ECUADOR
May 2024

IMF Country Report No. 24/146

REQUEST FOR AN EXTENDED ARRANGEMENT UNDER
THE EXTENDED FUND FACILITY—PRESS RELEASE;
STAFF REPORT; AND STATEMENT BY THE EXECUTIVEDIRECTOR FOR ECUADOR
In the context of the Request for an Extended Arrangement Under the Extended Fund
Facility, the following documents have been released and are included in this package:•

A Press Release including a statement by the Chair of the Executive Board.

•

The Staff Report prepared by a staff team of the IMF for the Executive Board’s
consideration on May 31, 2024, following discussions that ended on April 19, 2024,with the officials of Ecuador on economic developments and policies underpinning
the IMF arrangement under the Extended Fund Facility. Based on information available
at the time of these discussions, the staff report was completed on May 20, 2024.

•

A Staff Supplement: Assessment of Financial Risks to the Fund.

•

A Statement by the Executive Director for Ecuador.

The IMF’s transparency policy allows for the deletion of market-sensitive information andpremature disclosure of the authorities’ policy intentions in published staff reports andother documents.
Copies of this report are available to the public fromInternational Monetary Fund • Publication Services
PO Box 92780 • Washington, D.C. 20090
Telephone: (202) 623-7430 • Fax: (202) 623-7201
E-mail: publications@imf.org Web: http://www.imf.org

International Monetary Fund
Washington, D.C.

© 2024 International Monetary FundPR 24/197

IMF Executive Board Approves 48-Month US$4 Billion
Extended Fund Facility Arrangement for Ecuador• The IMF Executive Board approved a new 48-month arrangement under the Extended
Fund Facility (EFF) for Ecuador, with access equivalent to US$4 billion. The Board’s
decision allows the authorities an immediate disbursement equivalent to US$1 billion.

• The program aims to support Ecuador’s policies to stabilize the economy, safeguard
dollarization, and lay the foundations for sustainable and inclusive growth.

• Key elements of the authorities’ policy agenda include cementing fiscal and debt
sustainability, expanding the social safety net, enhancing financial sector resilience, andfurther strengthening transparency and governance.
Washington, DC – May 31, 2024: The Executive Board of the International Monetary Fund(IMF) approved today a 48-month extended arrangement under the Extended Fund Facility(EFF) for Ecuador, with access equivalent to SDR 3 billion (430 percent of quota, equivalent to
US$4 billion). The Board’s approval allows the authorities an immediate disbursement of SDR
753 million, equivalent to US$1 billion, available to the public budget. This follows a previous
EFF arrangement approved by the IMF Executive Board in September 2020 and completed in
December 2022.
The Ecuadorian authorities have put together a robust plan and have started to take important
policy steps to address the liquidity and fiscal situation. The IMF-supported program will buildon these steps to strengthen fiscal and debt sustainability, protect vulnerable groups, rebuild
liquidity buffers, safeguard macroeconomic and financial stability, and advance the structuralreform agenda to lay the foundations for sustainable, inclusive, and stronger growth that
benefits all Ecuadorians.
Following the Executive Board’s discussion on Ecuador, Ms. Kristalina Georgieva, Managing
Director and Chair, issued the following statement:“The Ecuadorian authorities have undertaken swift and bold actions to tackle the fiscal andsecurity crises. The IMF-supported arrangement under the Extended Fund Facility, which
incorporates lessons from the earlier Fund arrangement, will support the authorities’ policy
plans to strengthen fiscal sustainability and protect vulnerable groups, safeguard dollarizationand macroeconomic stability, rebuild liquidity buffers, enhance financial stability and integrity,and further advance the structural reform agenda to promote sustainable and inclusive growth.
Strong commitment to the program and steadfast reform implementation will be critical for
success. Continued engagement with official creditors and development partners, contingency
planning, and a strong communication of the program’s objectives to the public will also be
important.
“The authorities are committed to implementing an ambitious fiscal consolidation plan, which
will help mitigate Ecuador’s structural fiscal vulnerabilities and cement fiscal sustainability over2

the medium term. It envisages balanced efforts on both the revenue and expenditure sides,with less reliance on oil sector developments, while protecting essential spending on security,
the social safety net, and public investment.
“Work will continue to enhance the social safety net by expanding the coverage of cashtransfer programs to families in need. This will help mitigate the adverse impact of fiscal
consolidation on those vulnerable groups.
“Building on the recommendations of the IMF’s Financial Sector Stability Assessment for
Ecuador, the financial policy agenda aims to strengthen financial sector oversight andcoordination among relevant agencies, enhance the prudential framework governing capitaland liquidity, and foster financial deepening and capital market development.
“The authorities are committed to continuing to strengthen their institutional framework byenhancing governance, transparency, public financial management, and public procurement.
This will include advancing the audits of the state-owned oil company and healthcare
expenditure, clearing arrears and improving cash management practices, and making
progress with key AML/CFT legislation.”ECUADOR
May 20, 2024

REQUEST FOR AN EXTENDED ARRANGEMENT UNDER THE
EXTENDED FUND FACILITYEXECUTIVE SUMMARY
Context. Following the completion of a 27-month Extended Fund Facility (EFF)
arrangement in December 2022, political uncertainty, a security crisis, and exogenous
shocks to oil revenue and interest rates led to a sharp macroeconomic and fiscal
deterioration. The authorities implemented swift and bold measures in early 2024 toaddress the fiscal and liquidity challenges and requested a 48-month EFF arrangementof SDR 3 billion (about US$4 billion, 430 percent of quota) to support their policy plans
and advance an ambitious structural reform agenda.
Program Objectives and Modalities. The core objectives of the EFF-supported
program are to (i) strengthen fiscal sustainability, while protecting vulnerable groups; (ii)safeguard dollarization and macroeconomic stability; (iii) rebuild liquidity buffers; (iv)enhance financial stability and integrity; and (v) further advance the structural reform
agenda to promote sustainable and inclusive growth. Staff estimates that Fundresources are needed to close a financing gap of about US$4 billion during the program
period, after factoring in an ambitious and large fiscal plan, financial support frominternational financial institutions and official bilateral partners, and renewed access tointernational capital markets. The baseline scenario under the program is, however,subject to substantive risks, stemming from both external and domestic factors.
Exceptional Access Policy. All exceptional access criteria have been met. Ecuador’s
faces balance of payments needs stemming from lower oil revenues and pressures on
the financial account arising from external debt obligations (Criterion 1). The public
debt is assessed as sustainable but not with high probability, and staff assessed thatliquidity would be adequate to safeguard Fund resources should adverse shocks
materialize (Criterion 2). This assessment was finely balanced and hinged on thesteadfast implementation of the proposed reforms envisaged under the EFF
arrangement. Successful implementation of the EFF-supported program is expected tohelp further reduce sovereign spreads and facilitate Ecuador regaining access tointernational capital markets (Criterion 3). Staff assesses that the policy programprovides a reasonably strong prospect of success, amid broad support to the main
objectives of the EFF arrangement, and strong commitment and capacity by theauthorities to take measures to ensure its successful implementation (Criterion 4).

ECUADOR

Approved By
Ana Corbacho (WHD)
and Bergljot Barkbu(SPR)

Discussions were held in Quito and Washington, D.C. during April
2-19, 2024. The report was prepared by a team comprised of
Varapat Chensavasdijai (head), Pablo Morra (deputy head),Niels-Jakob Hansen, Giovanni Ugazio (all WHD), Dalmacio Benicio(FAD), Francisco Vazquez (MCM), Giulio Lisi (SPR), Mariana Sabates
Cuadrado (STA), Jorge Salas (Resident Representative), Juan Pablo
Erraez, Paola Hidalgo (all Resident Representative Office), withsupport from Natalia Martinez-Camelo, Kristine Laluces (all WHD)
and Dulce Maria Garcia (Resident Representative Office). Staff from
FAD and LEG participated virtually in some meetings. Ana Corbacho(WHD) and Bernardo Acosta (OED) joined the discussions.

CONTENTSCONTEXT_________________________________________________________________________________________ 4
RECENT MACROECONOMIC DEVELOPMENTS _________________________________________________ 5
OUTLOOK AND RISKS ___________________________________________________________________________ 9
OBJECTIVES AND POLICIES UNDER THE EXTENDED FUND FACILITY ARRANGEMENT ____ 10
A. Strengthening Fiscal Sustainability ____________________________________________________________ 10
B. Strengthening the Social Safety Net ___________________________________________________________ 13
C. Enhancing the Institutional Framework, Governance, and Transparency ______________________ 14
D. Safeguarding Financial Stability _______________________________________________________________ 15
E. Strengthening Competitiveness and Boosting Growth Potential ______________________________ 17
PROGRAM MODALITIES_______________________________________________________________________ 18
STAFF APPRAISAL _____________________________________________________________________________ 22
BOX
1. Assessment of Exceptional Access (EA) Criteria ________________________________________________ 21
FIGURES
1. Recent Economic Developments ______________________________________________________________ 25
2. Fiscal Developments___________________________________________________________________________ 26
3. External Sector Developments _________________________________________________________________ 27
4. Financial System Developments _______________________________________________________________ 28

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INTERNATIONAL MONETARY FUNDECUADORTABLES
1. Selected Economic and Financial Indicators, 2021-29 _________________________________________ 29
2a. Statement of Nonfinancial Public Sector Operations, 2021-29 (in millions of US$) ___________ 30
2b. Statement of Nonfinancial Public Sector Operations, 2021-29 (in percent of GDP) __________ 31
3. Nonfinancial Public Sector Financing, 2021-29 ________________________________________________ 32
4. Balance of Payments, 2021-29_________________________________________________________________ 33
5. External Financing, 2021-29 ___________________________________________________________________ 34
6. Monetary and Financial Statistics, 2021-29 ____________________________________________________ 35
7. Banking System Financial Soundness Indicators, 2018-23 _____________________________________ 36
8. Indicators of Fund Credit, 2022-33 ____________________________________________________________ 37
9. Proposed Schedule of Reviews and Purchases ________________________________________________ 38
10. Quantitative Performance Criteria and Indicative Targets, 2024-25 __________________________ 38
11. Prior Actions and Structural Benchmarks _____________________________________________________ 39
ANNEXESI. External Sector Assessment ____________________________________________________________________ 41
II. Sovereign Risk and Debt Sustainability Framework ____________________________________________ 44
III. Risk Assessment Matrix _______________________________________________________________________ 54
IV. Country CD Strategy Note ____________________________________________________________________ 58
APPENDIX
I. Letter of Intent _________________________________________________________________________________ 65
Attachment I. Memorandum of Economic and Financial Policies _____________________________ 67
Attachment II. Technical Memorandum of Understanding ___________________________________ 83

INTERNATIONAL MONETARY FUND

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ECUADORCONTEXT
1.
Ecuador completed an EFF-supported program in December 2022, advancing fiscal andstructural reforms. The 27-month extended arrangement under the EFF (2020 EFF) was approvedby the Executive Board on September 30, 2020, for SDR 4.615 billion (about US$6.5 billion or
661 percent of quota). The 2020 EFF was approved in the wake of the COVID-19 pandemic andsuccessfully helped Ecuador mitigate the crisis by protecting lives and livelihoods. Moreover, theprogram put public finances on a more sustainable path and strengthened domestic institutions andpolicy frameworks. Structural reforms focused on (i) fiscal management and sustainability, including
the comprehensive overhaul of the organic budget code (COPLAFIP) establishing medium-term
public debt ceilings; (ii) governance and independence of the Central Bank of Ecuador (BCE) with thepassage of the organic monetary and financial code (COMYF); (iii) governance and transparency of
public institutions, including the issuance of legislation to criminalize corruption (COIP) and an
updated public procurement resolution; and (iv) strengthened technical capacity in government
finance statistics compilation and reporting.
2.
Political developments in 2023 impeded further progress with the reform plan started
under the 2020 EFF. Political uncertainty increased, and early general elections took place inAugust 2023, with a run-off presidential election in October 2023. Amid a challenging politicallandscape, progress with fiscal and institutional reforms stalled.
3.
Political uncertainty was compounded by other shocks in 2023, leading to renewedfiscal vulnerabilities, a worsening of economic conditions, and a near depletion of buffers. In
2023, oil revenue declined due to lower oil production and prices, and interest payments on external
public debt increased significantly alongside
the global monetary policy tightening cycle. In
addition, national power outages weighed on
economic activity starting in late-2023.
Moreover, policy slippages put further strain
on public finances. The fiscal position
weakened, and treasury deposits and foreignexchange reserves declined, with government
buffers almost depleted by end-2023. In thisenvironment, after growing by 6.2 percent in
2022, real GDP slowed to 2.4 percent in 2023.
4.
A severe security crisis is exacerbating fiscal and economic challenges. In recent years,
Ecuador has grappled with a surge in crime, marked notably by a sharp escalation in homicides. In
early January 2024, in response to a surge in violence amid security breaches, the government
declared a nationwide 60-day state of emergency (later extended for another 30 days) and aninternal armed conflict, including curfews and mobility restrictions.

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INTERNATIONAL MONETARY FUNDECUADOR

5.
The new administration has proactively taken critical steps to address the challenging
fiscal and external imbalances and improve economic prospects. The government implemented
a value added tax (VAT) rate hike of three percentage points in April, alongside additional transitory
revenue measures. The authorities also introduced a limited set of tax incentives to stimulate growthand incentivize youth employment, and a bill toallow electricity generation by privatecompanies to help stem the impact of
blackouts. In addition, the government
announced the intention to improve thetargeting of fuel subsidies, while protecting themost vulnerable. To stem the sharp decline in
FX reserves, the government also increased thetax on transfers abroad (ISD). These efforts
contributed to a sharp decline in sovereign
spreads, from over 2,000 basis points in early2024 to below 1,200 basis points in April.
6.
The authorities have also taken actions to stabilize the security situation. The actions
aim to bolster the government’s capability to fight crime, including by enhancing the role of themilitary. The authorities’ security agenda received broad support in a referendum held in April, withnine questions related to security policies approved by a large margin. The referendum also
included two economic initiatives, on introducing fixed-term and hourly employment contracts andusing international arbitration for resolving investment and commercial disputes, which did notreceive enough voter support.
7.
The authorities have requested an EFF arrangement. They are committed to
implementing measures to safeguard macroeconomic stability, strengthen fiscal sustainability,
rebuild liquidity buffers, and strengthen resilience and inclusive growth. As existing Fund credit, at
SDR 5.8 billion (835 percent of quota), already exceeds normal access levels, the new proposedarrangement is subject to the exceptional access policy.

RECENT MACROECONOMIC DEVELOPMENTS
8.
A sharp economic slowdown is underway. In 2023Q4, real GDP contracted by 0.7 percent(y/y), down from +0.7 percent in 2023Q3, amid a decline in private consumption and net exports,
while growth of public consumption and inventories remained in positive territory. High-frequency
indicators (credit growth, local sales, and vehicle sales) continued to be weak into 2024Q1. In April,
nationwide blackouts reappeared due to energy shortages.
9.
The labor market has been recovering slowly since the pandemic, but persistent
challenges disproportionately affect young people and women. The ongoing economic
slowdown might jeopardize the still incomplete post-pandemic recovery of employment. Official
data shows inadequate employment (a broad measure of underemployment) remained above pre-INTERNATIONAL MONETARY FUND

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ECUADOR

pandemic levels in 2023, while informal employment hovered at historically high rates. Moreover,labor market conditions are disproportionately adverse for the youth, and while decreasing, gender
gaps remain significant. The poverty rate, which had been declining following the peak of thepandemic, started to increase again in 2023, notably in the rural areas.
Labor Market and Social Indicators

10.
Inflation moderated during 2023 withlower international energy prices. Headline
inflation peaked at 4.2 percent y/y in June 2022
and has since been moderating largely driven bylower transportation prices. Food prices
temporarily surged during 2023H2 due toweather-related production disruptions. In April
2024, headline (core) inflation accelerated to
2.7 (2.0) percent (y/y) driven by the effect of the
VAT rate hike.

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INTERNATIONAL MONETARY FUNDECUADOR

11.
The current account (CA) balance remained broadly flat in 2023, but the reserve
position deteriorated. The CA surplus increased marginally from 1.8 percent in 2022 to around
1.9 percent of GDP in 2023 amid a sharp decline in oil-related exports and higher interest payments
on external public debt, while remittances remained robust and non-oil exports registered amoderate increase. The decline in net oil receipts in 2023, together with pressures on the financial
account amid large external public debt obligations, led to a deterioration in the reserve position by
end-2023. The deterioration was partly reversed by a recovery in the oil trade balance and lower
imports during January-February this year. Gross international reserves dropped to about US$4.5
billion at end-2023, from US$8.5 billion at end2022, before recovering somewhat to US$5.3
billion at end-March. International reserves
cover the deposits and reserves of privatebanks at the BCE, consistent with legal
requirements set in the COMYF, but remain well
below adequacy metrics. The external positionin 2023 was moderately weaker than the level
implied by medium-term fundamentals anddesirable policies. The CA gap is estimated atabout -1.4 percent of GDP, pointing to a realeffective exchange rate gap of about 8 percent(Annex I).
12.
Financial soundness indicators are robust on aggregate, but there are pockets ofvulnerabilities. Average capital ratios have been declining but remain comfortable at 15 percent (asof end-March 2024), helped by mandatory earnings retention. Asset quality deteriorated in 2023,
partly owing to the weak macroeconomic environment but also to the new regulation on loanclassification and provisioning that entered into force in January 2023 that closed a disparity in theprudential framework between banks and credit cooperatives. There is still a material share of
restructured and refinanced loans from the pandemic reported in financial institutions’ loan
portfolios. Loan quality in small banks, public banks, and credit cooperatives is weak. Profitability isuneven across market segments, with negative profits among small banks and anemic returns for
credit cooperatives. Lending margins have started to recover after a recent revision of the interest
rate caps on corporate and commercial loans, but still appear compressed for other credit types,
particularly for loans to small and medium-sized enterprises (SMEs) and micro enterprises.
13.
Managing liquidity risk remains a challenge for Ecuador’s financial system. Banks
maintain cross holdings of certificates of deposits and the bulk of their portfolio investments is in
securities issued by the government and other resident counterparties, which offer limited effective
liquidity. The deposit insurance fund also maintains investments in government securities and claims
on resident counterparties, including bank deposits. A liquidity fund, funded by financial institutions
and holding external assets totaling US$3.5 billion as of end-2023, is available in the absence of astandard lender-of-last-resort regime. In addition, the BCE has access to about US$2.1 billion inliquidity facilities with the Federal Reserve Bank of New York (FRBNY), the Bank for International

INTERNATIONAL MONETARY FUND

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ECUADOR

Settlements (BIS), and the Latin American Reserve Fund (FLAR), which can be used in the event of
dollar liquidity shortages.1
14.
Credit and deposit growth has continued to slow. The credit cycle has extended aslowdown that started in mid-2022, with new lending becoming negative in the first quarter of 2024.
Credit market dynamics have been driven by adeceleration of credit to SMEs, housing, andcorporates, partly in response to margincompression, as binding caps on lending rates
prevented banks from passing on higher funding
costs. Credit growth among public banks and smallbanks and credit cooperatives has remained
negative. While the transmission of externalfinancing conditions to domestic credit markets islimited, banks’ recourse to external funding sources
has also been affected by the tight external
conditions and Ecuador’s high sovereign risk.
15.
The fiscal position deteriorated
significantly. Following a steady improvement of
the nonfinancial public sector (NFPS) fiscal balance
during the 2020 EFF to a small surplus at end-2022,
the fiscal position worsened to a deficit of US$4.2
billion (3.6 percent of GDP) in 2023. This contrasts
markedly with the 1.6 percent of GDP fiscal surplus
expected at the final review of the 2020 EFF. The
deterioration was in large part due to a lower-thanexpected oil balance, with lower export prices andproduction, and higher-than-expected interest
payments on floating rate debt. However, the non-oil primary balance (NOPB) also deteriorated by
2.1 percent of GDP, due to the weak cyclical position affecting tax revenue and policy loosening
driving a large increase in current expenditure in 2023. Despite lower oil prices in 2023 compared to2022, a still sizeable fuel subsidies bill (2.7 percent of GDP in 2023) added to fiscal pressures.
16.
Government liquidity buffers declined to historical lows in 2023. With limited financing
sources, the large increase in gross financing needs was mostly financed by a drawdown of buffers.
Government deposits at the BCE declined by US$2.9 billion, with NFPS deposits closing 2023 at
US$3.8 billion and erasing all the buildup of buffers achieved during the 2020 EFF-supported
1 In October 2022, the FRBNY granted the BCE access to a FIMA Repo Facility of US$1 billion for exclusive central

banking operations. This facility allows the BCE to access liquid resources for potential needs through securities
repurchase operations (repo), which are part of the BCE’s investment portfolio. Additionally, the BCE renewed its
swap facility with the BIS for up to US$840 million as a precautionary measure in case of dollar liquidity shortages. In
July 2023, FLAR granted the BCE access to a contingent credit line of up to US$230 million.

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INTERNATIONAL MONETARY FUNDECUADOR

program. Due to the severity of the liquidity situation, the central government also incurred about
US$900 million in arrears to private suppliers and borrowed US$100 million in liquidity from public
sector entities outside of the NFPS perimeter.
17.
A one-off reprofiling of public debt owed to the BCE provided relief to government
financing needs in the near term. The 2021 COMYF reform established the prohibition of new
direct or indirect central bank financing of the government as a key measure to protect dollarization.
However, this provision also left the government with large debt amortizations in the short term.
The authorities amended the COMYF legislation in December 2023 to allow for a one-off reprofilingof these debt obligations to smooth the debt service profile, reducing interest and amortization
payments in the near term. The operation reduced financing needs by about US$300 million in 2024
and about US$1 billion per year in 2025-26.
18.
Public debt declined in 2023 on account of a debt-for-nature swap. The debt-to-GDP
ratio declined to 55.3 percent in 2023 from 57 percent in 2022, due to the difficulty in accessing new
financing and a successful swap that reduced the amount of external bonds outstanding by
US$970 million (0.8 percent of GDP). Public debt remains among the lowest in the Latin America andCaribbean region and among emerging market peers. With sovereign spreads still elevated, Ecuador
has not been able to access international capital markets since 2019.

OUTLOOK AND RISKS
19.
Growth is projected to begin recovering in the second half of 2024 and increase
gradually over the medium term. The economy faced significant headwinds in early 2024,
including a challenging security situation, the accumulation of government domestic arrears, atighter fiscal policy stance, and power outages. In addition, a negative carry-over from 2023H2 andthe start of the planned unwinding of oil production in the Ishpingo-Tambococha-Tiputini (ITT) fieldin the Amazon region will weigh adversely on growth. The easing of liquidity pressures and the startof regularization of arrears are expected to lift economic activity in the second half of the year. But
growth is only projected to average 0.1 percent for 2024 as a whole. Growth is then projected togradually rise towards its estimated potential rate of 2½ percent in the medium term, inter alia as
domestic demand is bolstered by decreased uncertainty and an improved liquidity situation. In themedium term, the gradual unwinding of oil production in the ITT field is assumed to be offset byincreased production in other fields. Inflation is projected to average 2.4 percent in 2024, reflecting
mainly the effect of a higher VAT rate, before converging to around 1½ percent over the medium
term, below levels projected in trading partners.
20.
The CA surplus is projected to increase over the medium term. In 2024, the CA surplus isprojected to rise to about 2.1 percent of GDP, owing mainly to higher non-oil exports and lower
imports and despite lower oil exports and tourism receipts. The CA surplus is projected to gradually
increase, reaching about 2.5 percent of GDP over the medium term, driven by a gradual pickup in oil
exports, the resumption of tourism flows, and higher non-oil exports (e.g., mining).

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ECUADOR

21.

The balance of risks around the baseline outlook is tilted to the downside (Annex III):•Key downside risks could arise from a further deterioration in the security situation and/or theelectricity crisis, which would adversely affect investment, tourism, economic activity, thefinancial sector, and the fiscal balance. An increase in political fragmentation could delay the
implementation of reforms, increase the fiscal deficit, and lead to liquidity pressures, impairing
the payment chain in the economy and affecting the financial system (in particular, weaker
financial institutions), triggering negative feedback loops. Further risks include unexpected
declines in oil prices or disruptions to oil production that reduce oil revenue, while extreme
climate events could increase social vulnerabilities and lower growth. Tighter global financing
conditions could dampen capital flows and financing prospects, postponing international market
re-access. Deeper geoeconomic fragmentation and increased geopolitical tension could hit
trade flows and growth.

