In search of funds

ECUADOR - In Brief 24 Sep 2019 by Magdalena Barreiro

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Minister Martinez announced two new international issues with maturities of 5 and 10 years (March 2025 and March 2030), respectively to complete financing for 2019. Our previous estimate for international financing was around $1.0 to $1.2 billion, but if two issues are being considered, then $1.5b to $2.0 b would make more sense. This is consistent with the evidence that $1.0 of private concessions will not be completed this year together with lower tax revenues and higher current expenditures than planned.Structural reforms should be submitted to the Assembly not later than next Monday if the government wants to align the timing with the deadline for the 2020 budget submission. Economic urgent bills must be approved by the Assembly in 30 days, and the new budget must be submitted in the first week of November. If the Assembly does not approve the reforms within this time, they might be approved by the authority of the law. It looks as if, after the latest meeting with the IMF, the government might be inclined to include the 3% of VAT increase. An alternative source to increase revenues is a fuel tax that would render a similar amount, considering that subsidies might amount to $4.7b this year. Also, changing the law to eliminate the 40% subsidy of pensions of the social security might be considered, which would imply increasing private contributions and the retirement age to avoid exacerbating the already complex financial and actuarial situation of the institute. The government is probably weighing which of the options would have less political impact and a higher probability of passing in congress. Neither of the above-mentioned are easy choices.