine is adversely affecting some export sectors, higher oil prices are improving Ecuador’s external and fiscal balances.
“Social assistance to low-income families continues to be expanded. 8 in 10 low-income families now receive government support, up from 3 in 10 only two years ago. This increased support is helping cushion the adverse impact of rising inflation on the most vulnerable.
“The enactment of a progressive tax bill last year marked an important milestone in improving fiscal sustainability with equity. While fuel subsidy reform has been suspended, the authorities remain committed to improving fiscal sustainability and equity and rebuilding buffers, demonstrated by the recently enacted decrees to improve spending efficiency, and plans to prioritize growth-enhancing investment in physical and human capital.
“The financial sector appears liquid and ready for crisis measures to be gradually rolled back, with continued vigilance to promote stability. Gradually closing the regulatory gaps between banks and cooperatives will enhance the sector’s resilience.
“Stronger governance and accountability will help bolster trust in government institutions. In this regard, the authorities’ commitments to enhance asset declarations of politically exposed people, strengthen the AML/CFT framework, and provide further transparency on ultimate beneficiary ownership for procurement contracts are welcome. Following delays, the authorities are moving forward with bringing more transparency to state-owned oil companies and remain committed to working with the Fund in this regard in the future. Improving timeliness, reliability, and consistency of fiscal statistics remains a priority.
“The authorities have already undertaken strong corrective actions to address institutional and technical shortcomings that gave rise to the inaccurate information. These included: (i) publishing revised historical data with explanations for revisions; (ii) recording of a conservative estimate for the PGE healthcare transfer obligations to the IESS for 2017-22, while healthcare audits are pending; and (iii) signing an agreement between the Ministry of Economy and Finance (MEF) and the IESS to initiate a procurement process for firm(s) to undertake the medical audits.
“In addition, the authorities committed to undertake the following remedial measures in the coming months: (i) hiring of an independent medical audit firm(s); (ii) identifying and sharing with staff the existing stock of PGE potential obligations; (iii) publication of the revised historical PGE and NFPS data back to 2013; (iv) finalizing medical audits for 2020 and 2021; (v) including PGE pension and estimated healthcare obligations to the IESS in both the 2023 budget and the medium-term fiscal framework; (vi) establishing a dedicated statistics unit at MEF headed by a senior Chief Statistician and updating the training curriculum in government finance statistics; (vii) developing a time-bound action plan to undertake legal reform and administrative actions aimed at strengthening the legal framework of the state obligations on healthcare expenditures and related audits.
“In view of the corrective actions the authorities have already undertaken and remedial measures they have committed to undertake to strengthen the quality of fiscal statistics, the Executive Board decided to waive the nonobservance of the performance criterion, and determined that no further remedial action is required in connection with the breach of obligations under Article VIII, Section 5.”