•

On the upside, stronger-than-expected global growth along with higher oil prices could help
rebuilding buffers and reserves, boost fiscal revenues, and improve growth prospects. A faster
improvement of the security situation could also bring upside relief to investment sentiment,
tourism, and economic activity more broadly.

OBJECTIVES AND POLICIES UNDER THE EXTENDED
FUND FACILITY ARRANGEMENT
22.
The authorities are committed to placing public finances on a sound footing andadvancing structural reforms to foster resilience and inclusive growth. Building on theachievements of the 2020 EFF, the new EFF arrangement will aim to (i) strengthen fiscal
sustainability, while protecting vulnerable groups; (ii) safeguard dollarization and macroeconomic
stability; (iii) rebuild liquidity buffers; (iv) enhance financial stability and integrity; and (v) further
advance the structural reform agenda to promote sustainable and inclusive growth. The program
would address key structural vulnerabilities, including the overarching goal of lowering the volatilityof public finances linked to oil prices.2 It would preserve space for needed priority spending on
security, social protection, and public investment, and support reform efforts in the financial,governance, and structural areas, including climate transition.

A. Strengthening Fiscal Sustainability
23.
The authorities enacted a significant mobilization of non-oil revenue. Measures
implemented are expected to yield a net increase of US$2.2 billion (1.8 percent of GDP) in non-oil

2 See Ecuador—Ex-Post Evaluation of Exceptional Access under the 2020 Extended Fund Facility, IMF Country Report

No. 23/381.

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INTERNATIONAL MONETARY FUNDECUADOR

revenue in 2024. These include: (i) a 3-percentage point hike in the VAT rate to 15 percent;3 and (ii)temporary taxes to be levied mostly in 2024 and 2025. To ensure medium-term fiscal sustainability,
additional sustained efforts are needed after the expiration of transitory tax measures, anchored inpermanent, high-quality measures on both the revenue and spending side.
24.
The authorities’ 2024 fiscal plan demonstrates commitment to containing public
expenditure, while addressing priority security, social, and investment needs. The 2024 fiscal
plan contemplates containing spending in wages and goods and services, while protecting targetedsocial support and priority investment projects. Expenditure restraint on wages and goods andservices would be achieved by delaying non-essential hiring and purchases, while protecting space
to finance urgently needed security spending.
25.
The authorities’ fiscal plan under the proposed EFF arrangement would target afrontloaded improvement in the
Fiscal Consolidation Plan
(Changeinthenon-oilprimarybalance including fuel subsidies, in percent of GDP)NFPS non-oil primary balance
2024
2025
2026
2027
2028
2024-28
including fuel subsidies (NOPBS) of
Revenue
2.5
-0.1
1.0
0.1
0.2
3.7
2.2 percent of GDP in 2024 and an
Tax revenue
1.8
-0.2
0.2
0.1
0.1
1.9
Other
0.7
0.1
0.8
0.0
0.2
1.7
additional 3.3 percent of GDP overExpenditure
-0.2
0.8
0.3
0.5
0.5
1.8
2025-28, totaling 5.5 percent ofWages and salaries
0.1
0.2
0.3
0.3
0.3
1.2
Goods and services
0.1
0.2
0.2
0.2
0.1
0.8
GDP over the program period.
Social and capital
-0.3
0.2
-0.1
-0.1
-0.1
-0.4
Building on the authorities’ fiscal
Other
0.0
0.1
0.0
0.0
0.1
0.2
Total
2.2
0.6
1.4
0.6
0.7
5.5
measures already in train, theSources: MEF and IMF staff calculations.
consolidation under the program
would rely on non-oil revenue mobilization, higher net oil revenue, and non-oil expenditure
rationalization that would bring increasing savings over time. The adjustment would be frontloaded
and, together with the significant upfront structural reform efforts, would be broadly aligned withthe phasing of financial support. The plan will be accompanied by enhancements in the social safety
net by further expanding the coverage of social transfers for vulnerable households.
•

Tax revenue mobilization. The tax measures enacted
in 2024 are estimated to yield about 1.8 percent of
GDP in 2024, of which 1.2 percent of GDP aretransitory. Additional permanent revenue of about
0.8 percent of GDP is expected over 2025-28. The
authorities will prepare a plan to further mobilize
non-oil fiscal revenues, including by rationalizing
inefficient tax expenditures and replacing transitory
revenue measures with permanent high-quality ones
(mid-November 2024 structural benchmark). The
authorities are committed to gradually phasing out

Nonoil Revenue Measures(Percent of GDP; positive numbers reduce gap)
2024

2025

Tax revenue
Increase VAT rate from 12 to 15 percent
Increase ISD rate to 5 percent
Remove ISD exemption for banks
Implement tax amnesty
Reintroduce self-withholding of income tax
Corporate extra profit tax
Banks profit tax
Additional measures
Tax incentives
Reduce VAT on construction materials
Other tax incentives from December reform

2.0
0.7
0.2
0.0
0.2
0.6
0.3
0.1
0.0
-0.2
-0.2
-0.1

1.9
1.0
0.2
0.1

0.4
-0.3
-0.2
-0.1

Total

1.8

1.6

0.3

Sources: MEF and IMF staff calculations.

3 The authorities enacted a 1-percentage point permanent increase in the VAT rate and made use of presidential

powers to implement an additional increase of 2 percentage points to address the security and fiscal situation.

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the ISD (see ¶52 and Letter of Intent (LOI), ¶7). Steps to strengthen tax administration (¶31)
should also complement the revenue mobilization strategy.
•

Other revenue mobilization. Fuel subsidies are costly, regressive (disproportionally benefiting thebetter off), harmful to the environment, and contribute to criminal activities such as smuggling.
The authorities eliminated the fuel subsidy for large shrimp farms in 2023, generating about
US$150 million in savings. The authorities plan to further improve the targeting of fuel subsidies
and promote the energy transition by encouraging the use of non-renewable energy sources,
while implementing appropriate social compensatory mechanisms to protect the mostvulnerable. In addition, the government plans to increase oil revenues by gradually increasing
production and enhancing the capacity of the oil refinery system.

•

Expenditure consolidation and efficiency gains. Building on the 2020 EFF, expenditureconsolidation would be anchored in further improving the efficiency of (i) public employment bykeeping wage growth in line with inflation and (ii) procurement by further exploiting economies
of scale from centralizing procurement orders. Further savings would stem from efficiency gains
in state-owned enterprises (SOEs), especially in the hydrocarbon and electricity sectors.
Expenditure consolidation would be undertaken while preserving space for urgent security,social, and investment spending. Primary non-oil public expenditure rationalization is projected
to produce 1.8 percent of GDP in savings in 2024-28.

26.
The fiscal consolidation plan would be calibrated to (i) meet the COPLAFIP debt limits;(ii) achieve sustainable gross financing needs; (iii) regularize arrears; and (iv) rebuild adequate
fiscal buffers. The NFPS overall deficit is projected to narrow by 1.6 percent of GDP to
US$2.4 billion (2 percent of GDP) in 2024 and turn into an overall surplus of 0.6 percent of GDP by
2028. At the same time, the NFPS primary balance would turn into a surplus already in 2025,
increasing to 2 percent of GDP by 2028. Importantly, the authorities are committed to ensure that
adequate fiscal measures are in place for the 2025 fiscal plan to be in line with program targets(early December 2024 structural benchmark). The envisaged fiscal consolidation would place thepublic debt-to-GDP ratio on a firm downward trajectory to comply with the COPLAFIP limit of
40 percent by 2032. It would also enable a steady reduction in gross financing needs. Staff assessed
public debt as sustainable but not with high probability under the program baseline (Annex II). The
improvement in the fiscal balance would allow gradually regularizing payment arrears, with theauthorities expected to prepare a strategy to clear and prevent the re-emergence of budgetarycentral government’s payment arrears (end-November 2024 structural benchmark). It would also
allow gradually rebuilding liquidity buffers, with NFPS deposits expected to reach about US$8 billion
by end-2028, from US$3.8 billion in 2023.
27.
The financing strategy would rely on multilateral and bilateral support and regaining
external market access in 2025. The program assumes that the government will be able to rollover all maturing domestic debt in 2024, with remaining financing needs of US$5.2 billion(4.3 percent of GDP) to be covered by multilateral, official bilateral, and commercial creditors.
Ecuador’s gross financing needs would fall from 6.6 percent of GDP (US$8 billion) in 2024 to about
4.8 percent of GDP (US$6.8 billion) by 2028. The successful implementation of a credible fiscal plan
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underpinned by the EFF-supported program is likely to continue lowering perceived sovereign credit
risk, paving the way for renewed market access. The financing plan assumes additional domestic
market financing, as well as external market re-access (gradually starting with US$1.5 billion in 2025,
increasing to US$2 billion in 2026).

Estimated Gross Financing Needs and Sources(US$ million)
Gross Financing Needs
NFPS Deficit
Amortization
Domestic
External
Gross Financing Sources
Domestic
NFPS deposits (- = accumulation)T-bills
Bonds
External
IMF
Multilateral (excl. IMF)
Bilateral
Bonds
Sources: MEF and IMF staff calculations.

2024
8,035
2,442

2025
7,849
1,473

2026
7,704
314

2027
7,640
118

2028
6,796
-832

5,593
3,269
2,325
8,035
2,830
-360
2,166
1,024
5,205
1,500
3,295
410
0

6,375
3,221
3,154
7,849
2,209
-954
2,166
996
5,640
1,250
1,900
990
1,500

7,390
3,404
3,986
7,704
2,504
-939
2,166
1,277
5,200
500
1,900
800
2,000

7,522
3,080
4,442
7,640
2,490
-927
2,166
1,251
5,150
500
1,900
750
2,000

7,628
3,341
4,287
6,796
2,646
-1,031
2,166
1,510
4,150
250
1,400
500
2,000

28.
Given elevated risks, continuous monitoring of fiscal performance and robust
contingency plans are critical. Given downside risks to the program’s baseline scenario (¶21), theauthorities will need to closely monitor high frequency cashflow execution and projections, and,should risks materialize, stand ready to take timely corrective actions as needed to meet program
objectives. The authorities have prepared a projected monthly financial plan, including cashflows forthe budgetary central government for the remainder of 2024 (prior action). They have also outlined
a contingency plan to ensure compliance with program targets (prior action).

B. Strengthening the Social Safety Net
29.
The program will continue supporting the authorities’ efforts to enhance the social
safety net. Over the past years, the authorities worked on improving the social safety net,
supported by World Bank technical assistance, expanding the coverage of their social registry tocover families in the lowest three deciles of the income distribution throughout the country,
including in more remote areas. The authorities will develop a plan to complete the social registry(end-October 2024 structural benchmark). Based on such registry, a key part of the fiscal program
will focus on expanding cash transfer programs to ensure that families in need receive assistance,
shielding them from an adverse impact from fiscal consolidation measures.

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30.
The authorities’ social transfers strategy supported by the EFF arrangement will aim toclose the coverage gap of vulnerable families. The authorities plan to expand cash transfer
programs, adding about 50,000 new families each year (about 200,000 families by the end of 2028),
prioritizing the lower income deciles of the income distribution in the social registry. The expansion
is expected to cost about US$300 million annually once all targeted families are covered. This
strategy would ensure that all families in the lowest two deciles and a majority of the families in thethird decile would be incorporated into the social safety net during the course of the EFF-supported
program.

C. Enhancing the Institutional Framework, Governance, and Transparency
31.
Building on the progress made during the 2020 EFF, the authorities plan to further
strengthen public financial management (PFM), fiscal statistics and governance, and revenue
administration. Their efforts would be supported by CD from the Fund (Annex IV) and otherdevelopment partners.
•

PFM. The authorities plan to publish a Medium-Term Fiscal Framework (MTFF) and a MediumTerm Debt Management Strategy (MTDS) in line with program targets (end-October 2024
structural benchmarks). The authorities are also committed to continue (i) preparing andpublishing a fiscal risks report, including identification, monitoring, and mitigation analyses ofthe most relevant fiscal risks (including SOEs); (ii) enhancing oversight and continuous
monitoring of SOEs and public-private partnerships (PPPs) as part of the analysis by the Fiscal
Risk Unit; (iii) implementing a multi-year expenditure ceiling per entity in accordance with the
top-down aggregate limits set by the MTFF; and (iv) implementing annual expenditure execution
through quarterly commitment and monthly accrual quotas.

•

Public Procurement. Efforts will continue to strengthen public procurement systems by fully
operationalizing the 2022 Procurement Law. The National Public Procurement Agency (SERCOP)
will establish a timeline to operationalize the National Control Subsystem (SNC) (end-December
2024 structural benchmark). The SNC will facilitate coordination amongst public entities with
control competencies over the public procurement system via the interoperability of their
databases, thereby helping protect public procurement integrity and improve expenditurecontrol. In addition, SERCOP will continue the regular publication of ultimate beneficiaryownership (UBO) of entities that have been awarded procurement contracts.

•

Fiscal Governance and Healthcare Claims. The authorities are committed to setting a revisedmechanism to settle healthcare claims from the Ecuadorian Social Security Institute (IESS) to
bring predictability to the process of auditing and clearing verified obligations. The Ministry of
Finance (MEF) will pursue an updated agreement with the IESS for the settling and payment ofhealthcare obligations (involving both internal and external healthcare providers), building on
the December 2022 agreement (end-October 2024 structural benchmark). Based on the
updated MEF/IESS agreement, the authorities will initiate the tender to procure an auditor toreview the 2023 and 2024 healthcare obligations to IESS (end-December 2024 structural

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benchmark). The agreement will also stipulate the process to be taken to audit and settle the2022 healthcare obligations.
•

Revenue and Customs Administration. Building on the recommendations of a Tax
Administration Diagnostic Assessment (TADAT) completed in 2023, the authorities plan topursue reforms to further strengthen revenue administration. Priorities include modernizing thetax procedures code and improving the management of large corporate taxpayers and high net
worth individuals. The authorities will also work on enhancing and modernizing customs
administration, with IMF technical assistance support. Efforts will focus on upgrading their IT
systems and simplifying customs core processes, with a view to improve customs control, tradefacilitation, and revenue collection.

•

Public Investment Management. Building on the recommendations of the IMF 2023 Public
Investment Management (PIMA) technical assistance, the authorities are working on enhancing
the public investment management process, including by improving cross-institutional
coordination, strengthening project appraisals, and enhancing monitoring of public investment
execution.

D. Safeguarding Financial Stability
32.
Financial intermediation in Ecuador is affected by longstanding financial repression.
Banks and credit cooperatives are subject to a complex system of ceilings on lending rates
differentiated by credit type and, for commercial loans, also by borrower firm size. The 2023 FSSA
noted that the caps on lending rates in the current higher interest rate environment have led tomargin compression, distortions in credit supply, and restrictions to financial inclusion, andrecommended migrating the rate caps to a usury rate.4 A recent update of the formulas todetermine the interest rate caps on commercial and corporate loans led to marginal relief in thesesegments, and the authorities have announced changes in the adjustment of caps on mortgage
loans. Financial institutions are also required to maintain at least 60 percent of their liquidity in
Ecuador and face minimum required investments in sovereign bonds and securities issued by publiccompanies.
33.
The financial policy agenda is extensive, requiring careful and gradual
implementation. Key areas for policy action include: (i) strengthening financial sector oversight andcoordination among agencies involved; (ii) enhancing the prudential framework governing capitaland liquidity; (iii) strengthening the financial safety net; and (iv) fostering financial deepening andcapital market development, including by gradually eliminating interest rate caps and developing
the sovereign bond market. Financial liberalization needs to be gradual and carefully sequenced, toensure that key preconditions are in place. Among these, for example, the transition to Basel III
liquidity regulations would require the concurrent development of the domestic bond market.

4 Ecuador—Financial System Stability Assessment, IMF Country Report No. 23/335.

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Similarly, the dismantling of financial repression mechanisms would also require careful sequencing
and transition plans, including to mitigate risks to financial stability.
34.
The authorities have started implementing recommendations of the 2023 FSSA. The
authorities are planning to establish a Financial Stability Committee in line with best international
practices, with the participation of the BCE, MEF, the Monetary Board (JRPM), the Financial Board(JRPF), the Superintendency of Banks (SBs), the Superintendency of Popular and Solidarity Economy(SEPS), the Superintendency of Companies, Securities, and Insurance (SCVs), and the Deposit
Insurance Corporation (COSEDE) (end-September 2024 structural benchmark). They are alsoplanning to enhance their stress testing capacity (with Fund TA support), started transmitting Bankof the Ecuadorian Institute of Social Security (BIESS) credit data to the credit bureaus, and havetaken steps to improve the coordination and information sharing among supervisory agencies. The
authorities have also started implementing some of the recommendations on prudential regulations,
including the phased implementation of the Liquidity Coverage Ratio, expected to be achieved
gradually, and the preparation of regulations on systemic risk buffers (end-November 2024
structural benchmark). The authorities also plan to assess the system of interest rate caps, withFund staff support, identifying policy recommendations to reform the system in an orderly way,while preserving financial stability, improving credit allocation, enhancing financial inclusion, andsupporting growth (end-March 2025 structural benchmark).
35.
The authorities are committed to taking steps to develop the domestic debt market.
The domestic debt market lacks liquidity and depth. The authorities have started to standardize
government securities and aim to build a domestic yield curve to facilitate the development of thedomestic debt market. To foster the deepening of the domestic capital market, the authorities plan
to take actions to improve market infrastructure, building on technical assistance from development
partners. They will start by signing a contract to overhaul the BCE’s central securities depository(DCV), including the settlement, liquidation, and custody functions in line with international
standards (end-November 2024 structural benchmark). Once these systems are in place, theauthorities intend to start auctioning public securities at market-determined rates. The authorities
also aim to revamp the payments system. An improved payments infrastructure would help establish
a faster, more modern, and safer payments system, reducing transaction costs and risks associatedwith cash transactions, encouraging the development of digital commerce, and supporting financial
deepening and economic activity.
36.
The EFF arrangement will also support the authorities’ efforts to further strengthen
the effectiveness of the AML/CFT framework to tackle illicit financial flows, particularly thefinancing and profitability of organized crime. To this end, following the recommendations fromGAFILAT to strengthen the AML/CFT regime and enhance financial integrity (as also noted by the2023 FSSA) will be key. A Draft Law to Suppress and Prevent Money Laundering and Financing ofTerrorism, elaborated with IMF technical assistance, was submitted to the National Assembly in
October 2022. A new draft is under discussion in the National Assembly, resulting from the
combination of different proposals. The authorities are committed to seeking approval of andenactment of a new law to strengthen the AML/CFT framework in line with FATF international

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standards (end-February 2025 structural benchmark). Strengthening the AML/CFT legal
framework is a necessary step to tackle organized crime proceeds, which should be complemented
with measures to tackle illicit financial flows. Enhancing the independent supervisory role of the
Economic and Financial Analysis Unit (UAFE) is also important to achieve these objectives.

E. Strengthening Competitiveness and Boosting Growth Potential
37.
The authorities’ economic agenda
crucially aims to raise Ecuador’s growthpotential. Over the last two decades, Ecuador’s
GDP per capita has underperformed that ofregional peers. Some factors hindering growth
include policy uncertainty, insecurity, labormarket rigidities and informality, cumbersome
regulations and licenses, limited tradeintegration, governance challenges (including inSOEs), and high borrowing costs.
38.
Sound macroeconomic managementwith clearly established policy anchors would improve policy predictability, reduce sovereignrisk, and lower borrowing costs for both the public and private sectors. Restoring
macroeconomic stability and securing fiscal sustainability is paramount to reducing uncertainty,
improving the business environment, and boosting resilient and inclusive growth. In addition,
progress in institutional reforms will increase competitiveness and stimulate investment, capitalizing
Ecuador’s comparative advantages in sectors such as agriculture, tourism, mining, and renewableenergy. Recently approved Free Trade Agreements, including with China and Costa Rica, will also
help foster integration and boost growth potential. The reforms envisaged under the IMF-supported
program, including those to strengthen fiscal sustainability, expand the social safety net, improve
PFM, develop domestic capital markets, safeguard financial stability, and enhance governance,transparency, and financial integrity, are expected to have a catalytic effect on potential growth byaddressing key longstanding structural bottlenecks.
39.
Strengthening the anti-corruption
framework will help create a more evenplaying field. A recently approved law on
dominion extinction may prove helpful to fightcrime and corruption. Towards the end of the2020 EFF arrangement, a Draft Law to Prevent
Conflicts of Interest in Public Administration
was submitted to the National Assembly toadvance public sector integrity and reduce
vulnerabilities to corruption. Approval of this

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legislation would help promote integrity, transparency, and accountability, boosting the businessenvironment.
40.
Enhancing governance in the oil sector will help improve efficiency. The authorities arecommitted to enhancing governance in the oil sector, as part of their ongoing plans to streamline
SOEs and increase their efficiency. In an important transparency milestone, the authorities signed in
January a contract with an international audit firm to conduct audits of the financial statements ofPetroecuador and Petroamazonas, now merged into a single SOE, the largest in Ecuador. The
authorities plan to complete the 2019 and 2020 audits and share the results with IMF staff (endMarch 2025 structural benchmark). They are also launching initiatives to increase oil output,
including by promoting greater private sector participation and enhancing the capacity of the oil
refinery system. Broader steps to increase competition in the distribution of local fuel markets could
also be considered in the future.
41.
Efforts should continue to address the electricity crisis and increase resilience toclimate change. Ecuador is vulnerable to extreme climate events such as landslides, floods, storms,
droughts, the El Niño and La Niña phenomena, and earthquakes. The energy sector and agriculture
are particularly vulnerable to climate-related shocks, with significant effects on economic activity,
prices, the fiscal accounts, and the balance of payments. An electricity crisis that started in late 2023
re-emerged in April 2024, and the authorities have implemented nationwide blackouts to ration theenergy supply. Energy shortages are linked to climate trends, insufficient maintenance in keyhydroelectric plants, and supply constraints in neighboring countries that export electricity to
Ecuador. Ensuring essential investment to maintain the country’s electricity generation plants should
be a priority, while also unlocking private-led investment projects in renewable energy sources suchas solar and wind, for which Ecuador has good potential. There is also a case for investing in climatechange adaption and mitigation, including resilient infrastructure. Given limited fiscal space, theauthorities should continue exploring options to mobilize climate financing, including possible new
debt-for-nature swaps.
42.
Labor market reforms should aim to increase flexibility and foster high-quality
employment, including for the youth. Sources of labor market rigidities include rigid labor
contracts, high separation costs, and high minimum wages. Increasing labor market flexibility toboost formal jobs in the private sector and expanding quality education for all would contribute tofight poverty and support inclusion, including of youth-at-risk. Fostering labor market opportunities
will also support broader efforts to prevent crime and insecurity.

PROGRAM MODALITIES
43.
Financing Needs. Staff estimates that the EFF arrangement will close Ecuador’s residual
financing needs of about US$4 billion (SDR 3 billion, 430 percent of quota) during the program
period, after factoring in an ambitious fiscal consolidation and support from international financial
institutions and official bilateral creditors. The estimates assume that Ecuador gradually regains
access to international capital markets starting in 2025. Fund financing is proposed to be made18

INTERNATIONAL MONETARY FUNDECUADOR

available to the budget. A memorandum of understanding will be established between the BCE andthe MEF on their respective roles and obligations.
44.
Arrangement Type, Reviews, and Phasing of Purchases. The authorities have requested a
48-month EFF-supported program. The program envisages triannual reviews during 2024-25 andshifts to semiannual reviews during 2026-28. The proposed phasing is driven by the size and timingof the estimated financing gap, with total access proposed at SDR 3 billion (US$4 billion), startingwith SDR 1.1 billion (US$1.5 billion) in 2024, SDR 0.9 billion (US$1.25 billion) in 2025, SDR 0.4 billion(US$0.5 billion) in 2026 and 2027, and SDR 0.2 billion (US$0.25 billion) in 2028.
45.
Prior Actions. The EFF arrangement is subject to the following prior actions: (i) the
preparation of a projected monthly cash flow and financial plan for the budgetary central
government for the remainder of 2024; and (ii) the preparation of a contingency plan to ensurecompliance with program fiscal targets if revenues underperform projected levels.
46.
Program Conditionality. Quantitative program performance will be monitored with a set ofquantitative performance criteria (QPCs) and indicative targets (ITs):•

QPCs on: (i) a floor on the NOPB of the PGE; (ii) a floor on the overall balance of the PGE and theoil derivatives financing account (Cuenta de Financiamiento de Derivados Deficitarios, CFDD);
and (iii) a floor on the accumulation of NFPS deposits at the BCE.

•

Continuous QPCs on: (i) non-accumulation of external payments arrears by the NFPS; and (ii) no
new direct/indirect BCE lending to the NFPS.

•

ITs on: (i) a floor on the NOPB including fuel subsidies (NOPBS) of the NFPS; (ii) a floor on theoverall balance of the NFPS; (iii) a floor on the change in the stock of net international reserves(NIR); (iv) a ceiling on the stock of domestic arrears to private suppliers of the PGE; and (v) afloor on the coverage of the cash transfer programs for lower income households.

47.
Structural Benchmarks. The program includes structural benchmarks to: (i) strengthen PFM,
including publication of a MTFF and MTDS in line with program commitments; (ii) restore the chainof payments, including by preparing a plan to clear and prevent the resurgence of domestic arrears;(iii) strengthen non-oil tax collection as one-off tax measures expire, including by preparing a plan
to reduce inefficient tax expenditures and broaden the tax base; (iv) rationalize and increase theefficiency of public expenditure, including by launching the SNC; (v) enhance the social safety net,
including by establishing a plan to complete the social registry underpinning social transfer
programs; (vi) foster financial intermediation and capital market development, by enhancing
financial sector oversight and prudential regulation, identifying possible reforms of the interest rate
system, and building capital market infrastructure; (vii) develop domestic capital markets throughimproved mechanisms for primary placement of government bonds; (viii) improve fiscal governancethrough the implementation of an agreement for the transfer of healthcare obligations; and (ix)further strengthen the effectiveness of the AML/CFT framework to adequately tackle illicit financial
flows.

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48.
Capacity to Repay. Ecuador’s capacity to repay the Fund is subject to significant risks andcritically depends on policy implementation and timely external financing. Under the proposedarrangement, GRA credit to Ecuador will peak in 2025, reaching 1,000 percent of quota. Ecuador’s
external public debt will reach 956 percent of gross reserves in 2024 while external debt service will
peak in 2027 to 48.6 percent of projected exports of goods and services. Peak Fund obligations
relative to gross international reserves would reach 25.8 percent in 2025 and decline steadily to
3.9 percent in 2033.
49.
Financing Assurances. The program is fully financed, with firm financing commitments inplace for the first 12 months of the arrangement, and with good prospects of adequate financing forthe remaining program period. Multilateral creditors (WB, IDB, Development Bank of Latin America
and the Caribbean (CAF), and FLAR) have committed to maintain or increase their support for
Ecuador. Financing commitments for the first 12 months have been obtained from most official
bilateral creditors and included in program financing. The authorities are actively discussing options
with the main bilateral creditor to maintain exposure to Ecuador. Obtaining this financing is very
important to strengthen fiscal and external buffers. The assumed financing for the remainder of the
program is based on good prospects of obtaining such support from all official creditors. Financing
is partly predicated on assumptions of rollover of commercial borrowing and market access of about
US$1.5 billion in 2025 and US$2 billion per year from 2026 onwards, which are below Ecuador’s
average access prior to the pandemic. In the event of financing plan shortfalls, alternative sources ora contingent response would be required (see ¶28).
50.
Safeguards. The BCE made significant progress since the 2019 safeguards assessment,
including implementing all the recommendations except for full alignment with International
Financial Reporting Standards. An update safeguards assessment will be required to be completed
no later than the first review of the EFF-supported program. In addition, given that the new EFF
arrangement envisages exceptional access and budget support, an update of the fiscal safeguards
review will also be required within the same timeframe.
51.
Lending into Arrears. Ecuador maintains a residual amount of arrears to international
private bond holders arising from outstanding claims on those international bonds that theauthorities repudiated in 2008-09. At that time, the majority of government obligations wererepurchased by the government. However, US$52 million remain outstanding in the hands ofindividual creditors, and the authorities have been unable to identify these creditors to settle theclaims. The authorities established a public procedure to follow in the event that a holder of thesebonds requests the liquidation of the securities, which continues to operate to solve outstanding
claims. Staff judges that the authorities continue to make good faith efforts to reach a collaborative
agreement with the remaining creditors and will continue to monitor evolving relations with these
creditors. Staff also judges that adequate safeguards remain in place for the use of Fund resources,and Ecuador’s adjustment efforts are not undermined by developments in creditor-debtor relations.
Financing assurances reviews will continue to be conducted at each review of the EFF arrangement
until the external arrears to private bondholders are cleared.

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52.
Article VIII/Capital Flow Management Measures (CFMs). In April 2024, the ISD rate wasincreased from 3.5 to 5 percent to address the sharp deterioration of the FX reserve position, driven
by net capital outflows in Ecuador’s financial account resulting from weak public finances andinvestor sentiment.5 The tax constitutes both an outflow CFM under the Fund’s Institutional View on
the Liberalization and Management of Capital Flows and an exchange restriction subject to Fundapproval under Article VIII Section 2(a). The authorities are committed to gradually phasing out theISD, as macroeconomic and balance of payments stability are restored and the FX reserve position isstrengthened, supported by implementation of the policies under the EFF-supported program. The
authorities are requesting Board approval for the retention of the exchange restriction arising fromthe ISD, on the basis that it is maintained for BOP reasons, temporary, and non-discriminatory.
53.
Enterprise Risks. The Fund faces significant business, operational, financial, and reputationalrisks related to the EFF arrangement. Business and operational risks to the program arise from an
uncertain economic outlook, weaknesses in institutional capacity, and a fragmented politicallandscape and forthcoming elections. These risks could lead to larger-than-envisaged financing
gaps. Financial risks could arise if difficulties in program implementation delay international financial
support and market re-access. These scenarios could also carry reputational risks for the Fund. There
are also important risk mitigants, including the authorities’ strong commitment to implementationof the program; the upfront policy actions already taken; the authorities' commitment to honoring
external debt obligations; the program’s protection of social spending; and the prior actions on
public financial management and contingency planning. Nevertheless, risks remain elevated. Theseshould be weighed against the reputational risk of the Fund not supporting a member facing severe
challenges and that has already taken substantive actions to address them.
Box 1. Assessment of Exceptional Access Criteria
Staff judges that all four exceptional access criteria are met.
Criterion 1—The member is experiencing or has the potential to experience exceptional balance of paymentspressures on the current account or the capital account resulting in a need for Fund financing that cannot be
met within the normal limits.
Ecuador is facing a balance of payments (BoP) need stemming from sharply slower growth, lower oilrevenues, and pressures on the financial account arising from large external debt obligations and loss ofmarket access. Although the fiscal measures recently approved by the authorities are expected to help
address fiscal and financing pressures, the country still faces an estimated financing gap of US$4 billion in
2024-28, even after accounting for an ambitious fiscal consolidation plan and support from international
financial institutions and official bilateral creditors, resulting in exceptional BoP pressures. Ecuador’s IMF
credit outstanding stands at SDR 5.8 billion (approximately US$8 billion, equivalent to 835 percent of quota),so that additional Fund support would require exceptional access.
Criterion 2—A rigorous and systematic analysis indicates that there is a high probability that the member’s
public debt is sustainable in the medium term. Where the member’s debt is assessed to be unsustainable exante, exceptional access will only be made available where the financing being provided from sources other

5 The ISD was originally introduced in 2007 and the authorities had been taking gradual steps to reduce its rate in

2022 and 2023, before reversing course amid the ongoing balance of payments difficulties.

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Box 1. Assessment of Exceptional Access (EA) Criteria (concluded)
than the Fund restores debt sustainability with a high probability. Where the member’s debt is consideredsustainable but not with a high probability, exceptional access would be justified if financing provided fromsources other than the Fund, although it may not restore sustainability with high probability, improves debt
sustainability and sufficiently enhances the safeguards for Fund resources.
Staff assesses this criterion as met. Under the staff’s proposed baseline, public debt is assessed to besustainable but not with high probability (Annex II). Consistent with the EA framework, staff assesses that
adequate safeguards are in place to meet EA Criterion 2 (EA2) should adverse shocks materialize. This
assessment is finely balanced and hinges on the steadfast implementation of the proposed fiscal
consolidation path and reforms envisaged under the program. As such, margins for maneuver are limited.
Criterion 3—The member has prospects of gaining or regaining access to private capital markets within atimeframe and on a scale that would enable the member to meet its obligations falling due to the Fund.
Although external sovereign bonds continue to trade at distressed levels, sovereign debt spreads havedeclined steadily by over 900 basis points year-to-date on account of the policy measures undertaken by theauthorities. The government has remained current on external debt obligations despite tight liquidity
conditions. Strong commitment to remain current on debt obligations, adhere to COPLAFIP’s debt ceilings,
and undertake ambitious fiscal consolidation and reforms is expected to help re-accessing international
markets. In addition, the expected decline in global interest rates should also facilitate market access.
prospects. Ecuador had regularly accessed international capital markets until 2019, providing reasonable
prospects for the issuance of international bonds in a context of gradual macroeconomic improvement androbust policy reform implementation under the EFF arrangement.
Criterion 4—The policy program provides a reasonably strong prospect of success, including not only themember’s adjustment plans but also its institutional and political capacity to deliver that adjustment.
The authorities are strongly committed to the objectives of the program and have demonstrated capacity toundertake measures to ensure its success. Between December 2023 and April 2024, the National Assembly
approved 5 urgent economic laws, including several fiscal measures, which shows broad-based legislative
support for macroeconomic stabilization. The authorities enacted an increase in the VAT rate to 15 percent
as well as other measures to address the fiscal and liquidity challenges facing the country. The authorities
are committed to implementing measures to meet the program’s targets. While the authorities’ strong
ownership supports prospects for program success, the assessment remains subject to considerable risks
stemming from a fragmented National Assembly and forthcoming general elections in early 2025. However,based on staff’s discussions with political actors, there is broad support from several political parties forengagement with the Fund and other international financial institutions and for the overall objectives of theenvisaged EFF-supported program, including the need to strengthen fiscal sustainability (though withdifferent emphasis on specific measures), rebuild buffers and preserve dollarization, protect the mostvulnerable, and boost inclusive growth.

STAFF APPRAISAL54.
The Ecuadorian authorities took swift and bold actions to tackle the severe fiscal andliquidity crisis. The policy response was successful in containing the fiscal deficit and improving thegovernment’s liquidity position in the near term. It combined a VAT rate hike with transitory tax
measures, bringing Ecuador’s tax collection more in line with regional peers. In turn, the 2024 fiscal
plan included efforts to contain public expenditure, while addressing priority security, social, and

22

INTERNATIONAL MONETARY FUNDECUADOR

investment needs. The policy package also contained some limited fiscal incentives to promote
investment and youth employment.
55.
The authorities are committed to implementing further ambitious fiscal efforts toensure fiscal sustainability and put debt on a firm downward path. The fiscal consolidation
should combine balanced efforts on revenues and expenditures. On the revenue side, the reform
efforts aim at replacing short-term transitory measures with permanent high-quality ones, such as
rationalizing inefficient tax expenditures, to anchor public finances on reliable sources of income andreduce oil dependence. On the expenditure side, the consolidation efforts focus on gradually
streamlining the wage bill, improving the efficiency of public procurement, while protecting fiscal
space for essential spending on the social safety net and public investment. The authorities also
intend to improve the targeting of fuel subsidies. The fiscal plan should continue to be anchored on
reducing debt in line with COPLAFIP’s debt limits and on rebuilding fiscal buffers to adequate levels,with the objective of restoring market confidence and reestablishing access to international capital
markets. Policy actions to reform domestic debt issuance and develop the domestic debt market willbe crucial to boost domestic financing for both the private and public sectors.
56.
The coverage of the social assistance programs should continue to be expanded toprotect the vulnerable and ensure burden sharing of fiscal adjustment. The social safety net
should build on the progress made in recent years with the social registry to map vulnerable
households. Going forward, the objective should be to expand the social safety net with theoverarching objective of gradually covering the most vulnerable families, prioritizing those in thelowest deciles of the income distribution.
57.
Efforts should continue to improve transparency, PFM, governance, and the AML/CFT
framework. Making swift progress with the healthcare audits and preparing a new actionableagreement between the MEF and IESS to settle healthcare and pension obligations would improve
the transparency of social security spending and fiscal execution. Mapping and clearing arrears
would help rebuild liquidity and protect the chain of payments, and ultimately support growth.
Relatedly, improving cash management practices by the treasury would help the government
preventing cash shortfalls and the accumulation of obligations. Finalizing the pending audits of thestate-owned oil companies would improve the transparency and accountability of an importantsector of the economy. Finally, strengthening the effectiveness of the AML/CFT framework would
help tackle illicit financial flows, particularly the financing and profitability of organized crime.
58.
Safeguarding financial stability will hinge on strengthening the prudential andoversight frameworks. To this end, implementing the recommendations of the 2023 FSSA would
tackle coordination issues among agencies involved in financial sector oversight, including for crisis
preparedness, boosting capital and liquidity requirements, and promoting financial deepening by
gradually phasing out financial repression measures. Taking steps to improve market infrastructure
would help develop the domestic debt market.
59.
Staff supports the authorities’ request for a 48-month EFF arrangement withexceptional access. The economic plan supported by the EFF arrangement is designed to phase the

INTERNATIONAL MONETARY FUND

23

ECUADOR

needed fiscal adjustment, carefully balancing the goals of reducing public debt and rebuilding
buffers while preserving space for protecting the most vulnerable and urgent priority spending. The
swift fiscal actions, including the increase in the VAT rate by 3 percentage points, taken before
program approval demonstrate the authorities’ commitment to implement needed reforms andaddress the challenges facing the Ecuadorian economy.
60.
Staff supports the authorities’ request for Board approval for the retention of theexchange restriction arising from the ISD. The exchange restriction is maintained for BoP reasons,temporary, and non-discriminatory.

24

INTERNATIONAL MONETARY FUNDECUADOR

Figure 1. Ecuador: Recent Economic Developments
Economic growth decelerated in 2023 …

… with most sectors slowing.

High-frequency indicators point to continued weakness.

Employment has gradually recovered since the pandemic.

Inflation has declined since its peak in mid-2022 …

… amid lower contributions from transportation.

Sources: Ecuador’s Internal Revenue Service, Central Bank of Ecuador, and IMF staff calculations.
1/ Core inflation excludes food (except coffee, tea, and cocoa; and mineral waters, soft drinks, and fruit/vegetable juices); gas;and fuel and lubricants. Local sales are based on administrative tax data.

INTERNATIONAL MONETARY FUND

25

ECUADOR

Figure 2. Ecuador: Fiscal Developments 1/
After improving in 2020-22, the fiscal balance weakened

The deficit in 2023 was financed mainly through ain 2023.

drawdown in deposits and domestic arrears.

Fiscal revenues contracted in 2023 due to lower oil
production and prices, and a slowing economy... while non-interest expenditure increased.

Gross financing needs increased due to the wider fiscal

Sovereign debt spreads narrowed in 2024 following the

deficit.

announcement of measures to reduce the fiscal deficit.

Sources: Central Bank of Ecuador, Ministry of Economy and Finance, Haver, Bloomberg, and IMF staff calculations.
1/ The data for Ecuador reflect net lending/borrowing for the Non-Financial Public Sector (NFPS).

26

INTERNATIONAL MONETARY FUNDECUADOR

Figure 3. Ecuador: External Sector Developments
While imports moderated in 2023, ...

… reducing the current account surplus, …

… led to a decline in gross international reserves.

... oil exports declined, …

… which together with a deficit in the financial accountbalance …

Public and private external debt remained broadly stable.

Sources: Central Bank of Ecuador, STA BOP database, and IMF staff calculations.

INTERNATIONAL MONETARY FUND

27

ECUADOR

Figure 4. Ecuador: Financial System Developments
Deposit and credit growth decelerated in 2023 …

... with a significant slowdown in credit to businesses.

Banks' liquidity declined.

Banks’ capital ratios are above the regulatory norm.

NPLs returned to historical average levels following theInterest rates increased, with margins (lending minus

lifting of COVID-19 credit relief measures.

deposit rates) remaining broadly stable.

Sources: Central Bank of Ecuador, Superintendency of Banks, IMF Monetary and Financial Statistics, and IMF staff calculations.
1/ Loan to deposit data corresponds to Other Depository Institutions, which include private banks, Banecuador, Banco delPacifico, private financial companies, mutualists, cooperatives, and credit card companies. Credit and deposit data correspond to
the whole financial system.
2/ Data correspond to the private banks aggregate, which includes Banco del Pacifico.

28

INTERNATIONAL MONETARY FUNDECUADOR

Table 1. Ecuador: Selected Economic and Financial Indicators, 2021-29
Projections
2021

2022

2023

2024

2025

2026

2027

2028

2029

(Percent change, unless otherwise indicated)
National income and prices
Real GDP
Domestic demand (contribution to growth)
Consumption (contribution to growth)
Investment (contribution to growth)External demand (contribution to growth)
Imports (contribution to growth, -)Exports (contribution to growth)
Consumer price index (period average)
Consumer price index (end-of-period)

9.8
12.1
7.2
4.9
-2.3
4.5
2.2
0.1
1.9

6.2
7.0
5.0
2.0
-0.8
2.7
2.0
3.5
3.7

2.4
1.4
1.4
0.0
1.0
-0.3
0.7
2.2
1.3

0.1
-0.8
-0.9
0.1
0.9
-0.4
0.5
2.4
3.4

1.2
-0.1
-0.1
0.0
1.3
-0.4
0.9
2.2
1.7

1.8
1.3
0.0
1.3
0.5
0.3
0.8
1.6
1.5

2.4
1.9
1.1
0.8
0.4
1.0
1.4
1.5
1.5

2.5
2.3
1.2
1.1
0.2
0.7
0.9
1.5
1.5

2.5
2.4
1.4
1.0
0.1
0.7
0.8
1.5
1.5

Broad money (M2) 1/

13.6
9.8

13.9
7.5

8.4
6.7

4.0
2.5

3.3
3.4

3.3
3.4

3.8
3.9

4.0
4.1

4.0
4.1

External sector
Exports
Oil
Non-oil
Imports
Terms of trade
Real effective exchange rate (2010=100)
Real effective exchange rate, end-of-period (depreciation,-)

31.1
64.6
19.7
40.3
13.6
114.3
-4.9

22.5
34.6
16.8
27.2
6.5
117.7
3.0

-4.7
-22.7
5.1
-4.0
-5.6
116.1
-1.4

1.7
-2.8
3.5
-0.9
-0.2
..
..

-1.5
-7.7
0.9
-1.1
-2.3
..
..

1.3
-6.7
4.0
0.2
-1.2
..
..

3.9
-2.3
5.8
3.3
0.7
..
..

3.1
-1.6
4.4
2.4
-0.4
..
..

2.6
-0.3
3.4
1.4
0.3
..
..

Current account balance

2.9

1.8

1.9

2.1

2.2

2.3

2.4

2.5

2.5

NFPS public finances
Revenue
Expenditure
Net lending (+) / Net borrowing (-)
Primary balance
Non-oil primary balance
Public debt 2/
Domestic
External

35.8
37.4
-1.6
-1.4
-5.6
61.6
17.4
44.2

38.7
38.7
0.0
0.5
-3.4
57.0
14.9
42.1

36.7
40.2
-3.6
-2.7
-4.9
55.3
14.8
40.5

38.5
40.5
-2.0
-0.9
-3.1
56.3
14.4
41.9

37.6
38.8
-1.2
0.1
-3.1
56.4
13.9
42.5

37.7
38.0
-0.2
1.2
-2.6
55.5
13.5
42.0

37.2
37.3
-0.1
1.3
-2.1
54.2
13.2
41.0

36.9
36.3
0.6
2.0
-1.5
52.2
12.9
39.3

36.5
35.7
0.8
2.2
-1.2
49.7
12.6
37.1

Monetary sector
Credit to the private sector(Percent of GDP)

(Percent of GDP)
Saving-investment balance
Consumption
PrivatePublicNational saving
PrivatePublicGross investment
Private 3/
PublicMemorandum items:
Nominal GDP (US$ millions)
GDP per capita (US$)
Gross international reserves (US$ millions) 4/
As a percent of the ARA metric 5/
Oil price Ecuador mix (US$ per barrel)
Oil production (millions of barrels)
Exports of oil (millions of barrels) 6/

78.2
63.8
14.3
23.9
23.3
0.5
21.0
14.7
6.3

77.8
64.4
13.4
24.1
22.1
2.0
22.3
16.4
5.9

78.3
64.3
13.9
23.4
25.2
-1.8
21.4
16.4
5.1

77.3
63.6
13.8
23.4
23.3
0.1
21.3
15.2
6.1

76.9
63.6
13.4
24.2
23.5
0.7
22.0
16.4
5.5

76.5
63.6
12.9
24.5
22.8
1.7
22.2
16.5
5.7

76.0
63.6
12.5
24.9
23.1
1.8
22.5
16.8
5.7

75.6
63.6
12.1
25.3
22.8
2.5
22.8
17.1
5.7

75.4
63.6
11.8
25.4
22.7
2.7
22.9
17.3
5.6

107,435
6,129
7,898
34.4
62.0
172.6
133.7

116,586
6,613
8,459
34.3
85.8
175.6
130.9

118,845
6,694
4,454
18.2
68.0
173.5
125.7

121,789
6,806
5,212
20.7
67.5
175.2
126.6

125,968
6,982
6,724
26.2
63.7
175.4
123.6

130,212
7,137
8,768
33.1
61.3
175.6
120.0

135,317
7,360
10,991
40.3
59.3
175.9
121.4

140,849
7,602
13,264
47.6
58.3
176.1
121.6

146,591
7,851
15,588
55.6
58.0
176.3
121.8

Sources: Ministry of Economy and Finance; Central Bank of Ecuador; Haver; and Fund staff calculations and projections.
1/ Broad money comprises monetary species in circulation, demand deposits, and quasi-money.
2/ Gross debt consolidated at the level of the NFPS.
3/ Includes inventories.
4/ Gross international reserves excludes non-liquid and encumbered assets.
5/ Does not include the Liquidity Fund. If the Liquidity Fund was included, the ARA metric would be 32.3 percent at end-2023.
6/ Includes crude and derivatives. For derivatives, only exports of public companies are included.

INTERNATIONAL MONETARY FUND

29

ECUADOR

Table 2a. Ecuador: Statement of Nonfinancial Public Sector Operations, 2021-29
Projections
2021

2022

2023

2024
(US$ million)
46,85914,50532,354
17,617
5,876
961
8,288
7,100
866
2,242
1,284
958
250
6,237
8,501
1,678
6,823
49,302
46,79013,14816,91011,860
5,050
3,000
2,597
403
10,506
7,368
1,334
1,803
3,227
2,251
1,054
1,198
976
2,511
-2,442
360
2,802
-79
2,880
0

2025

2026

Revenue (1)38,44345,172
43,57447,352
49,130Oil revenue
13,106
16,854
14,507
14,89015,291
Nonoil revenue
25,33728,31829,06732,462
33,839Taxes
14,21015,781
15,04917,913
18,831
Income tax
3,815
4,440
4,635
5,141
5,373
Property tax
733
1,212
872
836
634
Goods and services
7,094
7,582
7,391
8,848
9,380
o/w Value added tax
5,986
6,440
6,269
7,660
8,149
o/w Excise tax
821
852
813
855
885
International trade and transactions
2,240
2,303
1,885
2,575
2,916
Import tax
1,207
1,267
1,180
1,245
1,266
Tansfers abroad tax
1,033
1,036
705
1,330
1,651
Other tax
328
245
266
514
528
Social security contributions
5,305
5,773
6,051
6,376
6,582
Other revenue
5,822
6,763
7,967
8,173
8,425
Interest
1,195
1,288
1,559
1,728
1,786
Other
4,627
5,475
6,408
6,445
6,639
Expenditure (2)40,14545,12047,796
48,82649,444
Expense37,86942,80545,75046,45846,938Compensation of employees
12,067
12,273
12,925
13,317
13,437
Use of goods and services
12,277
16,72916,88015,782
15,241
Oil 1/
8,561
12,348
11,845
10,824
10,417
Nonoil
3,717
4,381
5,036
4,958
4,825
Interest
1,375
1,788
2,609
3,347
3,631
Nonresidents
963
1,319
2,126
2,876
3,133
Residents
413
469
483
471
498
Social benefits
8,907
9,298
10,21910,756
11,122Social security benefits
5,888
6,162
7,164
7,531
7,792
Social assistance benefits
1,342
1,262
1,295
1,386
1,438
Employment-related social benefits
1,677
1,874
1,760
1,840
1,892
Other expense
3,242
2,717
3,117
3,256
3,507
Transfers not elsewhere classified
2,343
1,852
2,205
2,113
2,343
Current
1,029
877
1,041
900
1,009
Capital
1,314
976
1,165
1,214
1,334
Other
899
865
912
1,143
1,164
Net/gross investment in nonfinancial assets
2,276
2,315
2,046
2,368
2,506
Net lending (+) / Net borrowing (-) (NLB = 1-2)
-1,70152-4,223-1,473-314
Net acquisition of financial assets (3)
4,444
2,795
-538
954
939
Net incurrence of liabilities (4)
5,847
2,790
4,394
2,427
1,253
Domestic
3,058
752
4,423
-58
39
External
2,789
2,038
-30
2,486
1,214
Overall statistical discrepancy (-NLB+3-4)
298
-47
-709
0
0
Memorandum items:
Primary balance-1,522551-3,173-1,121145
1,531
Nonoil primary revenue
24,142
27,02927,50930,67630,73432,053
Nonoil primary expenditure
30,20930,98433,34334,441
34,65535,397
Nonoil primary balance (NOPB)-6,067-3,954-5,835-3,765-3,921-3,343
NOPB including fuel subsidies (NOPBS)-7,906-8,501-9,024-6,528-5,956-4,390Oil balance
4,545
4,506
2,662
2,645
4,066
4,874
Central government (PGE+CFDD) NLB-4,402-2,067-6,454-4,213-3,566-2,530
NFPS gross debt
66,19066,431
65,77868,58071,00772,261
Domestic
18,747
17,404
17,635
17,556
17,49817,537External
47,44349,02848,14351,02453,50954,723Nominal GDP
107,435
116,586
118,845
121,789
125,968
130,212Sources: Ministry of Economy and Finance; and IMF staff estimates and projections.
1/ Includes cost of importing oil derivatives (CFDD), of oil contracts (SHE), of goods and services used in oil production, and of oil services (PEC and PAM).

30

INTERNATIONAL MONETARY FUND

2027

2028

2029

50,298
15,10535,193
19,658
5,626
670
9,811
8,534
918
3,000
1,288
1,711
551
6,808
8,727
1,885
6,842
50,41647,816
13,534
15,29810,500
4,797
3,773
3,288
485
11,514
8,076
1,490
1,948
3,697
2,472
1,010
1,462
1,225
2,600
-118
927
1,045
337
708
0

52,024
15,31936,704
20,576
5,907
710
10,288
8,960
954
3,094
1,315
1,779
576
7,059
9,070
1,894
7,176
51,191
48,48813,601
15,122
10,276
4,846
3,946
3,420
527
11,947
8,396
1,542
2,009
3,871
2,615
1,008
1,608
1,256
2,703
832
1,031
198
335
-137
0

53,44015,328
38,112
21,3786,174
739
10,708
9,325
993
3,157
1,342
1,815
600
7,347
9,388
1,923
7,465
52,25749,464
13,807
15,28810,301
4,987
3,965
3,485
479
12,376
8,739
1,604
2,033
4,028
2,722
1,049
1,673
1,306
2,792
1,183
538
-645
333
-978
0

1,771
33,30836,142-2,834-3,815
4,605-2,34373,306
17,87555,431
135,317

2,885
34,81036,969-2,158-2,9705,043-1,45073,505
18,21055,295140,849

3,228
36,19037,991-1,801-2,646
5,026-879
72,85918,54354,316
146,591ECUADOR

Table 2b. Ecuador: Statement of Nonfinancial Public Sector Operations, 2021-29
Projections
2021

2022

2023

2024

2025

2026

2027

2028

2029

(In percent of GDP)
38.5
37.6
11.9
11.8
26.6
25.8
14.5
14.2
4.8
4.1
0.8
0.7
6.8
7.0
5.8
6.1
0.7
0.7
1.8
2.0
1.1
1.0
0.8
1.1
0.2
0.4
5.1
5.1
7.0
6.5
1.4
1.4
5.6
5.1
40.5
38.8
38.4
36.9
10.8
10.6
13.9
12.5
9.7
8.6
4.1
3.9
2.5
2.7
2.1
2.3
0.3
0.4
8.6
8.5
6.1
6.0
1.1
1.1
1.5
1.5
2.6
2.6
1.8
1.7
0.9
0.7
1.0
1.0
0.8
0.9
2.1
1.9
-2.0
-1.2
0.3
0.8
2.3
1.9
-0.1
0.0
2.4
2.0
0.0
0.0

Revenue (1)
35.8
38.7
36.7
37.7
37.2
36.9
Oil revenue
12.2
14.5
12.2
11.7
11.2
10.9
Nonoil revenue
23.6
24.3
24.5
26.0
26.0
26.1
Taxes
13.2
13.5
12.7
14.5
14.5
14.6
Income tax
3.6
3.8
3.9
4.1
4.2
4.2
Property tax
0.7
1.0
0.7
0.5
0.5
0.5
Goods and services
6.6
6.5
6.2
7.2
7.3
7.3
o/w Value added tax
5.6
5.5
5.3
6.3
6.3
6.4
o/w Excise tax
0.8
0.7
0.7
0.7
0.7
0.7
International trade and transactions
2.1
2.0
1.6
2.2
2.2
2.2
Import tax
1.1
1.1
1.0
1.0
1.0
0.9
Tansfers abroad tax
1.0
0.9
0.6
1.3
1.3
1.3
Other tax
0.3
0.2
0.2
0.4
0.4
0.4
Social contributions
4.9
5.0
5.1
5.1
5.0
5.0
Other revenue
5.4
5.8
6.7
6.5
6.4
6.4
Interest
1.1
1.1
1.3
1.4
1.4
1.3
Other
4.3
4.7
5.4
5.1
5.1
5.1
Expenditure (2)
37.4
38.7
40.2
38.0
37.3
36.3
Expense
35.2
36.7
38.5
36.0
35.3
34.4
Compensation of employees
11.2
10.5
10.9
10.3
10.0
9.7
Use of goods and services
11.4
14.3
14.2
11.7
11.3
10.7
Oil 1/
8.0
10.6
10.0
8.0
7.8
7.3
Nonoil
3.5
3.8
4.2
3.7
3.5
3.4
Interest
1.3
1.5
2.2
2.8
2.8
2.8
Nonresidents
0.9
1.1
1.8
2.4
2.4
2.4
Residents
0.4
0.4
0.4
0.4
0.4
0.4
Social benefits
8.3
8.0
8.6
8.5
8.5
8.5
Social security benefits
5.5
5.3
6.0
6.0
6.0
6.0
Social assistance benefits
1.2
1.1
1.1
1.1
1.1
1.1
Employer social benefits
1.6
1.6
1.5
1.5
1.4
1.4
Other expense
3.0
2.3
2.6
2.7
2.7
2.7
Transfers not elsewhere classified
2.2
1.6
1.9
1.8
1.8
1.9
Current
1.0
0.8
0.9
0.8
0.7
0.7
Capital
1.2
0.8
1.0
1.0
1.1
1.1
Other
0.8
0.7
0.8
0.9
0.9
0.9
Net/gross investment in nonfinancial assets
2.1
2.0
1.7
1.9
1.9
1.9
Net lending (+) / Net borrowing (-) (NLB = 1-2)
-1.6
0.0
-3.6
-0.2
-0.1
0.6
Net acquisition of financial assets (3)
4.1
2.4
-0.5
0.7
0.7
0.7
Net incurrence of liabilities (4)
5.4
2.4
3.7
1.0
0.8
0.1
Domestic
2.8
0.6
3.7
0.0
0.2
0.2
External
2.6
1.7
0.0
0.9
0.5
-0.1
Overall statistical discrepancy (-NLB+3-4)
0.3
0.0
-0.6
0.0
0.0
0.0
Memorandum items:
Primary balance
-1.4
0.5
-2.7
-0.9
0.1
1.2
1.3
2.0
Nonoil primary revenue
22.5
23.2
23.1
25.2
24.4
24.6
24.6
24.7
Nonoil primary expenditure
28.1
26.6
28.1
28.3
27.5
27.2
26.7
26.2
Nonoil primary balance (NOPB)
-5.6
-3.4
-4.9
-3.1
-3.1
-2.6
-2.1
-1.5
NOPB including fuel subsidies (NOPBS)
-7.4
-7.3
-7.6
-5.4
-4.7
-3.4
-2.8
-2.1
Oil balance
4.2
3.9
2.2
2.2
3.2
3.7
3.4
3.6
Central government (PGE+CFDD) NLB
-4.1
-1.8
-5.4
-3.5
-2.8
-1.9
-1.7
-1.0
NFPS gross debt
61.6
57.0
55.3
56.3
56.4
55.5
54.2
52.2
Domestic
17.4
14.9
14.8
14.4
13.9
13.5
13.2
12.9
External
44.2
42.1
40.5
41.9
42.5
42.0
41.0
39.3
Sources: Ministry of Economy and Finance; and IMF staff estimates and projections.
1/ Includes cost of importing oil derivatives (CFDD), of oil contracts (SHE), of goods and services used in oil production, and of oil services (PEC and PAM).

INTERNATIONAL MONETARY FUND

36.5
10.5
26.0
14.6
4.2
0.5
7.3
6.4
0.7
2.2
0.9
1.2
0.4
5.0
6.4
1.3
5.1
35.6
33.7
9.4
10.4
7.0
3.4
2.7
2.4
0.3
8.4
6.0
1.1
1.4
2.7
1.9
0.7
1.1
0.9
1.9
0.8
0.4
-0.4
0.2
-0.7
0.0
2.2
24.7
25.9
-1.2
-1.8
3.4
-0.6
49.7
12.6
37.1

31

ECUADOR

Table 3. Ecuador: Nonfinancial Public Sector Financing, 2021-29
Projections

Gross financing needs
NFPS deficit (=-NLB)
Amortization
Domestic
Loans
Securities
Treasury certificates
Bonds
Other accounts payable clearance 1/External
Loans
Multilateral
Bilateral
Banks
Securities (Eurobonds)
Other accounts payable clearance 2/Gross financing sources
Domestic
Deposits accumulation (-)
o/w Deposits at the BCE
Loans
Securities
Treasury certificates
Bonds
Other accounts payable accumulation 1/
External
Loans
MultilateralWorld Bank (WB)
Inter-American Development Bank (IDB)
Development Bank of Latin America (CAF)
International Monetary Fund (IMF)
Latin America Reserve Fund (FLAR)
Other
Bilateral
Banks
Securities (Eurobonds)
Special Drawing Rights (2021 SDR allocation)
Other accounts payable accumulation 2/
Other assets (-)/liabilities 3/
Statistical discrepancy
Net Financing
Net acquisition of financial assets
Net incurrence of liabilities
Domestic
External
NFPS gross debt
Domestic
Loans
Securities
Treasury certificates
Bonds
Other accounts payable 1/
External
Loans
Securities
SDRs
Other accounts payable 2/

2021

2022

2023

7,053
1,701
5,352
3,505
0
3,175
2,320
855
330
1,847
1,525
780
482
263
200
121
7,053
4,194
-1,585-1,357
2,184
3,595
2,418
1,177
0
4,636
3,672
3,257
318
1,348
480
802
308
0
370
46
15
949
0
-2,074
298
1,403
4,444
5,847
3,058
2,789
66,19018,747
3,305
7,609
2,418
5,191
7,834
47,44327,946
17,704
1,340
452

6,321
-52
6,373
3,997
168
2,947
2,418
529
883
2,376
2,227
1,110
922
194
54
95
6,321
1,555
-947
-277
0
2,501
1,873
629
0
4,414
4,399
4,200
1,328
846
414
1,611
0
0
196
3
15
0
0
400
-47
-5
2,795
2,790
752
2,038
66,431
17,404
3,137
7,156
1,873
5,283
7,111
49,02829,732
17,665
1,274
357

9,815
4,223
5,592
2,936
0
2,936
1,873
1,063
0
2,656
1,867
1,003
709
154
708
81
9,815
6,776
3,156
2,864
11
2,918
2,166
752
691
2,626
2,611
1,581
700
594
285
0
0
2
256
775
15
0
0
1,121
-709
4,931
-538
4,394
4,423
-30
65,77817,635
3,149
7,135
2,166
4,968
7,352
48,14330,596
15,9881,284
276

Gross financing needs
6.6
5.4
NFPS deficit (=-NLB)
1.6
0.0
Amortization
5.0
5.5
Gross financing sources
6.6
5.4
Domestic
3.9
1.3
External
4.3
3.8
Other assets (-)/liabilities 3/-1.9
0.3
Statistical discrepancy (-)
0.3
0.0
NFPS gross debt
61.6
57.0
Domestic
17.4
14.9
External
44.2
42.1
Sources: Ministry of Economy and Finance; and IMF staff estimates and projections.
1/ Includes domestic arrears accumulation/clearance and convenio de liquidez.
2/ Includes accumulation/clearance of oil related financing.
3/ Includes accumulation of assets other than deposits and incurrence of non-debt liabilities.

32

INTERNATIONAL MONETARY FUND

8.3
3.6
4.7
8.3
5.7
2.2
0.9
-0.6
55.3
14.8
40.5

2024

2025

(US$ million)
8,035
7,849
2,442
1,473
5,593
6,375
3,269
3,221
79
158
2,990
2,662
2,166
2,166
824
496
200
400
2,325
3,154
2,181
2,981
1,314
2,140
718
704
149
137
44
74
100
100
8,035
7,849
2,830
2,209
-360
-954
-360
-954
0
0
3,190
3,162
2,166
2,166
1,024
996
0
0
5,205
5,640
5,205
4,140
4,795
3,150
500
400
1,300
550
495
450
1,500
1,250
500
0
500
500
410
990
0
0
0
1,500
0
0
0
0
0
0
0
0
2,442
1,473
360
954
2,802
2,427
-79
-58
2,880
2,486
68,58071,007
17,556
17,498
3,070
2,912
7,335
7,835
2,166
2,166
5,168
5,668
7,152
6,752
51,02453,50933,62034,77915,944
17,370
1,284
1,284
176
76
(In percent of GDP)
6.6
6.2
2.0
1.2
4.6
5.1
6.6
6.2
2.3
1.8
4.3
4.5
0.0
0.0
0.0
0.0
56.3
56.4
14.4
13.9
41.9
42.5

2026

2027

2028

2029

7,704
314
7,390
3,404
161
2,943
2,166
777
300
3,986
3,005
2,216
678
111
905
76
7,704
2,504
-939
-939
0
3,443
2,166
1,277
0
5,200
3,200
2,400
400
550
450
500
0
500
800
0
2,000
0
0
0
0
314
939
1,253
39
1,214
72,261
17,537
2,751
8,335
2,166
6,168
6,452
54,723
34,974
18,465
1,284
0

7,640
118
7,522
3,080
163
2,917
2,166
751
0
4,442
3,537
2,769
664
104
905
0
7,640
2,490
-927
-927
0
3,417
2,166
1,251
0
5,150
3,150
2,400
400
550
450
500
0
500
750
0
2,000
0
0
0
0
118
927
1,045
337
708
73,306
17,875
2,588
8,835
2,166
6,668
6,452
55,431
34,587
19,560
1,284
0

6,796
-832
7,628
3,341
165
3,176
2,166
1,010
0
4,287
3,380
2,755
587
39
906
0
6,796
2,646
-1,031-1,031
0
3,676
2,166
1,510
0
4,150
2,150
1,650
400
550
450
250
0
0
500
0
2,000
0
0
0
0
-832
1,031
198
335
-137
73,505
18,210
2,424
9,335
2,166
7,168
6,452
55,29533,356
20,654
1,284
0

6,797
-1,183
7,980
3,621
167
3,455
2,166
1,288
0
4,358
3,448
2,901
508
40
910
0
6,797
3,417
-538
-538
0
3,955
2,166
1,788
0
3,380
1,380
1,180
400
330
450
0
0
0
200
0
2,000
0
0
0
0
-1,183
538
-645
333
-978
72,85918,543
2,257
9,835
2,166
7,668
6,452
54,316
31,28821,744
1,284
0

5.9
0.2
5.7
5.9
1.9
4.0
0.0
0.0
55.5
13.5
42.0

5.6
0.1
5.6
5.6
1.8
3.8
0.0
0.0
54.2
13.2
41.0

4.8
-0.6
5.4
4.8
1.9
2.9
0.0
0.0
52.2
12.9
39.3

4.6
-0.8
5.4
4.6
2.3
2.3
0.0
0.0
49.7
12.6
37.1

ECUADOR

Table 4. Ecuador: Balance of Payments, 2021-29
Projections
2021

2022

2023

3,098
2,993
26,968
8,607
18,36023,975
4,643
19,332-2,083
2,070
4,153-1,669
89
1,758
3,858
3,767

2,133
2,544
33,033
11,587
21,44630,4897,640
22,849-2,652
2,910
5,562-1,868
233
2,101
4,110
4,113

2,291
2,210
31,484
8,952
22,532
29,274
7,041
22,232-2,017
3,156
5,173-2,669
237
2,906
4,767
4,747

Capital account

-232

80

78

79

Financial accountDirect investment
Other public sector flows
Disbursements
Amortizations
Other private sector flows

2,771
-648
-1,987-3,834
1,847
5,406

2,948
-879
-426
-2,802
2,376
4,254

5,224
-372
30
-2,6262,656
5,566

Errors and omissions

169

-328

Overall balance

263

Change in reserve assets (increase, -) 1/
IMF net credit and loans
IMF exceptional financing under the EFF
Other external financing 2/

-948
662
802
23

Current accountTrade balance
Exports, f.o.b.
Oil
Non-oil
Imports, f.o.b.
Oil
Non-oil
Services
Credits
DebitsPrimary income
Credits
DebitsSecondary income
Of which: workers' remittances, net

2026

2027

2028

2029

3,023
3,204
31,9507,491
24,45828,745
5,247
23,499-1,5883,495
5,083-4,015
288
4,303
5,422
5,234

3,269
3,498
33,195
7,316
25,87929,697
5,424
24,273-1,637
3,633
5,270-4,194
285
4,479
5,601
5,406

3,552
3,799
34,216
7,200
27,01630,417
5,409
25,008-1,6783,771
5,450-4,355
317
4,672
5,786
5,583

3,730
4,260
35,1097,182
27,92730,8495,355
25,494-1,823
3,791
5,614-4,467
348
4,815
5,761
5,549

81

84

87

90

94

1,859
-664
-2,880-5,205
2,325
5,404

1,324
-1,120-2,486-5,640
3,154
4,930

1,063
-1,862-1,214-5,200
3,986
4,139

1,133
-2,379-708-5,150
4,442
4,220

1,368
-2,985137-4,150
4,287
4,217

1,500
-3,648
978-3,3804,358
4,170-1,220

0

0

0

0

0

0

-1,063-4,075

757

1,512

2,044

2,223

2,273

2,324

-568
1,611
1,611
20

4,284
-228
0
0

-757
971
1,500
0

-1,512255
1,250
0-2,044-542
500
0-2,223-728
500
0-2,273-1,061250
0-2,324-1,438
0
0

1.9
4,454
1.6
3.7
18.2
1.6
7.5
5.9
0.3
6.1
1.1
11.7
1.8
-5.6
68
0.3
48.1

(Units as indicated)
2.1
2.2
2.3
5,212
6,724
8,768
1.9
2.4
3.0
4.3
5.3
6.7
20.7
26.2
33.1
1.7
1.8
1.7
7.1
6.4
5.8
5.4
4.6
4.0
0.4
0.4
0.6
0.1
3.3
1.8
-2.3
-0.7
0.1
2.4
3.1
3.9
-1.6
1.0
1.3
-1.0
-2.4
-0.7
68
64
61
0.5
0.9
1.4
48.4
48.7
48.0

2.4
10,991
3.7
8.1
40.3
1.4
5.4
4.0
1.0
2.5
2.6
3.4
1.8
0.7
59
1.8
47.0

2.5
13,264
4.4
9.4
47.6
1.3
5.1
3.8
1.2
2.4
1.5
3.3
1.5
-0.4
58
2.1
45.1

2.5
15,588
5.2
10.6
55.6
1.2
4.9
3.7
1.3
2.0
1.6
3.0
2.1
0.3
58
2.5
42.7

Memorandum items:
Current account balance (percent of GDP)
2.9
1.8
Gross international reserves (US$ millions)
7,898
8,459
In months of next year's imports
2.6
2.9
As a percent of nominal GDP
7.4
7.3
As a percent of ARA metric 3/
34.4
34.3
Oil balance (percent of GDP)
3.7
3.4
Exports
8.0
9.9
Imports
4.3
6.6
Non-oil balance (percent of GDP)
-0.8
-1.6
Export volume growth rate (percent)
7.5
4.6
Import volume growth rate (percent)19.0
9.6
Non-oil goods export volume growth rate (percent)15.4
5.3
Non-oil goods import volume growth rate (percent)
17.9
9.4
Goods terms of trade growth rate (percent)
13.6
6.5
Oil price Ecuador mix (U.S. dollars per barrel)
62
86
Foreign direct investment, net (percent of GDP)
0.6
0.8
External debt (percent of GDP)
54.1
51.6
Sources: Central Bank of Ecuador; and Fund staff calculations and estimates.
1/ Reflects the national definition of gross international reserves.

2024
2025
(US$ million)
2,537
2,755
2,991
2,849
32,01531,5508,699
8,025
23,31623,52529,02428,702
6,620
5,756
22,40422,945-2,292-1,604
2,615
3,377
4,907
4,981
-3,271-3,739
426
348
3,697
4,087
5,109
5,250
4,933
5,068

2/ Includes foreign arrears and net flows from oil funds held abroad and flows associated with debt default and restructuring.
3/ Does not include the Liquidity Fund. If the Liquidity Fund was included, the ARA metric would be 32.3 percent at end-2023.

INTERNATIONAL MONETARY FUND

33

ECUADOR

Table 5. Ecuador: External Financing, 2021-29
Projections

Est.
2021

2022

2023

2024

2025

2026

2027

2028

2029

(US$ million)
Gross external financing requirements
Current account financing need
Public sector amortizations
Multilaterals
IMF
Bilaterals
Banks
External securities
OthersPrivate sector amortizations

3,198-3,098
1,847
780
140
482
263
200
121
4,449

4,870
-2,133
2,376
1,110
0
922
194
54
95
4,627

4,811
-2,291
2,656
1,003
228
709
154
708
81
4,447

4,353
-2,537
2,325
1,314
529
718
149
44
100
4,565

5,099
-2,755
3,154
2,140
995
704
137
74
100
4,700

5,736
-3,023
3,986
2,216
1042
678
111
905
76
4,773

6,013
-3,269
4,442
2,769
1228
664
104
905
0
4,839

5,574
-3,552
4,287
2,755
1311
587
39
906
0
4,839

5,410
-3,730
4,358
2,901
1438
508
40
910
0
4,782

Identified external financing

3,332

5,664

1,667

4,998

6,523

7,688

8,139

7,742

7,726

Public sector

3,641

4,411

1,851

5,205

5,640

5,200

5,150

4,150

3,380

Multilateral

3,257

4,200

1,581

4,795

3,150

2,400

2,400

1,650

1,180

IMF
Bilaterals
Banks
External securities
OthersPrivate sector
Direct investment
Portfolio investment
Other investment

802
370
46
15
0
-309
648
-191
-766

1,611
196
3
15
0
1,253
879
75
299

0
256
775
15
0
-185
372
-224
-334

1,500
410
0
0
0
-207
664
-174
-697

1,250
990
0
1,500
0
883
1,120
-47
-190

500
800
0
2,000
0
2,488
1,862
125
501

500
750
0
2,000
0
2,989
2,379
122
488

250
500
0
2,000
0
3,592
2,985
121
486

0
200
0
2,000
0
4,346
3,648
140
559

-64

-248

-1,143

79

81

84

87

90

94

4,217
-948
949
662
-1,414

5,416
-568
0
1,611
445

524
4,284
0
-228
1,833

5,077
-757
0
971
305

6,604
-1,5120
255-1,1607,772-2,0440-542-2,3538,226-2,2230-728-2,6907,832-2,2730-1,061-3,0697,819-2,3240-1,438-3,596

Net transfers 1/
Gross external financing sources
Change in reserve assets (-, increase)2021 SDR Allocation
IMF exceptional financing under the EFF
Change in net international reserves, prog. definition (-, increase) 2/

Sources: Central Bank of Ecuador and Fund staff calculations and estimates.
1/ Net transfers is defined as capital account flows plus unidentified flows (errors and omissions).
2/ Program net international reserves are equal to gross international reserves less outstanding credit to the IMF (incl. budget support to the Treasury), short-term foreign
liabilities of the BCE, deposits of other depository institutions and other financial institutions (excl. BIESS) at the central bank, and short-term liabilities of the central government.

34

INTERNATIONAL MONETARY FUNDECUADOR

Table 6. Ecuador: Monetary and Financial Statistics, 2021-29
Projections
2021

2022

2023

2024

2025

2026

2027

2028

2029

(US$ million)
I. Central BankNet foreign assets
Of which: gross international reserves 1/
Net domestic assets
Credit to the nonfinancial public sector, net
Credit to financial institutions
Other depository institutions
Other financial institutions
Credit to the private sector
Other, net
Liabilities
Banks' reserves
Other depository institutions 2/
Other financial institutions 3/
Other 4/

8,969
7,898
-685
-104
1,045
287
758
9
-1,634
8,284
8,094
5,904
2,190
105

9,325
8,459
-1,988
-835
790
200
590
8
-1,951
7,337
7,230
5,455
1,776
19

5,976
4,454
-389
1,386
686
112
573
8
-2,469
5,587
5,484
3,890
1,595
15

6,735
5,212
-950
902
670
112
558
8
-2,530
5,785
5,679
4,045
1,634
16

8,269
6,724
-2,286
-316
639
112
526
8
-2,617
5,983
5,874
4,184
1,690
16

9,797
8,768
-3,613-1,523
607
112
495
8
-2,705
6,185
6,072
4,325
1,747
17

11,37010,991-4,943-2,716
575
112
462
9
-2,811
6,427
6,310
4,495
1,816
18

13,07813,264-6,388-4,012
542
112
430
9
-2,926
6,690
6,568
4,679
1,890
18

14,31015,588-7,348-4,819
507
111
396
9
-3,045
6,963
6,836
4,869
1,967
19

4,602
46,658
5,117
3,401
2,278
51,851-13,71251,25951,2594,686
51,278
4,957
2,082
1,229
59,039-14,800
55,96555,9655,950
54,457
3,438
2,952
1,772
63,984-15,916
60,40760,407

6,097
56,726
3,632
3,041
1,819
66,553-16,500
62,82362,823

6,306
58,672
3,809
3,167
1,886
68,762-17,066
64,97964,9796,519
60,649
3,989
3,295
1,954
71,006-17,641
67,16867,1686,774
63,027
4,199
3,449
2,035
73,711-18,332
69,80269,802

7,051
65,604
4,425
3,617
2,124
76,644-19,082
72,65572,655

7,339
68,278
4,615
3,790
2,216
79,732-19,860
75,61775,617

13,57137,8793,297
51,860-17,278
51,44914,01142,0601,248
59,047-18,234
56,072

11,926
48,583
4,338
63,993-19,747
60,50912,83250,096
3,942
66,561-20,40762,928

14,57550,512
2,851
68,770-21,10965,087

16,31650,964
1,772
71,014-21,822
67,28018,145
51,774734
73,720-22,680
69,91820,12952,648-396
76,653-23,609
72,777

21,64954,094-1,02979,742-24,618
75,743

13.6
12.1
9.8
1.5
15.8
48.3

13.9
9.2
7.5
1.5
12.9
50.6

8.4
7.9
6.7
1.5
9.1
53.8

(Units as indicated)
4.0
3.3
3.3
4.0
3.4
3.4
2.5
3.4
3.4
1.5
1.5
1.5
9.0
9.0
9.0
54.7
54.6
54.5

3.8
3.9
3.9
1.5
9.0
54.5

4.0
4.1
4.1
1.5
9.0
54.4

4.0
4.1
4.1
1.5
9.0
54.4

II. Other Depository Institutions (ODI) and Other Financial Institutions (OFI) 2/ 5/
Net foreign assets
Net domestic assets
Assets held at the BCE, net
Credit to the nonfinancial public sector, net
Of which: central government, net
Credit to the private sector
Other items, net
Liabilities
Of which: Private sector deposits
III. Depository Corporations Survey
Net foreign assets
Net domestic assets
Credit to the nonfinancial public sector, net
Credit to the private sector
Other items, net
Liabilities
Memorandum items:
Credit to the private sector (percent change, yoy) 6/
Deposits of the private sector (percent change, yoy) 6/
Broad money (M2) (percent change, yoy) 7/
Broad money velocity
ODI and OFI reserves at the central bank as a share of liabilities (percent) 2/ 3/
Credit to the private sector (percent of GDP)
Liabilities (percent of GDP)

47.9

48.1

50.9

51.7

51.7

51.7

51.7

51.7

51.7

Liquidity Fund (US$ million)

2,768

3,033

3,451

3,589

3,712

3,837

3,988

4,151

4,320

1st COMYF balance (percent) 8/

134

155

115

129

161

203

245

284

320

2nd COMYF balance (percent) 9/

94

194

43

72

151

255

358

454

545

3rd COMYF balance (percent) 10/
-2
20
-18
-10
16
43
66
83
102
Sources: Central Bank of Ecuador; and Fund staff calculations and estimates.
1/ Excludes non-liquid and encumbered reserves included in the authorities' definition of GIR.
2/ ODI include private banks, Banecuador (formerly Banco Nacional de Fomento), Banco del Pacifico, private financial companies, mutualists, cooperatives, and credit card companies.
3/ Reserves of OFIs includes deposits of Corporación Financiera Nacional, COSEDE, BIESS, BDE, and a transitory account for the payments system.
4/ Includes monetary deposits, Titulos del Banco Central de Ecuador, stabilization bonds, and accounts payable.
5/ OFI comprises Corporación Financiera Nacional and BDE.
6/ Consolidated banking system.
7/ Broad money comprises monetary species in circulation, demand deposits, and quasi-money.
8/ Liabilities of this balance include the national monetary species minted by the Central Bank of Ecuador that are in circulation, Central Bank Securities (TBC), any other direct obligation withthe public and the deposits of other depository institutions, which include private banks, mutual banks, savings and credit cooperatives, and public banks with demand deposits. Theseliabilities must be covered one hundred percent with the assets of the International Reserves.
9/ Liabilities of this balance include the deposits of other financial entities, including CFN, BIESS (Banco del Instituto Ecuatoriano de Seguridad Social), other public sector financial entities
and financial intermediaries that do not take demand deposits from the public. These liabilities will be covered with the remaining reserve assets once the First Balance is covered and must
be equivalent to one hundred percent of the liabilities in this balance.
10/ The liabilities of this balance include deposits of the Non-Financial Public Sector (NFPS), deposits of authorized private legal entities in the Central Bank of Ecuador and transfers throughthe payments system pending settlement, as well as the BCE's own external indebtedness. These liabilities must be one hundred percent covered with the assets of International Reserves,
once the second balance has been fully covered.

INTERNATIONAL MONETARY FUND

35

ECUADOR

Table 7. Ecuador: Banking System Financial Soundness Indicators, 2018-24
2018

2019

Capital Adequacy
Regulatory capital to risk-weighted assets

17.1

16.7

17.3

15.8

Asset Quality and Distribution
Nonperforming loans to total gross loans
Provisions to nonperforming loans

2.9
212.2

3.2
203.0

3.6
230.7

Earnings and Profitability
Return on assets
Return on equity
Interest margin to gross income
Noninterest expenses to gross income

2.4
11.1
63.9
54.8

2.0
8.8
63.7
54.8

17.2
36.4
109.6

16.4
35.5
107.2

Liquidity
Liquid assets to total assets
Liquid assets to short-term liabilities
Customer deposits to total (noninterbank) loans
Source: IMF Financial Soundness Indicators.

36

INTERNATIONAL MONETARY FUND

2020
2021
2022
(In percent, end of period)2023

Mar-24

15.7

15.1

15.0

3.7
232.9

3.7
225.9

4.6
185.9

4.7
171.7

0.7
3.1
66.1
54.7

0.7
2.3
66.3
55.7

1.8
9.5
64.3
49.6

2.2
11.8
60.4
46.2

1.7
9.2
60.4
48.4

23.6
48.1
119.8

20.7
36.9
117.2

18.3
34.4
109.0

15.2
29.5
105.1

15.2
30.1
104.3

ECUADOR

Table 8. Ecuador: Indicators of Fund Credit, 2022-33
Projections
2022

2023

2024

2025

2026

Stock 1/
Obligations
Principal (repurchases)
Interest charges

6,096.4
169.0
169.0

5,924.7
543.8
171.6
372.1

5,521.3
840.4
403.5
436.9

4,761.9
1,187.4
759.4
428.0

3,966.1
1,167.1
795.8
371.3

3,028.4
1,242.4
937.8
304.6

Prospective Fund credit
Disbursements
Stock 1/

6,096.4

5,924.7

1,128.8
6,650.1

938.8
6,829.4373.7
6,407.4

873.8
7.0
22.7
95.8
13.5
18.0
60.9

849.2
6.7
22.8
177.4
13.8
18.1
56.8

953.1
7.3
25.5
169.6
15.0
18.9
61.6

978.8
7.2
26.0
135.5
14.9
19.2
57.6

169.0
24.2
0.2
0.6
2.7
0.4
0.5
1.7

543.8
77.9
0.6
2.1
16.3
1.3
1.7
5.2

868.3
124.5
0.9
3.3
22.1
2.0
2.5
8.0

1,299.6
186.3
1.4
5.0
25.8
2.8
3.7
10.9

2027
2028
(SDR million)

2029

2030

2031

2032

2033

2,090.6
1,166.9
937.8
229.2

1,207.0
1,036.9
883.6
153.3

437.8
862.3
769.2
93.2

142.0
355.2
295.8
59.4

187.1
142.0
45.1

39.2
39.2

373.7
5,843.5

184.9
5,027.8

3,930.1

2,800.7

2,082.4

1,455.8

955.8

918.4
6.6
24.1
97.6
13.7
17.4
50.0

837.5
5.8
21.2
71.2
12.3
15.5
43.8

720.6
4.8
17.8
50.9
10.6
13.0
37.8

563.3
3.6
13.6
33.8
8.4
9.9
29.6

401.4
2.5
9.3
20.7
6.2
6.8
19.3

298.5
1.8
6.6
14.8
4.8
4.8
14.7

208.7
1.2
4.5
9.9
3.5
3.3
10.6

137.0
0.7
2.8
6.3
2.3
2.1
7.2

1,340.6
192.1
1.4
5.1
20.4
2.9
3.6
10.5

1,447.4
207.5
1.4
5.3
17.6
3.0
3.8
10.8

1,462.2
209.6
1.4
5.2
14.8
3.1
3.8
11.0

1,479.7
212.1
1.4
5.1
12.7
3.2
3.7
11.1

1,421.1
203.7
1.3
4.7
10.5
3.1
3.4
9.8

926.6
132.8
0.8
3.0
6.6
2.1
2.2
6.6

776.3
111.3
0.6
2.4
5.3
1.8
1.7
5.6

602.3
86.3
0.5
1.8
3.9
1.5
1.3
4.5

Existing Fund credit

Stock of existing and prospective Fund credit 1/
In percent of quota 2/
In percent of GDP
In percent of exports of goods and services
In percent of gross reserves
In percent of external debt
In percent of government revenues
In percent of external debt service
Obligations to the Fund from existing andprospective Fund credit
Millions of SDRs
In percent of quota 2/
In percent of GDP
In percent of exports of goods and services
In percent of gross reserves
In percent of external debt
In percent of government revenues
In percent of external debt service
Source: Fund staff estimates and projections.
1/ End of period.
2/ Ecuador's quota is SDR 697.7 million.

INTERNATIONAL MONETARY FUND

37

ECUADOR

Table 9. Ecuador: Proposed Schedule of Reviews and Purchases 1/
Availability Date
May 31, 2024
November 15, 2024
March 15, 2025
July 15, 2025
November 15, 2025
March 15, 2026
September 15, 2026
March 15, 2027
September 15, 2027
March 15, 2028

Amount of purchase
Millions of SDRs
Percent of Quota
752.9
107.9
375.9
53.9
312.9
44.8
312.9
44.8
312.9
44.8
186.9
26.8
186.9
26.8
186.9
26.8
186.9
26.8
184.9
26.5

Total
3,000.0
Source: IMF staff estimates.
1/ Ecuador's quota is SDR 697.7 million.

Conditions
Approval of arrangement
First review and end-August 2024 performance/continuous criteria
Second review and end-December 2024 performance/continuous criteria
Third review and end-April 2025 performance/continuous criteria
Fourth review and end-August 2025 performance/continuous criteria
Fifth review and end-December 2025 performance/continuous criteria
Sixth review and end-June 2026 performance/continuous criteria
Seventh review and end-December 2026 performance/continuous criteria
Eighth review and end-June 2027 performance/continuous criteria
Ninth review and end-December 2027 performance/continuous criteria

430.0

Table 10. Ecuador: Quantitative Performance Criteria and Indicative Targets, 2024-25
End-Aug.
2024

End-Dec.
2024

End-Apr.
2025

End-Aug.
2025

Program

ProgramITIT-1,078-2,200200
00-2,295-4,213
360
0
0

-472
-753
50
0
0

-1,245-2,37715000Indicative targets
6. Overall balance of the NFPS (floor ) 1/
-1,628
7. Nonoil primary balance including fuel subsidies (NOPBS) of the NFPS (floor) 1/-4,1008. Change in the stock of NIR (floor ) 1/-200
9. Stock of PGE arrears to the domestic private sector (ceiling)862
10. Number of families in the first three income deciles nationwide covered by cash transfer programs (floor) 1,192,713-2,442-6,528-310
662
1,212,984-491-1,500116
600
1,228,660-982-3,400382
400
1,244,336(US$ million, unless otherwise indicated)
Quantitative performance criteria
1. Nonoil primary balance of the budgetary central government (PGE) (floor ) 1/
2. Overall balance of the PGE and CFDD (floor ) 1/
3. Accumulation of NFPS deposits at the central bank (floor ) 1/
4. Non-accumulation of external payments arrears by the NFPS (continuous performance criterion )5. (No new) Central bank direct and indirect financing to the NFPS (continuous performance criterion )Sources: Ministry of Economy and Finance and IMF staff estimates.
Note: Aggregates and adjustors as defined in the Technical Memorandum of Understanding (TMU).
1/ Cumulative change from January of each year.

38

INTERNATIONAL MONETARY FUND

Table 11. Ecuador: Prior Actions and Structural Benchmarks
Reform Area

Structural Conditionality

Objectives

Due Date

Proposed Prior Actions
Public Financial
Management
Contingency Planning

Prepare and share with the Fund a projected monthly
cash flow and financing plan for the budgetary central
government for the remainder of 2024.
Prepare a contingency plan to ensure compliance with
program fiscal targets if revenues underperform.

Improve mechanisms to monitor real-time fiscal
performance and take corrective action if needed toachieve program targets.
Be ready to take corrective action if needed to achieve
program targets.

Proposed Structural Benchmarks
Publish an updated Medium-Term Fiscal Framework(MTFF) in line with program targets.

Strengthen fiscal planning andmanagement.

End-October 2024

Public Financial
Management

Publish a Medium-Term Debt Management Strategy(MTDS) in line with program targets.

Strengthen fiscal planning andmanagement.

End-October 2024

Domestic Arrears

Share with Fund staff an updated plan to clear andprevent the resurgence of domestic arrears of thebudgetary central government (PGE), including
obligations to the private sector and intra-public sector
claims.
Prepare and share with the Fund a plan to mobilize nonoil fiscal revenues, including by streamlining inefficient tax
expenditures and replacing transitory revenue measureswith permanent high-quality ones.

Strengthen the monitoring andreduce accumulation of
payment arrears.

End-November 2024

Inform future efforts to broaden
the tax base and streamline tax
expenditures.

Mid-November 2024

Fiscal Strategy

Enact regulation on revenue and/or expenditure measures
to ensure that the 2025 fiscal plan is in line with programand MTFF commitments.

Ensure fiscal consolidation.

December 6, 2024

Social Safety Net

Share with the Fund a plan to complete the social registry
to cover families in the lowest three deciles of the income
distribution throughout the country.

Enhance the social safety net

End-October 2024

Governance

Establish an updated agreement between the MEF and
IESS on the transfer of healthcare obligations (including
both internal and external providers), building on the
December 2022 agreement. The updated agreement

Improve expenditure control.

End-October 2024

Tax Reform
INTERNATIONAL MONETARY FUND
39

ECUADOR

Public Financial
Management

INTERNATIONAL MONETARY FUND

Reform Area

Structural Conditionality

Objectives

Due Dateshould include a decision about the 2022 healthcare
audits.
Governance

Establish a timeline to operationalize the National Control
Subsystem (SNC) to increase transparency inprocurement.

Strengthen anticorruption
framework and improve
expenditure control.

End-December 2024

Transparency andGovernanceInitiate the tender process to select an auditor toundertake the 2023 and 2024 healthcare audits (based on
the updated MEF/IESS agreement).

Improve the quality andreliability of fiscal data.

End-December 2024

Transparency andGovernanceComplete the audits of the 2019 and 2020 financial
statements of Petroecuador and Petroamazonas andshare the results with Fund staff.

Enhance transparency andgovernance in the oil sector.

End-March 2025

Anti-Money
Laundering
Framework

Enact new AML/CFT legislation to strengthen the
AML/CFT framework in line with FATF standards.

Mitigate the risk of illicit flows
including those related toorganized crimes.

End-February 2025

Financial Sector

Establish a Financial Stability Committee in line with bestinternational practices, comprising BCE, MEF, JPRF, JPRM,
SB, SEPS, SCVS, and COSEDE.

Enhance coordination amongagencies involved in financial
sector oversight.

End-September 2024

Financial Sector

Issue macroprudential regulations on bank capital buffers,
including surcharges on systemically important
institutions and a countercyclical capital buffer.

Strengthen financial sector
buffers.

End-November 2024

Financial Sector

Prepare and share with Fund staff a study of the system ofinterest rates, including recommendations to improvecredit allocation, financial inclusion, and economic
growth, while preserving financial stability.

Foster financial sector
deepening and improve
economy’s growth potential.

End-March 2025

Domestic CapitalMarket Development

Sign a contract to implement a new platform for the BCE’scentral securities depository (DCV) to modernize thecompensation, liquidation, and custody functions in linewith international standards.

Foster domestic capital market
development.

End-November 2024

ECUADOR40

Table 11. Ecuador: Prior Actions and Structural Benchmarks (concluded)

ECUADOR

Annex I. External Sector Assessment
Overall Assessment: The external position of Ecuador in 2023 was moderately weaker than the level implied
by fundamentals and desirable policies. The current account (CA) surplus remained broadly flat owing to a
decline in oil exports and a wider deficit in the balance of services, with preliminary data showing somerecovery in the trade balance in the first quarter of 2024. Reserves continue to be below adequacy metrics.
Potential Policy Responses: The planned fiscal consolidation will allow to preserve external sustainability
and rebuild reserve buffers. Structural reforms contemplated under the IMF-supported program including
measures to enhance governance and improve the investment climate, will also help to attract foreign
investment and improve competitiveness.
Foreign Assets and Liabilities: Position and Trajectory
Background. Between 2019 and 2022, the net international investment position (NIIP) increased graduallyfrom -26.1 percent of GDP to -22.8 percent ofGDP, driven by a progressive accumulation in
debt assets. The NIIP showed a further increase
from -22.8 percent of GDP as of end-2022 to 19.8 percent of GDP as of end-2023, stemmingfrom an increase in portfolio investment assets
and a decline in debt liabilities. Ecuador’s grossliabilities are dominated by public sector
external debt.
Assessment. The planned fiscal consolidation
supported by the EFF arrangement will help
improve the external balance and rebuild reserve
buffers, thereby limiting the build-up of NIIP
vulnerabilities over the medium term.
2023 (% GDP)

NIIP: -19.8

Gross Assets: 54.6

Debt Assets: 50.9

Gross Liab.: -74.4

Debt Liab.: -55.4

Current AccountBackground. The CA surplus marginally increased from 1.8 percent of GDP in 2022 to 1.9 percent of GDP
in 2023 driven by a narrower services deficit and stronger remittances, while the trade surplus declined due
to lower oil exports. The CA surplus is expected to rise moderately in 2024, mainly driven by higher non-oil
exports and lower imports and despite lower oil exports and tourism receipts. Over the medium term, theCA surplus is expected to progressively widen due to (i) an increase in exports and tourism; and (ii) theenvisaged fiscal consolidation under the EFF-supported program, which would improve the public savinginvestment balance.

INTERNATIONAL MONETARY FUND

41

ECUADOR

Assessment. The EBA-Lite CA model estimates a cyclically adjusted CA norm of 1.3 percent of GDP.
Compared to an adjusted CA deficit of 0.6 percent of GDP (taking into consideration cyclical factors), this
implies a CA gap of -0.7 percent. As Ecuador is a commodity exporter, the CA balance was also assessedusing the EBA-Lite consumption module, which incorporates commodity price volatility andintergenerational equity considerations into the assessment. The consumption model points to a CA gap of-1.4 percent of GDP, which is broadly in line with the gap assessed under the EBA-Lite REER (-1.7 percent ofGDP). Consistent with previous ESAs, the assessment is grounded on the results from the consumption
model, although the CA gaps from the different models are broadly similar.
Ecuador: EBA-Lite Model Estimates for 2023
CA model 1/

REER model 1/

Consumption model 1/(in percent of GDP)
CA-Actual

1.9

Cyclical contributions (from model) (-)

0.3

Additional temporary/statistical factors (-)

0.0

Natural disasters and conflicts (-)

0.9

Adjusted CA

0.6

CA Norm (from model) 2/

1.3

Adjustments to the norm (-)

0.0

Adjusted CA Norm

1.3

CA Gap-0.7

o/w Relative policy gap

1.0

Elasticity-0.2

REER Gap (in percent)

3.8

1.9

3.3

-1.7

-1.4

9.7

7.9

1/ Based on the EBA-lite 3.0 methodology. The consumption module uses staff projections for 2029 as reference
for the assessment.
2/ Cyclically adjusted, including multilateral consistency adjustments.

Real Exchange Rate
Background. The real effective exchange rate (REER) depreciated by approximately 1.5 percent in 2023 on
the back of lower inflation differentials relative to trading partners, bringing the REER level roughly in linewith its 5-year average.

Assessment. The staff-estimated CA gap points to a REER overvaluation of around 7.9 percent for 2023.
The REER gap estimated by the REER model is 9.7 percent.

42

INTERNATIONAL MONETARY FUNDECUADOR

Capital and Financial Accounts: Flows and Policy Measures
Background. Net capital flows fell in 2023, largely due to higher net external debt service and private
capital outflows. including a contraction in net FDI to US$0.4 billion, from US$0.8 billion in 2022, as well as
lower other private investment flows.
Assessment. The implementation of the fiscal consolidation and reforms contemplated under the EFFsupported program are expected to help regain access to international capital markets and attract higher
net private capital flows, including by encouraging FDI and reducing private capital outflows.
Capital flow management measures (CFMs). In the context of fiscal and balance of payments pressuresleading to a severe decline in FX reserves, the authorities enacted an increase in the ISD from 3.5 to
5 percent. This measure constitutes a CFM on outflows under the Fund’s Institutional View on the
Liberalization and Management of Capital Flows. The authorities are committed to gradually phasing out
this measure, as macroeconomic and balance of payments stability are restored and the FX reserve position
is strengthened, supported by implementation of the policies under the EFF-supported program.
FX Intervention and Reserves Level
Background. Gross international reserves (GIR) declined by US$4 billion, totaling US$4.5 billion at end2023. The decline was primarily driven by the deterioration in the financial account due to reduced net
financial flows for the public sector, given lower net oil revenues and net disbursements from multilateral
partners, as well as lower net private capital inflows. Net international reserves (which exclude IMF credit
outstanding and liabilities of the BCE vis-à-vis domestic banks and non-bank depository institutions1)
declined to -US$8 billion at end-2023, from -US$6.2 billion at end-2022.
Assessment. GIR at end-2023 were below adequacy levels, constituting only 18.2 percent of the IMF’s
standard ARA metric (or 21.7 percent of the adjusted ARA metric for countries with CFMs2,3), 1.6 months ofprospective imports, and 3.7 percent of GDP. Including the financial system’s Liquidity Fund, gross reserves
were equivalent to 32.3 percent of the ARA metric at end-2023. Besides the Liquidity Fund, the BCE has
access to about US$2.1 billion in liquidity facilities with the FRBNY, BIS, and FLAR, which can be used toaddress dollar liquidity shortages if needed. Ecuador is a fully dollarized economy and standard adequacy
metrics are not directly comparable with those of other countries.
Based on the definition provided in the Technical Memorandum of Understanding.
The ARA metric captures the amounts of foreign currency liquidity that the authorities potentially need during a timeof large outflows. Although the absence of currency mismatch gives different benefits of international reserves forprecautionary purposes, gross reserves still provide liquidity to satisfy emergent balance of payment needs andconstitute a buffer for the government. Also, they could be used to support domestic financial institutions if needed.
The latter function, however, is covered separately under the Liquidity Fund (see Ecuador—Financial System Stability
Assessment, IMF Country Report No. 23/335).
3
See IMF (2015) “Assessing Reserve Adequacy–Specific Proposals”.
1
2

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ECUADOR

Annex II. Sovereign Risk and Debt Sustainability Framework
Ecuador’s public debt remains sustainable but not with high probability in the program forecast. The
realism assessment highlights the relatively large adjustment size required to keep debt on thedesirable downward path, while the debt fanchart module flags a large confidence interval
surrounding the debt projection. Ecuador remains cut-off from international capital markets andsteadfast implementation of the EFF-supported fiscal adjustment is needed to restore confidence.
1.
Background. The public debt-to-GDP ratio declined in 2023 driven by the debt-for-natureswap that lowered the amount of international bonds outstanding by US$970 million, coupled withinsufficient financing that forced the government to
Ecuador: Public Sector Gross Debt by Creditor
draw down deposit buffers. However, political(US$ Million and Percent of GDP)
2023
uncertainty and a sharply widening fiscal deficit fueled
US$ billion
Percent of GDP
65.8
55.3
an increase in sovereign spreads, which reached a peak Total Debt
External Debt
48.1
40.5
Multilateral
24.6
20.7
of over 2,100 bps in late 2023 before beginning a
Bilateral
4.4
3.7
Banks
1.6
1.3
gradual decline when fiscal reform measures were
Bonds
16.0
13.5
Oil related financing
0.3
0.2
taken in early 2024 to below 1,200 basis points in April.
SDRs
1.3
1.1
Domestic Debt
17.6
14.8
Ecuador’s sovereign spreads are negatively correlated
Loans
3.1
2.6
Bonds MLT
5.0
4.2
with oil prices, reflecting the impact of the latter on the
Treasury certificates
2.2
1.8
Other liabilities
7.4
6.2
current account and the fiscal sector, which are then
Source: MEF.
transmitted to the rest of the domestic economy via
financial and real channels.
2.
Baseline Assumptions. The fiscal and debt projection assumes successful implementationof the proposed fiscal plan under the proposed EFF-supported program. Under the plan, the NFPS
primary balance would turn into a surplus in 2025, increasing to about 2 percent of GDP in themedium term. The fiscal adjustment would contribute to a sustained decline in the public debt-toGDP ratio, which is forecasted to decline from 55.3 percent in 2023 to about 40 percent by 2032 inline with the COPLAFIP debt limit. Gross financing needs (GFNs) are forecasted to decline from
8 percent of GDP in 2023 to 6.6 percent in 2024, and then gradually decline to about 4.8 percent of
GDP over the medium term.
3.
Public Debt Definition. Public debt in the SRDSF is defined as the consolidated liabilities of
the NFPS, comprising the PGE, the CFDD, social security funds, public nonfinancial corporations, andthe Development Bank of Ecuador (BEDE). Instruments in the debt measure include loans, securities(bonds and treasury certificates), liabilities under oil related financing, central bank lending to thegovernment, deposits at BEDE, and other accounts payable including arrears.
4.
Fiscal Multiplier. The fiscal adjustment envisaged under the EFF arrangement is expected to
impact growth in the near term, but this effect would be mitigated by the resolution of the liquidity
crisis, gradual clearance of arrears, the reduction in uncertainty, and improvement in risk sentiment.
The baseline scenario assumes a fiscal multiplier of 0.5 and a growth path that is somewhat moreconservative than the benchmark metrics provided in the SRDSF to assess the realism of the fiscal

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INTERNATIONAL MONETARY FUNDECUADOR

adjustment (Figure 5). The impact of the negative fiscal impulse is assessed as highest in 2024 and is
expected to gradually dissipate during the program.
5.
Risks to the Debt Outlook and Realism. The realism assessment illustrates that the primaryconsolidation under the program would be ambitious compared to cross-country historicalrealizations yet necessary to restore fiscal sustainability. The debt fanchart tool shows that, under asimulated adverse debt scenario, the debt ratio could increase to large values, underscoring theneed to implement the adjustment plan supported by the EFF arrangement. Downside risks to thefiscal outlook mainly stem from implementation capacity of the fiscal plan, while risks to revenues
relate to the possibility of growth underperforming, including given uncertainty on the evolution of
the security situation, thereby reducing tax revenue, as well as possible disruptions in oil production.
Mitigating factors include the large share of multilateral and bilateral official debt, withcomparatively low rollover risk and long maturities, and the relatively low GFNs in the projection.

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Figure 1. Ecuador: Risk of Sovereign StressMechanicalsignalFinalassessment

Overall…

Moderate

Near term 1/

n.a.

n.a.

Medium term

Moderate

Moderate

HorizonFanchart

High…

Moderate…

Comm. Prices
Nat. Disast.

…

Long term…

Moderate

Sustainability
assessment 2/…

GFN
Stress test

Comments
The overall risk of sovereign stress is moderate, reflecting themoderate level of vulnerability assessed for the medium-term and thelarge adjustment needs to ensure fiscal sustainability.

Not applicable.

Medium-term risks are assessed as moderate in line with themechanical signal. The largest risk driver in the moderate assessment
is the width of the debt fanchart, representing the uncertainty
surrounding the baseline forecast.

Long-term risks are assessed as moderate. The large amortization
module projects a low risk scenario under the baseline in which
Ecuador reaches the COPLAFIP debt limit by 2032, with risks
increasing proportionally if adjustment falls short. The natural
resources module points to the continued need to diversify fiscal
revenue out of oil revenue, though pressures from reasource
exhaustion are only projected to increase in the long-term.

Sustainable but
Debt is assessed as sustainable but not with high probability, given
not with highthe high downside risks faced by the baseline scenario.
probability
Yes

Debt stabilization in the baseline

DSA Summary Assessment
Commentary: Ecuador is at a moderate overall risk of sovereign stress and debt is sustainable but not with high probability
in the baseline program forecast. Debt declined in 2023 and is expected to continue on a downward trajectory in themedium-term provided the program fiscal plan is implemented successfully. Medium-term liquidity risks are assessed asmoderate by the GFN module, but financing risks remain subject to high sovereign spreads. Steadfast implementation of
fiscal reforms would strenghten Ecuador's public debt sustainability.

Source: Fund staff.
Note: The risk of sovereign stress is a broader concept than debt sustainability. Unsustainable debt can only be resolved
through exceptional measures (such as debt restructuring). In contrast, a sovereign can face stress without its debt
necessarily being unsustainable, and there can be various measures—that do not involve a debt restructuring—to remedy
such a situation, such as fiscal adjustment and new financing.
1/ The near-term assessment is not applicable in cases where there is a disbursing IMF arrangement. In surveillance-only
cases or in cases with precautionary IMF arrangements, the near-term assessment is performed but not published.
2/ A debt sustainability assessment is optional for surveillance-only cases and mandatory in cases where there is a Fundarrangement. The mechanical signal of the debt sustainability assessment is deleted before publication. In surveillance-only
cases or cases with IMF arrangements with normal access, the qualifier indicating probability of sustainable debt ("with highprobability" or "but not with high probability") is deleted before publication.

46

INTERNATIONAL MONETARY FUNDECUADOR

Figure 2. Ecuador: Debt Coverage and Disclosures
Comments
1. Debt coverage in the DSA: 1/

CG

GG

NFPS

CPS

1a. If central government, are non-central government entities insignificant?

Other
n.a.

2. Subsectors included in the chosen coverage in (1) above:
Subsectors captured in the baseline

Inclusion

CPS
NFPS
GG: expected
CG

1 Budgetary central governmentYes

2 Extra budgetary funds (EBFs)

No

3 Social security funds (SSFs)

Yes

4 State governments

Yes

5 Local governments

Yes

6 Public nonfinancial corporations

Yes

7 Central bankNo

8 Other public financial corporations

Not applicableNo

3. Instrument coverage:

Currency&
deposits

4. Accounting principles:

Basis of recording

Loans

Debt
Oth acct.
IPSGSs 3/
securities payable 2/

Valuation of debt stock

Non-cashNominalCash basis
basis 4/
value 5/

5. Debt consolidation across sectors:

Consolidated

Color code: █ chosen coverage█ Not applicable█ Missing from recommended coverage

Face value
6/

Marketvalue 7/

Non-consolidated

Reporting on Intra-Government Debt Holdings
HolderCPS
NFPS
GG: expected
CG

IssuerBudget.
centralgovt

Extrabudget.
funds(EBFs)

Socialsecurityfunds(SSFs)

State govt. Local govt.

Nonfin.
pub. corp.

CentralbankOth. pub.
fin corp

Total

1 Budget. central govt

0

2 Extra-budget. funds

0

3 Social security funds

0

4 State govt.

0

5 Local govt.

0

6 Nonfin pub. corp.

0

7 Central bank0

8 Oth. pub. fin. corp
Total

0
0

0

0

0

0

0

0

0

0

Source: Fund staff.
1/ CG=Central government; GG=General government; NFPS=Nonfinancial public sector; PS=Public sector.
2/ Stock of arrears could be used as a proxy in the absence of accrual data on other accounts payable.
3/ Insurance, Pension, and Standardized Guarantee Schemes, typically including government employee pension liabilities.
4/ Includes accrual recording, commitment basis, due for payment, etc.
5/ Nominal value at any moment in time is the amount the debtor owes to the creditor. It reflects the value of the instrument at creation andsubsequent economic flows (such as transactions, exchange rate, and other valuation changes other than market price changes, and other volume
changes).
6/ The face value of a debt instrument is the undiscounted amount of principal to be paid at (or before) maturity.
7/ Market value of debt instruments is the value as if they were acquired in market transactions on the balance sheet reporting date (reference date).
Only traded debt securities have observed market values.

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ECUADOR

Figure 3. Ecuador: Public Debt Structure Indicators
Debt by Currency (Percent of GDP)80

Projection

70

60
50
40
30

20
10
0
2014

2016

2018
2020
2022
2024
2026
2028
Foreign currency
Local currency
Local-linked

2030

2032

2034

Note: The perimeter shown is nonfinancial public sector.
Public Debt by Holder (Percent of GDP)

Public Debt by Governing Law, 2023 (percent)

100

50

0
2014

2016
2018
2020
2022
External private creditors
External official creditors
Domestic other creditors
Domestic commercial banks

Domestic law
Foreign law ex. multilateralMultilateral

Note: The perimeter shown is nonfinancial public sector.

Note: The perimeter shown is nonfinancial public sector.

Debt by Instruments (Percent of GDP)

Public Debt by Maturity (Percent of GDP)

80

70

Proj.

70
60

50

50

40

40

30

30

20

20

10

10
0

0

2019

2021

2023

Marketable debt

2025

2027

2029

Nonmarketable debt

Note: The perimeter shown is nonfinancial public sector.

Source: Fund staff.

48

Proj

60

INTERNATIONAL MONETARY FUND

2019

2021

2023

2025

2027

2029

Residual maturity: 6. years≤ 1 year
1-5 years> 5 years
Note: The perimeter shown is nonfinancial public sector.

ECUADOR

Figure 4. Ecuador: Baseline Scenario(Percent of GDP unless indicated otherwise)
Medium-term projection

ActualExtended projection

2023

2024

2025

2026

2027

2028

2029

2030

2031

2032

2033 2034

Public debt

55.3

56.3

56.4

55.5

54.2

52.2

49.7

46.7

43.4

40.2

37.5

34.9

Change in public debt

-1.6

1.0

0.1

-0.9

-1.3

-2.0

-2.5

-3.0

-3.3

-3.2

-2.7

-2.6

-0.8

0.8

0.0

-0.8

-1.3

-2.0

-2.5

-2.9

-3.4

-3.2

-2.7

-2.6

2.7

0.9

-0.1

-1.2

-1.3

-2.0

-2.2

-2.5

-2.8

-2.8

-2.9

-2.9

Noninterest revenues

35.4

37.1

36.2

36.4

35.8

35.6

35.1

35.1

35.1

34.9

34.6

34.3

Noninterest expenditures

38.0

38.0

36.1

35.2

34.5

33.5

32.9

32.6

32.3

32.0

31.7

31.5

1.1

1.0

0.8

1.1

0.7

0.7

0.7

0.7

0.6

0.7

0.6

0.6

2.4

1.0

1.5

2.0

2.0

2.0

2.0

1.9

1.8

1.7

1.6

1.5

Real interest rate

2.4

1.0

1.5

2.0

2.0

2.0

2.0

1.9

1.8

1.7

1.6

1.5

Relative inflation

0.0

0.0

0.0

0.0

0.0

0.0

0.0

0.0

0.0

0.0

0.0

0.0

-1.3

-0.1

-0.7

-1.0

-1.3

-1.3

-1.3

-1.2

-1.1

-1.1

-1.0

-0.9

Contribution of identified flows
Primary deficit

Automatic debt dynamics
Real interest rate and relative inflation

Real growth rate
Real exchange rate

0.0

…

…

…

…

…

…

…

…

…

…

…

Other identified flows

-4.5

-1.1

-0.6

-0.7

-0.7

-0.6

-1.0

-1.1

-1.2

-1.0

-0.5

-0.3

Contingent liabilities

0.0

0.0

0.0

0.0

0.0

0.0

0.0

0.0

0.0

0.0

0.0

0.0

(minus) Interest Revenues

-1.3

-1.4

-1.4

-1.4

-1.4

-1.3

-1.3

-1.3

-1.3

-1.3

-1.3

-1.3

Other transactions

-3.2

0.3

0.8

0.7

0.7

0.7

0.3

0.2

0.1

0.3

0.8

1.0

Contribution of residual

-0.9

0.1

0.0

-0.1

0.0

0.0

0.0

0.0

0.1

0.0

0.0

0.0

Gross financing needs

8.3

6.6

6.2

5.9

5.6

4.8

4.7

5.4

5.3

5.0

4.7

4.4

of which: debt service

6.9

7.1

7.7

8.5

8.3

8.2

8.2

9.2

9.5

9.2

8.9

8.6

Local currency

6.9

7.1

7.7

8.5

8.3

8.2

8.2

9.2

9.5

9.2

8.9

8.6

Foreign currency

0.0

0.0

0.0

0.0

0.0

0.0

0.0

0.0

0.0

0.0

0.0

0.0

Real GDP growth (percent)

2.4

0.1

1.2

1.8

2.4

2.5

2.5

2.5

2.5

2.5

2.5

2.5

Inflation (GDP deflator; percent)

-0.4

2.6

2.2

1.4

1.5

1.5

1.5

1.5

1.5

1.5

1.5

1.5

Nominal GDP growth (percent)

1.9

2.5

3.4

3.4

3.9

4.1

4.1

4.0

4.0

4.0

4.0

4.0

Effective interest rate (percent)

3.9

4.6

4.9

5.1

5.2

5.4

5.5

5.5

5.6

5.6

5.6

5.7

Memo:

Contribution to Change in Public Debt
20

(Percent of GDP)

30

Projection

20

15
10

10

19

0

0
-9

-10
5

-20

0

-30
-40

-5

Primary deficit

-11

-20

Real Interest rate
and relative
inflation
Real GDP growth-20

Exch. rate
depreciation

Cumulative inthe projection
periodOther flows

-50

-10
2014

2016

2018

2020

2022

2024

2026

2028

2030

2032

2034

Commentary: Public debt would be on a downward path under the program.

Source: Fund staff.

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ECUADOR

Figure 5. Ecuador: Realism of Baseline Assumptions
Forecast Track Record 1/

t+1

t+3

Comparator Group:t+5

Emerging Markets, Commodity Exporter,
ProgramPublic debt to GDP
Primary deficit

Color Code:r-g
Exchange rate depreciaton█ > 75th percentile

Optimistic

SFA

real-time

t+3

t+5

█ 25-50th percentile

Pessimistic

Historical Output Gap Revisions 2/
Public Debt Creating Flows█ 50-75th percentile█ < 25th percentile

Bond Issuances (Bars, debt issuances (RHS,(Percent of GDP)

%GDP); lines, avg marginal interest rates (LHS, percent))
30

15

5

2%

-5
-10

1%

-15
-20

3-Year Debt Reduction<1 yr term

1

Spread vs 10-yr
US Treas.

2029

2028

2027

2026

Next 5
years

2

0

2025

0%

2024

Past 5years

1-5 yr term

3

0

-20

5+ yr term

4

3%

5

Real interest rate10
and relative
inflation
0
Real GDP growth-10Exch. rate
depreciation

4%

10

20

5y histPrimary deficit

Implied spread,
Laubach rule 4/

3-Year Adjustment in Cyclically-Adjusted(Percent of GDP)

Primary Balance (Percent of GDP)

12

12

Distribution 3/

percentile rank 54.
3-year debt1reduction

10
3-year reduction

8

above 75th percentile(5.9 ppts of GDP)

Max. 3-year
reduction

6
4

10
8
6
4

3-year adjustment
Max. 3-year
adjustment

percentile rank 87
3-year adjustment above
75th percentile (2 ppts of
GDP)

-7.5
-6.5
-5.5
-4.5
-3.5
-2.5
-1.5
-0.5
0.5
1.5
2.5
3.5
4.5
5.5
6.5
7.5

28

24

20

16

8

12

4

0

-4

-8

-12

-16

-20

0
-24

2

0

-28

2

Distribution 3/

Fiscal Adjustment and Possible Growth Paths

Real GDP Growth
In percentage points of GDP

In percent(Lines, real growth using multiplier (LHS); bars, fiscal adj. (RHS))(In percent)
40
15
15
5
Baseline real growth (lhs)
Fiscal Adjustment (rhs)
124Baseline real potential growth (lhs)
Baseline
9320
10-yr avg. real growth (lhs)
Multiplier=0.5
62
Multiplier=1
3
1
Multiplier=1.5
0
0
0
0
-3
-1
-20
-6
-2
-9
-3
Output gap (rhs)
-12
-4
-40
-15
2013 2015 2017 2019 2021 2023 2025 2027 2029
2019 2020 2021 2022 2023 2024 2025 2026
Commentary: The program fiscal plan features a large fiscal adjustment, which is large compared to historical and crosscountry comparisons. To achieve the debt reduction goals specified in the plan it will be important to avoid policy
slippages.
Source : IMF Staff.
1/ Projections made in the October and April WEO vintage.
2/ Calculated as the percentile rank of the country's output gap revisions (defined as the difference between real time/periodahead estimates
3/ Data cover annual obervations from 1990 to 2019 for MAC advanced and emerging economies. Percent of sample on verticalaxis.
4/ The Laubach (2009) rule is a linear rule assuming bond spreads increase by about 4 bps in response to a 1 ppt increase in
the projected debt-to-GDP ratio.

50

INTERNATIONAL MONETARY FUNDECUADOR

Figure 6. Ecuador: Medium-Term Risk Assessment

25-50 pct50-75 pct75-95 pct
Actual

50

0
2019

2021

2023

2025

2027

2029

Gross Financing Needs (Percent of GDP)
20
Financing provided by banks
ActualBaseline
Stress scenario

15

Contrib 1/

Fanchart width(percent of GDP)

84.7

1.2

Probability of debt nonstabilizaiton (percent)

25.8

0.2

Terminal debt-to-GDP x
institutions index

35.6

0.8

10

Debt fanchart index (DFI)

2.2

Risk signal: 3/
Gross financing needs (GFN) module

High

Average baseline GFN(percent of GDP)

5.6

1.9

Initial Banks' claims on thegen. govt (pct bank assets)

4.9

1.6

Chg. In banks' claims instress (pct banks' assets)

12.9

4.3

5
GFN financeability index (GFI)

0
2019

2021

2023

Percentile in peer group 2/

Debt fanchart module

Final Fanchart (Percent of GDP)150
5-25 pct

100

Value

2025

2027

2029

0

25

50

75

100

0

25

50

75

100

7.8

Risk signal: 4/

Moderate

Triggered stress tests (stress tests not activated in gray)Banking crisis

Commodity prices

0.30
Medium-term index
Low risk
High risk

0.10
0.00
2021

2022

2023

Contingent liab.

Value

0.40

0.20

Exchange rate

Natural disaster

Medium-term risk analysis

Medium-Term Index (Index Number)
0.50

2024

Debt fanchart index
GFN finaceability index
Medium-term index
Risk signal: 5/
Final assessment:

2.2
7.8

Value
(normalized) Weight
0.5
0.5
0.2
0.5
0.3
Moderate
Moderate

Contribution
0.2
0.1

Prob. of missed crisis, 2024-2029, if stress not predicted: 18.2 pct.
Prob. of false alarms, 2024-2029, if stress predicted: 23.9 pct.

Commentary: The two medium-term tools assess sovereign risk as moderate, mostly driven by the width of the confidence interval in the debt fanchart
tool.
Source: IMF staff estimates and projections.
1/ See Annex IV of IMF, 2022, Staff Guidance Note on the Sovereign Risk and Debt Sustainability Framework for details on index calculation.
2/ The comparison group is emerging markets, commodity exporter, program.
3/ The signal is low risk if the DFI is below 1.13; high risk if the DFI is above 2.08; and otherwise, it is moderate risk.
4/ The signal is low risk if the GFI is below 7.6; high risk if the DFI is above 17.9; and otherwise, it is moderate risk.
5/ The signal is low risk if the GFI is below 0.26; high risk if the DFI is above 0.40; and otherwise, it is moderate risk.

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ECUADOR

Figure 7. Long-Term Modules

Ecuador: Triggered Modules
Large amortizations

Pensions

Climate change: Adaptation

HealthClimate change: Mitigation

Natural Resources

Ecuador: Long-Term Risk Assessment: Large Amortization
Projection

Variable

Risk Indication

GFN-to-GDP ratio
Amortization-to-GDP ratio
Amortization

Medium-term extrapolation

GFN-to-GDP ratio
Amortization-to-GDP ratio
Amortization

Medium-term extrapolation with debt stabilizing
primary balance

GFN-to-GDP ratio
Amortization-to-GDP ratio
Amortization

Historical average assumptions

Overall Risk Indication

GFN-to-GDP Ratio

Total Public Debt-to-GDP Ratio

60.0

250
200

40.0

150

100

20.0

50

0.0

0

Source: Fund staff.

52

INTERNATIONAL MONETARY FUNDLong run projection
Projection
Baseline with t+5
Baseline with t+5 and DSPBHistorical 10-year average

2052

2049

2046

2043

2040

2037

2034

2031

2028

2025

2022

2019

2052

2049

2046

2043

2040

2037

2034

2031

2028

2025

2022

2019

2016

Long run projection
Projection
Baseline with t+5
Baseline with t+5 and DSPBHistorical 10-year average

2016

-50

-20.0

ECUADOR

Figure 8. Natural Resources Long-Term Module
GFN-to-GDP Ratio

Total Public Debt-to-GDP Ratio

25.0
20.0
15.0
10.0
5.0
0.0
-5.0
-10.0
-15.0

80.0
60.0
40.0
20.0
0.0
-20.0

Baseline: Extension of fifth projection year
Natural Resources

2052

2046

2049

2040

2043

2034

2037

2028

2031

2022

2025

2019

2016

2052

2046

2049

2040

2043

2034

2037

2028

2031

2022

2025

2016

2019

-40.0

Baseline: Extension of fifth projection year
Natural Resources
COPLAFIP Limit

Commentary: Ecuador does not face immediate pressures from depleting oil resources.
Source: Fund staff.

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ECUADOR

Annex III. Risk Assessment Matrix1
Source of Risks

Relative Likelihood

Possible Impact

Policy Response

Conjunctural Shocks and Scenarios• Intensification ofregional conflicts.
Escalation or spread of theconflict in Gaza and Israel,
Russia’s war in Ukraine,
and/or other regional
conflicts or terrorism
disrupt trade (e.g., energy,
food, tourism, supply
chains), remittances, FDI
and financial flows,
payment systems, andincrease refugee flows.

High• Commodity pricevolatility. A succession of
supply disruptions (e.g.,
due to conflicts, export
restrictions, and OPEC+
decisions) and demand
fluctuations causes
recurrent commodity pricevolatility, external andfiscal pressures in EMDEs,
cross-border spillovers,
and social and economic
instability.

High• Abrupt global slowdown
or recession. Global andidiosyncratic risk factors
cause a synchronizedsharp growth downturn,with recessions in somecountries, adverse
spillovers through tradeand financial channels, andmarket fragmentation
triggering sudden stops in
EMDEs.

Medium54

MediumDifficulties in finding newmarkets for exports hit by
the disruptions can reduce
trade flows and slow
economic growth. Higher oiland metal prices are
expected to have a net
positive impact on Ecuador’s
external and fiscal balances.

High
Uncertainty on commodity
prices will affect investment
and economic activity.
Financial conditions willtighten, leading to higher
funding costs for banks andnon-financial corporations.
Fluctuations in commodity
prices would impact the
fiscal sector and Ecuador’sbalance of payments.

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High
An abrupt global slowdown
or recession could cause asevere drop in economic
activity and impact thebalance of payments in
Ecuador via direct tradeeffects—China, the U.S. andEurope are Ecuador’s largest
trading partners—andindirect effects stemmingfrom the wider growth
slowdown.

Gradually reduce
dependency on oil
through economic
diversification andpromote private sectorled growth. Continue todiversify export markets
through new highstandard regional FTAs.

Pursue fiscal
consolidation to restore
confidence and ensure
debt and fiscal
sustainability. Gradually
reduce dependency on
oil through economic
diversification andpromote private sectorled growth. Continue toclosely monitor financial
sector stability. Continue
to address financing
needs by closely working
with international
financial institutions andseek opportune times tore-access international
markets.
Diversify the economy toreduce dependency oncommodity exports.
Continue to diversify
export markets throughnew high standard
regional FTAs.

ECUADOR

Source of Risks

Relative Likelihood

Possible Impact

Policy Response• Monetary policy
miscalibration. Amid
high economic
uncertainty, major central
banks loosen policy
stance prematurely,hindering disinflation, or
keep it tight for longer
than warranted, causing
abrupt adjustments infinancial markets andweakening the credibilityof central banks.

MediumMediumContinue to closely
monitor financial sector
stability. Strengthen(financial) crisis
preparedness andmanagement.

• Systemic financial
instability. High interest
rates and risk premia andasset repricing amid
economic slowdowns andpolitical uncertainty (e.g.,
from elections) trigger
market dislocations, withcross-border spillovers
and an adverse macrofinancial feedback loop
affecting weak banks and
NBFIs.

Medium• Social discontent. Highinflation, real income loss,
spillovers from conflicts(including migration),worsening inequality, anddisputed elections cause
social unrest anddetrimental populist
policies. This exacerbates
imbalances, slows growth,and leads to policy
uncertainty and market
repricing.

MediumEcuador is a fully dollarized
economy with noindependent monetary
policy. A prematureloosening of monetary policy
in major economies would
also hinder disinflation in
Ecuador. Abrupt market
movements caused byexcessively tight monetary
policy could hit Ecuador
through higher funding
costs, and negative spillovers
via lower growth in trading
partners and lower
commodity prices.
MediumHigher risk aversion andtighter global financial
conditions would lead tocapital outflows fromvulnerable EMDEs, withadverse effects on theireconomies and financial
systems. Ecuador would be
affected by the adverse
financial environment, which
could lead to a delay in reaccessing capital markets,and by real spillovers fromtrading partners.
High
Social unrest and uncertainty
regarding future
macroeconomic policies
could lead to increases ininterest spreads and hurt
confidence and economic
activity.

Pursue fiscal
consolidation to rebuild
credibility with markets.
Continue to address
financing needs byclosely working withinternational financial
institutions and seek
opportune times to reaccess international
markets.
Pursue fiscal
consolidation to rebuild
credibility with markets.
Strengthen (financial)crisis preparedness andmanagement.
Continue to address
financing needs byclosely working withinternational financial
institutions and seek
opportune times to reaccess international
markets.
Implement policies toprotect the poor and themost vulnerable.
Continue engaging thebroader public,
explaining the benefitsof the reform program.
Prioritize social spending
to achieve more
inclusive growth.
Continue to liberalize
trade and improve thebusiness climate topromote faster job
creation and inclusive
growth.

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Source of Risks

Relative Likelihood

Possible Impact

Policy Response

Structural Risks• Deepening geoeconomic
fragmentation. Broader
conflicts, inward-oriented
policies, and weakened
international cooperation
result in a less efficientconfiguration of trade and
FDI, supply disruptions,protectionism, policy
uncertainty, technologicaland payments systems
fragmentation, risingshipping and input costs,
financial instability, afracturing of internationalmonetary system, and lower
growth.

High• Extreme climate events.
Extreme climate events
driven by risingtemperatures cause loss ofhuman lives, severe damage
to infrastructure, supply
disruptions, lower growth,and financial instability.

MediumMediumGeopolitical tensions that
impact commodity prices(in particular oil) could havesignificant ramifications on
growth and fiscal andexternal balances.
Geopolitical tensions could
also affect Ecuador via
reductions in the tradevolumes of non-oil products(such as bananas or
shrimps). Higher oil andmetal prices are expected tohave a net positive impact
on Ecuador’s external andfiscal balances.
High
Ecuador is vulnerable to awide range of natural
hazards related to climatechange, such as landslides,
floods, storms, and theeffects of El Niño and La
Niña phenomena. Ecuador
is also exposed to volcanicand seismic activity. Suchdisasters could cause
infrastructure damage andhit production (including in
the oil and mining sectors)
with knock-on effects to thefiscal, external, and financial
sectors.

Adopt policies that
improve the resilience oftrading relationships,
including by removing
trade barriers, fostering
free trade agreements,and limiting policy
uncertainty throughclearly articulated
medium-term policy
frameworks. In the event
tensions reduce oil
prices, implement fiscal
contingency measures.

Implement policies tobuild resilience ininfrastructure to natural
disasters. Invest to
protect critical financial,transport,
communication, or
energy infrastructure tominimize disruptions.
Build precautionarysavings buffers.

Domestic Risks• Prolonged or deeper
security crisis. A renewed
flare-up in domestic
violence causing renewed
curfews and otherdisruptions.

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INTERNATIONAL MONETARY FUND

High

High
High insecurity would lower
domestic activity, tourism,
and fiscal revenue, anddeter long-term investment.

Ensure adequate fiscal
spending on security,
through adequate
prioritization. Implement
contingency fiscal
measures as needed toensure fiscal
sustainability is notundermined. Implementtargeted measures tosupport the mostvulnerable. Advancegovernance, AML/CFT,ECUADOR

Source of Risks

Relative Likelihood

Possible Impact

Policy Response
and inclusive growth
agenda.

• Renewed politicalimpasse. The government isunable to complete its
reform agenda due tofaltering political and public
support.

High• Unexpected and large
disruptions in oil
production. Repeated andlong disruptions to oil
production owing to natural
disasters and lacking
maintenance ofinfrastructure.

MediumHigh
Lack of access tointernational financing andlower investment. Further
build-up of arrears, which
will hit the economy andlower growth.

High
Reduced oil production andexport. Lower fiscal revenue,
leading to further liquidity
constraints for thegovernment along withadditional build- up inarrears.

Implement policies toprotect the poor and themost vulnerable.
Continue engaging thebroader public,
explaining the benefits of
the reform program.
Prioritize social spending
to achieve more inclusive
growth.
Invest in maintenance ofoil infrastructure.
Advance thediversification and SOE
governance agenda.

___________________________________
1 The Risk Assessment Matrix (RAM) shows events that could materially alter the baseline path. The relative likelihood

is the staff’s subjective assessment of the risks surrounding the baseline (“low” is meant to indicate a probability
below 10 percent, “medium” a probability between 10 and 30 percent, and “high” a probability between 30 and 50
percent). The RAM reflects staff views on the source of risks and overall level of concern as of the time of discussions
with the authorities. Non-mutually exclusive risks may interact and materialize jointly. The conjunctural shocks andscenarios highlight risks that may materialize over a shorter horizon (between 12 to 18 months) given the current
baseline. Structural risks are those that are likely to remain salient over a longer horizon.

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ECUADOR

Annex IV. Country CD Strategy Note1
Ecuador’s capacity development (CD) efforts should aim to be aligned with reform objectives under the
Extended Fund Facility (EFF). Enhancing public financial management (PFM) and revenue
administration are key CD priorities. Strengthening the financial system is another important area. The
authorities’ engagement and ownership are solid, but absorption capacity is affected by frequent staff
turnover. The recent government transition has delayed some CD plans, affecting traction in somecases. Given significant CD needs, close engagement with other bilateral and multilateral partners toensure coordination among CD providers remains critical.

Context
6.
Ecuador has received significant CD support. Over the last few years, the Fund has been
providing extensive CD to Ecuador in various areas, including government finance statistics (GFS),
debt management and recording, public financial management (PFM), revenue administration, public
investment, governance, the financial system, and macroeconomic frameworks. Several of therecommendations served as the basis for the design of structural conditionality of the previous EFF
arrangements (2019 and 2020-22).
7.
CD needs remain substantial, including to improve technical capabilities in the fiscal
and financial sectors. Fund CD will be instrumental to advance the implementation of reforms
under the new EFF, in areas such as PFM, domestic arrears, revenue administration, and financial
stability.

CD Engagement and Effectiveness8.
Fund’s CD engagement with Ecuador. Since the re-engagement of the Ecuadorianauthorities with the 2015 Article IV, IMF CD support also intensified. CD activities were substantiallyexpanded since the request for a Fund-supported program in 2018. In fiscal areas, the IMF has
provided CD on PFM, debt management, fiscal rules, medium-term fiscal framework (MTFF), tax
expenditure and revenue administration, and GFS. In the monetary and financial areas, the technicalassistance (TA) focused on banks stress testing, financial supervision and regulation, Anti-Money
Laundering/Combating the Financing of Terrorism (AML/CFT), and the comprehensive Financial
Sector Assessment Program (FSAP). Other TA focused on governance, including conflict of interest,and macroeconomic statistics and modelling. Table 1 summarizes the CD engagement since 2016.2

1 This country strategy note and the attached table matrix illustrate the integration of CD and program objectives,

guided by key recommendations in the IMF Board Paper 2018 Review of the Fund’s Capacity Development Strategy.
The acronyms in the note refer to the following IMF and other CD providers: Fiscal Affairs Department (FAD), Institutefor Capacity Development (ICD); Legal Department (LEG), Monetary and Capital Markets Department (MCM); Statistics
Department (STA); and World Bank (WB).
2 Institutions that benefited from these TAs include the Ministry of Economy and Finance (MEF), the Central Bank of

Ecuador (BCE), the Internal Revenue Service (SRI), Customs (SENAE), the National Institute of Statistics (INEC), the(continued)
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INTERNATIONAL MONETARY FUNDECUADOR

9.
Integration of CD in Fund’s Surveillance and Lending. Traditionally, the provision of CD
activities in Ecuador has been closely integrated with the surveillance priorities identified in previous
Article IV consultations. The coordination between the authorities and the country team intensified
under the previous EFF-supported program, with significant support from the Resident
Representative’s Office. This coordination helped ensure that CD was consistently integrated in theauthorities’ reform priorities and effectively supported program implementation. The country teamensures the appropriate sequencing of CD in reform processes, in consultation with the authorities
and CD providers, including other development partners, as appropriate.
10.
Collaboration and coordination with other CD partners. Fund staff collaborates closelywith the World Bank (WB) in areas such as debt management, financial stability, and social
assistance. Staff also engages with other CD partners on a regular basis to ensure synergies insupporting CD objectives and broader EFF-related goals. Key partners include United Nations
agencies such as UN Development Programme (UNDP) and UN Office on Drugs and Crime (UNODC);US Department of the Treasury's Office of Technical Assistance (OTA); European Union; InterAmerican Development Bank (IDB); and the Development Bank of Latin America and the Caribbean(CAF).
11.
CD effectiveness and traction. Over the last few years, key TA recommendations on debt
management, PFM, tax policy, GFS, and transparency have led to positive changes in policies,
frameworks, and institutions. For example:•

Debt Management and Statistics: Publication of more transparent and timely debt statistics.
New fiscal rule introduced under the 2020 EFF. Publication of a Medium-Term Debt Management
Strategy (MTDS) in February 2021. With support from OTA and UNCTAD, a new public debt
registry was concluded in 2023.

•

Medium-Term Fiscal Framework (MTFF). In line with the Fund-supported reform to theOrganic Code of Public Finances and Planning (COPLAFIP), the Ecuadorian authorities
implemented a new PFM framework. Since 2022, they have published an MTFF with a top-down
approach, fiscal rules, expenditure ceilings, and a fiscal risk assessment.

•

Tax Revenue and Administration. Following Fund TA recommendations, a Large Taxpayers’
Unit (LTU) was created. To accelerate tax collections, legal incentives were developed, andmediation processes set up for taxpayers who had tax debts. These measures were incorporated
in the tax reform legislature that was enacted in November 2021.

•

Fiscal Statistics. With extensive STA’s CD on GFS, including the collaboration of an STA’s longterm expert (LTX) during 2023, significant improvements have been made in timeliness, reliability,
and consistency of fiscal statistics at different levels of the public sector. There is now moreaccurate recording of central government fiscal data from 2013 onwards, as well as a better

Superintendencies of Banks and Cooperatives, the Economic and Financial Analysis Unit (UAFE), and the Comptroller
General’s Office.

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ECUADOR

recognition of central government’s contingent liabilities with other entities of the non-financial
public sector. Revised data have been published on the BCE and MEF websites with explanations
for the changes.
•

Governance and Transparency. With the help of Fund TA, the anti-corruption framework (COIP)
was amended in 2020 to criminalize corruption. Also in 2020, regulations were adopted torequest the ultimate beneficial ownership information in public contracts. The existing asset
declaration regime for high-level officials, including detailed assets and liabilities, was improvedand extended, and the declarations were published. Audits of COVID-related expenditures wereconducted and published on the Comptroller General's Office’s website. The Superintendency ofBanks, the Office of the Comptroller General, and the UAFE have also benefited from CD and TA
in the areas of AML and cybersecurity monitoring, supporting the building of risk-based
frameworks.

•

Macroeconomic Statistics and Forecasting. Extensive CD has focused on upgrading the qualityof macroeconomic statistics. In 2022 and 2023, STA supported the benchmark revisions to thenational accounts, conducted by the BCE and published in December 2023. ICD is conducting
several missions on macroeconomic frameworks to help improve the authorities’ forecasting andpolicy analysis, while also enhancing the coordination between members of the MEF and BCE.

CD Priorities
12.
Ecuador’s CD needs are expected to remain elevated going forward, consistent with theauthorities’ reforms agenda and EFF objectives. Given the recent government transition,
discussions on some specific TA plans are being conducted. CD needs are expected to remain
elevated, with the aim of supporting key reform areas as follows:
Strengthening PFM, Revenue Mobilization and Administration, Debt Management, and Fiscal
Governance13.
Priorities would focus on fully implementing the COPLAFIP reform, addressing
domestic arrears, and further enhancing revenues. With support from FAD’s LTX, CD work is
helping the authorities advance in the areas of fiscal risks, cash management planning, monitoring
and accounting for domestic arrears, and MTFF preparation. To strengthen domestic revenues, someCD priorities would include addressing tax expenditures and resuming TA activities in tax
administration and customs. It will be important to build on 2023 CD work, such as the Tax
Administration Diagnostic Assessment Tool (TADAT) and a tax gap analysis. It is also important tocontinue working on the recommendations of the 2023 Public Investment Management Assessment(PIMA) and the 2022 Medium-Term Debt Management Strategy (MTDS).
14.
Additional work can support increasing the efficiency and transparency of public
expenditure. One important goal is to fully implement and deepen the reforms to the procurement
framework. Some CD partners are either working or planning to collaborate with the authorities inthis area; for example, to support the implementation of the National System of Control (SNC) that60

INTERNATIONAL MONETARY FUNDECUADOR

acts as a coordination mechanism for all institutions acting on procurement and anti-corruption.
While the SNC has been created, it requires IT and CD support to ensure interoperability of thedatabases and a risk-based framework.
Supporting Financial Stability
15.
The 2023 Financial Sector Assessment Program (FSAP) identified a significant reform
agenda. This was the first comprehensive evaluation of the Ecuadorian financial system in almost
20 years. Implementing recommendations of this assessment will require extensive CD efforts, incoordination with the WB. TA activities may prioritize the following areas: development of domestic
debt markets, bank resolution tools and processes, risk-based supervision, liquidity and capital
regulations, and the reform of the interest rate system.
Improving the Quality and Consistency of Statistics
16.
Ecuador has received extensive support from the Fund on GFS since 2018. STA’s regular
CD activities have allowed for continued improvement in the compilation of fiscal data in line with
the GFS Manual 2014. In 2023, STA’s LTX worked with the MEF to further enhance the statisticalcompilation process. Additional CD on GFS is planned to build on the progress achieved so far.
17.
Continuing CD on adequate measurement of all macroeconomic aggregates isessential. The BCE would benefit from additional TA activities to improve the quality and coverageof the external sector statistics. CD work has already been committed to assist the authorities withprojects to rebase the producer price index (PPI) and the consumer price index (CPI) and continue
improving the quarterly national accounts with reference year 2018, with three missions planned for
FY25. The BCE has also requested TA to compile Import and Export Price Indices to enhance thenational accounts volume measures.
Improving Macroeconomic Forecasting and Policy Analysis
18.
Support with macroeconomic frameworks remains under way. The MEF and the BCE arebenefiting from TA in Financial Programming and Policies (FPP), which will allow staff from both
institutions to better understand and model the inter-relationships between different sectors of theeconomy and execute internally consistent policies. Several TA missions have been conducted by ICD
since 2023 and more work is expected in the next few months.

Challenges and Mitigating Factors
19.
The authorities remain highly engaged in CD and TA activities, including to underpin
the success of the new IMF’s EFF arrangement. Incorporating TA advice and lessons from CD
activities in program conditionality helps support program performance. By adopting TA
recommendations, significant progress has already been made in terms of reliability, transparency,
and consistency of information. However, capacity building is a long-term process, and changes inauthorities and high turnover levels of technical staff has often necessitated both follow-up andrepeat CD activities. To improve traction, TA recommendations should be broken into
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ECUADOR

straightforward and easily digestible steps, adapted to local constraints, and implemented gradually
but steadily, with sufficient planning and resource allocation to ensure absorption capacity to lock-in
long lasting effects. The CD plans outlined above are part of staff’s continuous dialogue with theauthorities, taking into account their priorities and absorptive capacity as well as IMF staff’s views on
Ecuador’s pressing needs for capacity building.

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Table 1. Ecuador: IMF Capacity Development Missions Since 2016
TA/Training Mission

ProviderMission Date

Strengthening PFM
RA-GAP – Tax Gap Analysis

FAD

July 2023

Public Investment Management Assessment (PIMA)

FAD

February 2023

Revenue Administration (TADAT)

FAD

January 2023

Debt Management

MCM

September 2022

Medium-Term Fiscal Framework (MTFF)

FAD

September 2021

Fiscal Risks

FAD

July 2021

Revenue Administration

FAD

March 2021

Developing Implementation Regulations for COPLAFIP

LEG

December 2020

Medium-Term Debt Strategy

MCM

November 2020

Tax Expenditure

FAD

April 2020

Revenue Administration and Tax Procedures

FAD

June/July 2019

PFM and Fiscal Rules

FAD

May 2019

Customs Administration

FAD

March/April 2019

Revenue Administration

FAD

March 2019

Non-Resource Revenues

FAD

January/February 2019

Debt Management

MCM

December 2018

FAD

September 2018

Public Financial Management

Implementing Structural Reforms
Conflict of Interest Legislation

LEG

July 2022

Conflict of Interest Legislation

LEG

December 2021

Anti-Money Laundering/Combating the Financing ofTerrorism (AML/CFT)LEG

November 2021

Wage Bill Reform

FAD

January 2019

Supporting Monetary and Financial Stability
Financial Sector Assessment Program (FSAP)MCM

May 2023

Cybersecurity

MCM

February 2022

Banking Stress Testing

MCM

July/November 2021

Banking Stress Testing

MCM

January 2021

Credit Cooperatives Supervision

MCM

July 2020

Regulatory and Prudential Framework

MCM

June 2019

Central Bank Law

LEG

April 2019

Network Analysis Toolkit

MCM

January 2016

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ECUADOR

Table 1. Ecuador: IMF Capacity Development Missions Since 2016 (concluded)
TA/Training Mission

ProviderMission Date

Improving and Updating Government Finance Statistics
Government Finance Statistics
Government Finance Statistics and Public Debt
Statistics

STA
STA (LTX)

February/March 2023
November 2022 – October
2023

Government Finance Statistics

STA

July/August 2022

Government Finance Statistics

STA

February/March 2022

Government Finance Statistics

STA

December 2021

Government Finance Statistics

STA

November 2021

Government Finance Statistics

STA

July 2021

Government Finance Statistics

STA

April 2021

Government Finance Statistics

STA

September/October 2020

Government Finance Statistics
Government Finance Statistics and Public Debt
Statistics

STA

September/October 2019

STA

August 2018

Capacity Development in Macroeconomic Statistics and Frameworks

64

Macroeconomic Framework

ICD

January 2024

National Accounts: re-basing GDP

STA

November 2023

Macroeconomic Framework

ICD

November 2023

Prices Statistics

STA

September 2023

Quarterly National Accounts and GDP rebasing

STA

September 2023

National Accounts: re-basing GDP

STA

September 2023

Macroeconomic Framework

ICD

August 2023

External Sector Statistics (BOP)

STA

August 2023

Macroeconomic Framework

ICD

July 2023

Monetary and Financial Statistics

STA

June 2023

Macroeconomic Framework

ICD

May 2023

Macroeconomic Framework

ICD

January 2023

External Sector Statistics (BOP)

STA

August 2022

Quarterly National Accounts and GDP rebasing

STA

August 2022

National Accounts: re-basing GDP

STA

April 2022

External Sector Statistics

STA

August/September 2019

Export and import price indices

STA

July 2019

External Sector Statistics

STA

January/February 2019

National Accounts Statistics

STA

November 2018

Monetary and Financial Statistics

STA

August/September 2017

Balance of Payments Statistics

STA

August/September 2017

INTERNATIONAL MONETARY FUNDECUADOR

Appendix I. Letter of Intent
Quito, May 15, 2024
Ms. Kristalina Georgieva
The Managing Director
International Monetary Fund
Washington, D.C.
Dear Ms. Georgieva:
1.
Ecuador is going through one of the most difficult times in its history. A combination of
external shocks, including a fall in oil prices, a rise in global interest rates, as well as natural disasters
and weather-related events, electricity shortages, low international financing, and domestic politicaluncertainty in the runup to the 2023 early general elections hit our economy over the past year.
These shocks have led to a sharp slowdown in economic activity starting in the second half of 2023
and weighed heavily on our public finances. In this context, the fiscal position weakened markedly,
domestic liquidity tightened significantly, and treasury deposits and foreign exchange reserves
declined sharply. In addition, a severe security crisis exacerbated our economic and fiscal challenges.
2.
In recent months, the Government has taken bold actions to tackle the fiscal challenges andaddress the domestic security situation as a priority. These actions comprised a package ofmeasures to boost fiscal revenue, including an increase in the value-added tax rate, and actions tostrengthen our security forces and capabilities in the context of a new national security plan.
3.
We are committed to implementing policies to strengthen fiscal sustainability, protect
vulnerable groups, rebuild fiscal and external buffers, safeguard dollarization and financial stability,
and advance the structural reform agenda to unlock Ecuador’s significant economic potential. With
the support of the IMF and the international community, we are confident that we will be able toachieve these objectives and lay the foundations for strong, sustained, and inclusive economic
growth.
4.
To help us meet these objectives, we kindly request IMF support through a 48-monthextended arrangement under the Extended Fund Facility (EFF) in an amount equivalent to SDR 3
billion (about US$4 billion), or 430 percent of Ecuador’s IMF quota, to be provided for budget
support, with an initial purchase of SDR 752.9 million (107.9 percent of quota) upon approval of the
EFF arrangement. This borrowing is consistent with the provisions of the Constitution of Ecuador (inparticular Article 290, sections 2 and 3) as well as relevant domestic legislation.
5.
Together with our economic policies, the support from this new Fund arrangement will help
cover Ecuador’s balance of payments and fiscal needs and foster a strong and job-rich economic
recovery that generates opportunities for all Ecuadorians, including the youth. The new arrangement
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will build upon the significant progress made under the previous IMF-supported programs, helping
us implement important economic reforms and providing a valuable anchor for our economic
policies. The new program will also play a catalytic role in mobilizing international support, includingfrom other multilateral partners, as well as from our bilateral creditors, ensuring that the program is
fully financed and helping restore access to international capital markets.
6.
The Government believes that the policies described in the attached Memorandum of
Economic and Financial Policies (MEFP) are adequate to achieve the objectives underpinning the
program. However, if necessary, the Government stands ready to take any additional measures that
may become necessary to achieve our program objectives. The Government will consult with theFund on the adoption of these measures and in advance of any substantive revisions to the policies
contained in the MEFP, in accordance with the Fund’s policies on such consultation. The
Government will also provide the Fund’s staff with all the relevant information required to complete
the program reviews and to monitor performance on a timely basis.
7.
The Government will observe the standard performance criteria against imposing or
intensifying foreign exchange restrictions or introducing or modifying multiple currency practices.
Equally, we will not conclude bilateral payment agreements that are inconsistent with Article VIII of
the Fund’s Articles of Agreement, nor will we impose or intensify import restrictions for balance of
payments reasons. We request the IMF Executive Board’s approval for retaining the existingexchange restriction arising from the tax on transfers abroad (ISD) for the making of payments andtransfers on current international transactions on the ground that the measure is maintained forbalance of payments purposes, temporary, and non-discriminatory. We are committed to graduallyphasing out this measure, as macroeconomic and balance of payments stability are restored and theforeign exchange reserve position is strengthened, supported by implementation of the policies
under the EFF-supported program.
8.
In line with our commitment to foster transparency, we consent to the publication of thisletter, its attachment, and the Staff Report associated with our request for support, to keep domestic
and international agents informed about our policy actions and intentions.
9.
We thank you for your support and willingness to sustain a partnership with Ecuador as we
carry forward our efforts to address our security challenges and revitalize our economy to achieve asustainable, equitable, and resilient growth path.
Sincerely yours,

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/s/

/s/

Juan Carlos Vega
Minister of Economy and Finance

Guillermo AvellánGeneral Manager, Central Bank of Ecuador

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Attachment I. Memorandum of Economic and Financial Policies
This memorandum describes the key policies of our IMF-supported program under a 48month Extended Fund Facility (EFF) arrangement, which builds on the previous 2020-22 EFF
arrangement (hereinafter the “2020 EFF”).
1.
Ecuador made significant progress in implementing important structural and fiscal
reforms in recent years. The 2020 EFF was instrumental in helping Ecuador recover from thepandemic, strengthen fiscal sustainability, support the dollarization regime, and advance thetransparency and anti-corruption agendas. In 2022, we reached an overall fiscal balance, thestrongest fiscal result in over a decade. Key structural reforms included updating the Organic Budget
Code (COPLAFIP) that established a prudent fiscal framework and reinforced public financial
management (PFM); enacting legislation that criminalized acts of corruption (COIP); and reforming
the Organic Monetary and Financial Code (COMYF) to strengthen the independence andgovernance of the Central Bank of Ecuador (BCE). During the EFF, we also boosted the social safety
net, increasing social assistance spending to protect the most vulnerable segments of the
population and making it more geographically inclusive.
2.
Political events and other shocks hindered further progress with the reform plans thatstarted under the 2020-22 EFF arrangement. Political uncertainty dominated most of 2023
constraining financing options and fiscal and other reform efforts. In addition, oil revenue declined
due to a fall in both production and prices, while interest payments on external public debt withfloating rates increased significantly amid the global monetary policy tightening cycle. Together witha sharp slowdown in economic activity, these developments negatively impacted public finances.
The fiscal position weakened markedly, and treasury deposits and international reserves declined
sharply during 2023.
3.
In addition, a severe security crisis exacerbated Ecuador’s fiscal and economic
challenges. In recent years, Ecuador has grappled with a surge in criminal activities connected tointernational organized crime and drug trafficking. In early January 2024, in response to security
breaches, the government declared a 60-day state of emergency (later extended for another30 days) and an internal armed conflict, including curfews and mobility restrictions further weighingon the fragile macroeconomic situation. Addressing the security situation is our key priority for thewell-being of our population and to help reactivate our economy.
4.
During the early months of our administration, we have taken bold actions to address
the fiscal and security challenges. On the fiscal and economic fronts, we implemented a threepercentage point value added tax (VAT) rate hike alongside additional revenue measures, totaling
about 2 percent of GDP, to reduce the fiscal gap. We also introduced a limited set of tax incentives
to stimulate growth and promote youth employment and encouraged private participation in theenergy sector. In January, we announced the intention to target the fuel subsidies to the mostvulnerable. On the security front, we bolstered the government’s capability to fight crime, including
by reorienting current expenditure to boost the security envelope and enhancing the role of the

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military. A referendum held in April 2024 approved measures to tackle the security situation. Ourdecisive actions to address the fiscal and security challenges contributed to a decline in sovereign
debt spreads of about 1,000 basis points since December 2023 to below 1,200 basis points in April.
5.
We are committed to implementing policies to protect macroeconomic stability,
strengthen fiscal sustainability, enhance the social safety net, and foster inclusive growth.
Building on the achievements of recent years and the measures that we have already implemented
in 2024, the new IMF-supported EFF arrangement intends to: (i) strengthen fiscal sustainability, while
protecting vulnerable groups; (ii) rebuild fiscal and external buffers; (iii) safeguard dollarization andmacroeconomic stability; (iv) enhance financial stability and integrity; and (v) continue the structuralreform agenda to unlock the economy’s potential, fostering strong and inclusive economic growth.
6.
The following sections of this memorandum outline our policy plans under the newarrangement.

A. Strengthening Fiscal Sustainability
7.
In recent years, we have undertaken reforms to ensure the sustainability of Ecuador’s
public finances and build a more robust PFM framework underpinned by stronger
institutions. Key elements introduced by the updated COPLAFIP included the establishment of a
medium-term fiscal framework, the introduction of clear anchors to reduce public debt, the setup of
the National Fiscal Coordination Committee, and the introduction of a fiscal risk management
exercise. Fiscal governance was further enhanced by a comprehensive revamp of fiscal statistics andcash management, supported by Fund technical assistance.
8.
Our fiscal policy will continue to be guided by the principle of strengthening thesustainability of public finances and reducing public debt, while protecting the mostvulnerable. We will aim at placing our public debt ratio on a firmly downward trajectory,
maintaining manageable gross financing needs, and respecting the expenditure growth rules andthe debt limit of 40 percent of GDP by 2032 that are enshrined in COPLAFIP. We will continue toallocate fiscal space in our budgets to protect the most vulnerable segments of our population andfor priority investment projects. As a sign of our commitment, we will publish a medium-term fiscal
framework (MTFF) that is in line with these objectives and the EFF-supported program (end-October
2024 structural benchmark).
9.
The 2024 fiscal plan envisages a reduction of the non-financial public sector (NFPS)
overall fiscal deficit of 1.6 percentage points of GDP to 2 percent of GDP. The 2024 plan will
still accommodate a moderate increase in capital spending and urgent spending needs to deal withthe security situation and protect the most vulnerable segments of the population. The fiscal plan
will also seek to start clearing domestic payment arrears and address the difficult liquidity situation
facing the economy. The fiscal efforts will be supported by the revenue measures enacted in the firstquarter of 2024 as well as expenditure restraint:

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On the revenue side, the enacted measures are expected to bring about 2 percent of GDP in
additional revenue. Main measures taken include a hike in the value added tax (VAT) rate andtemporary contributions payable on corporate and bank profits.

•

On the expenditure side, we are committed to restraining current expenditure, underpinned bymaintaining wages and goods and services broadly constant in real terms, while protecting
space to address the security crisis and meet urgent social and investment needs.

To monitor fiscal liquidity in real time, we have prepared and shared with Fund staff a projected
monthly cash flow and financing plan for the budgetary central government for the remainder of2024 (prior action). We will also be ready to take additional revenue or expenditure measures
should fiscal shortfalls emerge that would jeopardize the achievement of program targets. To that
effect, we have also elaborated a contingency plan (prior action).
10.
We aim to achieve a gradual medium-term fiscal consolidation to place public finances
on a sustainable path. To this end, we expect to further reduce the NFPS overall deficit to
1.2 percent of GDP in 2025 and reach an overall surplus of 0.5 percent of GDP by the end of the
program in 2028. This is consistent with achieving a surplus in the NFPS primary balance of
0.1 percent of GDP already in 2025 and a cumulative consolidation of about 5.5 percentage points
of GDP in the non-oil primary balance including fuel subsidies (NOPBS) over 2024-28 relative to
end-2023. This consolidation effort would strike an appropriate balance between strengthening
fiscal sustainability, supporting the economic recovery, and protecting the most vulnerable, while atthe same time allowing us to reduce oil dependence and meet international reserves coverage andpublic debt limits set out in the COMYF and COPLAFIP legislations, respectively. The measures that
we are planning to take to achieve the projected medium-term consolidation would include thefollowing key items:•

Non-Oil Revenues. Increasing non-oil revenues remains important to reduce volatility in fiscal
revenues triggered by global commodity prices. We will aim to continue mobilizing non-oil
revenues to replace temporary measures with permanent high-quality ones, thereby sustaining ahigher level of non-oil fiscal revenues over the medium term. To achieve this, we plan tostreamline inefficient tax expenditures and exemptions. A plan to mobilize non-oil revenues overthe medium term will be prepared and shared with Fund staff (mid-November 2024 structural
benchmark).

•

Oil Revenues. The fiscal opportunity cost of selling oil derivatives at below market prices was
about US$3.2 billion in 2023, equivalent to 2.7 percent of GDP. Most of these subsidies benefit
many who do not need the support, encourage over-consumption of fossil fuels, undermine theenergy transition, damage the environment, and provide ground for corruption and smuggling,
benefiting informal mining activities and drug trafficking. As we announced in January, one of
the administration’s priorities is to make fuel subsidies more focused, while ensuring anappropriate social protection mechanism for the most vulnerable. In addition, the government islaunching initiatives to increase net oil revenues, including by gradually increasing production

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ECUADOR(partly through greater private investments) and enhancing the capacity of the oil refinery
system.
•Public Sector Wage Bill. We are committed to continue efforts to contain the public sector
wage bill, building on efforts made in recent years. To this end, we plan to limit increases inheadcount and wages. In this spirit, we have recently issued a norm to enforce that all public
sector wages be capped below the salary of the President. The strategy will be carefully craftedto ensure the delivery of quality public services and needed hiring of additional police personnel
and domestic security forces to counter the security crisis.

•

Procurement. We aim to continue reforming our procurement system to optimize expenditure
in goods and services, while ensuring the highest standards of transparency and the quality of
public services. In July 2023, the National Public Procurement Agency (SERCOP) issued norms tooperationalize the 2022 Procurement Law. Ongoing efforts to increase efficiency include thecataloguing of public procurement processes and prices, introducing standardized and bulk
purchases of medicine, medical inputs, and other goods and services. Additionally, to promotetransparency, we created the National Control Subsystem (SNC), presided by SERCOP, andcomprised by the Economic and Financial Analysis Unit (UAFE), the Internal Revenue Service(SRI), the Office of the Comptroller, the State Attorney’s Office, and financial regulators. The SNC
will facilitate coordination among public entities with control competencies over the public
procurement system, via the interoperability of their databases. We will establish a timeline tooperationalize the SNC (end-December 2024 structural benchmark) and upgrade the Public
Sector Procurement System (SOCE), with support from the Inter-American Development Bank
(IDB).

•

Capital Expenditure. We will prioritize capital expenditure projects based on their estimatedsocial and economic impact. We will also promote public-private partnerships (PPPs) andconcessions to the private sector for infrastructure investment, with due account of contingent
liabilities and the associated fiscal risks. The Ecuadorian Development Bank (a public bank) willchannel multilateral and bilateral resources for infrastructure investment by local governments.
We undertook a Public Investment Management Assessment (PIMA) in 2023 to improve ourpublic investment process. This technical assistance included a climate-related assessment ofpublic investment management (C-PIMA) to help us build low-carbon and climate-resilient
infrastructure. We intend to gradually implement the recommendations of the PIMA/C-PIMA
assessments.

11.
Specific actions to achieve annual fiscal targets will be established in thecorresponding annual budgets. Given that 2025 will be an election year, the 2024 budget will be
extended into 2025, as stipulated by COPLAFIP. We will enact the necessary measures to ensure thatour 2025 fiscal plan is in line with the EFF-supported program targets and the MTFF (early
December 2024 structural benchmark).
12.
We are committed to clearing domestic arrears. The accumulation of public sector arrears
due to tight fiscal and liquidity conditions is weighing heavily on economic activity. As the fiscal

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liquidity situation improves, we will work on regularizing obligations to the private sector and intrapublic sector claims. To this effect, we have already included in the multi-year fiscal financing plan
the clearance of budgetary central government (PGE) arrears with the private sector, and we will
prepare and share with Fund staff a plan for clearing and preventing the resurgence of PGE arrears,
including obligations to the private sector and intra-public sector claims (end-November 2024
structural benchmark).
13.
Our financing strategy will rely on bilateral and multilateral sources in the near-term,
while seeking to regain access to international capital markets as soon as possible, as themarket conditions allow, and gradually developing domestic financing sources. We will pursue
an active public debt management strategy with the goal of covering the public sector’s financing
needs at the lowest possible cost with a prudent level of risk. We will publish a new medium-term
debt management strategy (MTDS) in line with these objectives and the EFF-supported program(end-October 2024 structural benchmark). We are in active dialogue with our official bilateral
partners to secure continued financial support. With sovereign debt spreads having declined rapidly
in recent months, we hope to return to the international capital markets as soon as possible, as themarket conditions allow. We will also work on developing domestic capital markets.

B. Expanding Our Social Safety Nets
14.
Our goal is to ensure that the burden of fiscal consolidation is not borne by the poorand vulnerable. We have made big strides in protecting the social and economic conditions of themost vulnerable in recent years by upgrading our social registry and expanding the coverage of thesocial protection system with the assistance of the World Bank (WB). We will prepare a plan tocomplete the social registry to cover all families in the lowest three deciles of the income
distribution throughout the country (end-October 2024 structural benchmark). As of March 2024,
1.2 million family units from the bottom three income deciles already benefit from social protection
transfers. We aim to extend the coverage of social protection for 47,000 additional family units per
year into the social protection programs, thereby ensuring that almost all the families in the bottom
two income deciles and the majority of the families in the third income decile are covered by social
protection by the end of the IMF-supported program. Additionally, we are working on thepermanent updating of the social registry base that includes institutional strengthening at thecentral level and territorial deployment work in coordination with subnational governments (GADs).
Also, with the support of the WB, we have undertaken several actions to make the current social
protection system more efficient and comprehensive, not only through monetary transfers but also
through the provision of complementary services by the State.

C. Enhancing the Institutional Framework, Governance, and Transparency
15.
We have made significant improvements in enhancing the timeliness, reliability, andconsistency of fiscal statistics. The 2020 COPLAFIP reforms included the adoption of regulations,
including those that require timely collection, accurate compilation, and transparent publication of
fiscal data, with adequate coverage (by subsectors of the NFPS). We have enhanced our technical

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and institutional capacity in fiscal data recording and reconciliation. In that regard, we established a
dedicated statistics unit at the Ministry of Economy and Finance (MEF), with expertise in government
finance statistics compilation. With the support of IMF TA, we have updated the training curriculumin GFS compilation and produced a training schedule, to ensure ongoing training of new andexisting staff in above- and below-the-line fiscal data recording, reconciliation, and verification. An
IMF long-term expert (LTX) worked during one year with the statistics unit on improving MEF’s
capacity in compiling, verifying, and reconciling government finance and debt statistics. Additionally,
one of the objectives of the fiscal statistics team is to increase the coverage of the NFPS through theinclusion of public companies in the electricity sector and expand the statistical sample of local
government companies.
16.
Currently fiscal statistics are disseminated monthly according to a pre-establishedpublication calendar, which is updated once a year. The time series data on revenues,
expenditures, and transactions in financial assets and liabilities by each subsector of the NFPS are
published monthly along with indication whether the data is preliminary or definitive. Additionally,in collaboration with the IMF’s Statistics Department, an analytical report on the Budgetary Central
Government GFS has been created and is published alongside the monthly time series.
17.
Working closely with the IMF’s Statistics Department, we have revised the historicalbalances of the Social Security Fund (IESS). Based on this work, we adjusted the compilation
process of the IESS and corrected the transfers from the central government to IESS for accrued
pension liabilities going back to 2013. We also incorporated into our expenditure and debt statistics
additional healthcare transfer obligations to IESS based on a conservative estimation while
healthcare audits are pending. We have included in the central government 2024 budget andmedium-term fiscal framework the accrued pension transfer obligations and the estimation of thehealthcare transfer allocations to the IESS and will continue recording conservative estimates infuture budgets.
18.
We are committed to making steadfast progress in establishing a revised mechanism
to settle healthcare claims from IESS. This will bring legal predictability to the process of auditing
and clearing verified obligations. To that effect, we will establish an updated agreement between the
MEF and IESS on the transfer of healthcare obligations (including both internal and external
providers), building on the December 2022 agreement (end-October 2024 structural benchmark).
The updated MEF/IESS agreement will also stipulate the process to be taken to audit and settle the2022 healthcare obligations. We will implement the resulting agreement, to prevent future arrears
on healthcare obligations, improve the reliability of fiscal statistics, and strengthen the sustainabilityof the IESS. Based on the updated MEF/IESS agreement, we plan to initiate the tender to procure theexternal auditor to review the 2023 and 2024 healthcare obligations to IESS (end-December 2024
structural benchmark).
19.
We will continue working on implementing better cash management practices. The factthat we run up accounts payable throughout the year points to the need to improve our financial
planning on an ongoing basis. With the assistance of a long-term PFM expert provided by the IMF,
we have been able to expand our cash management planning capability and horizon to encompass
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the full length of the annual budget cycle. The remaining challenge is to develop further capability
to update our cash management planning on a 12-month rolling basis from any given point in thebudget year. The expert has also helped implement a new monitoring system to evaluate theexisting stock of domestic payment arrears of the central government and selected relevant entitiesof the NFPS. In January 2022, we published a methodology to estimate the stock of arrears and thereporting templates to be used by public sector entities. We have estimated the stock of potential
claims on PGE, including with the IESS, GADs, private sector, or others (if any) by type of
expenditure, year, and beneficiaries. We have started publishing data on monthly arrears in the
public debt bulletins, as per COPLAFIP law. We will design a policy so MEF can gather monthly
information on arrears from other entities of the NFPS, as mandated by COPLAFIP.
20.
We will continue improving the efficiency of state-owned enterprises (SOEs) andmonitoring fiscal risks. At the moment, seven public companies that were not managed efficiently
are in the process of closure. For SOEs that will remain in operation, we are committed tostrengthening their operational framework, implementing best practices to improve efficiency andlimit contingent liabilities to the budget. These efforts will support a structural cost-optimization
strategy, including a comprehensive efficiency assessment of the state, which would enable us tocurtail unproductive activities and obtain efficiency gains.
21.
MEF has implemented several actions to improve public debt transparency. Following
the new debt methodological definition and with WB and Fund technical assistance, a new Debt
Bulletin was developed and released on a monthly basis on the official website of the MEF. The
Bulletin includes detailed information on previously not included past obligations related to internal
debt, arrears, accounts payable, and previous unregistered budgetary obligations. In addition, thecurrent public external and internal debt profile is published, as well as the amortization profile bysource and operation. The detailed database supporting the Bulletin is now accessible on our
website.
22.
We plan to implement IMF TA recommendations on strengthening tax administration.
Last year, we produced an assessment of our tax administration, and with the support of the IMF, we
also undertook the Tax Administration Diagnostic Assessment (TADAT). We plan to implement an
institutional model under the TADAT methodology to close the gaps in tax administration against
best international practices, especially in control processes. Implementation, with support from the
IDB, will focus on process integration, transparency, tax registration, data intelligence, andinformation management. Moreover, we have requested IMF’s technical assistance for the National
Customs Service of Ecuador (SENAE), aiming to enhance its modernization process.

D. Strengthening the Institutional Framework and Capacity of the BCE andSafeguarding the Dollarization Regime
23.
We have made significant progress in strengthening the institutional framework of the
BCE in recent years. In 2021, we revised the COMYF with measures to support the dollarization
regime, which included eliminating the possibility of monetary financing of the government,

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restoring full reserve coverage of private and public financial institutions’ deposits at the BCE; andgiving technical and managerial autonomy to the BCE. The revised law also strengthened the BCE
balance sheet, including by removing all legacy assets from the 1999 banking crisis. It also improved
central bank transparency, by establishing an audit committee, appointing external auditors, andpublishing the audited BCE financial statements on the BCE website. Besides enacting the law, we
took other steps to strengthen institutional framework of the BCE by: (i) implementing a capacity
development program for auditors; (ii) requiring the certification of the audit departments andindividual auditors by the Institute of Internal Auditors (an international organization); and (iii)
implementing some recommendations regarding our audit department from a peer-review
assessment.
24.
The BCE enhanced its access to contingent liquidity lines. In 2023, the Latin American
Reserve Fund (FLAR) granted the BCE access to a contingent credit line of up to US$230 million. In
2022, the Federal Reserve Bank of New York granted the BCE access to a FIMA Repo Facility of
US$1 billion for exclusive central banking operations. This facility allows the BCE to access liquid
resources for potential needs through securities repurchase operations (repo), which are part of ourinstitution's investment portfolio. Additionally, the BCE renewed its contingent liquidity facility with
the Bank for International Settlements (BIS) for up to US$840 million as a precautionary measure incase of dollar liquidity shortages.
25.
The BCE completed the base year change project of Ecuador’s national accounts. Withthe technical assistance from the IMF and the Economic Commission for Latin America and the
Caribbean (ECLAC), the BCE concluded and disseminated in December 2023 the update of Ecuador’s
Annual and Quarterly National Accounts, consisting in changing the fixed base methodology to amoving base with reference year 2018. This project enables the inclusion of a broader source ofstatistical indicators and reflects the country's most recent economic structure. Additionally, the new
methodology implements the best international statistical practices and standards, facilitating thedevelopment of economic research, and supporting well-informed decision-making in the public
and private sectors with updated data.
26.
The BCE completed a successful reallocation of international reserves (IR). Aftercompleting two technical assistances on IR management offered by the WB and the IDB, the BCE
successfully sold 241,124.26 troy ounces of gold into US$494 million, which are being invested insafe and liquid financial instruments. This transaction enabled to reduce the volatility of monetary
gold in the IR as well as increase BCE’s revenues and liquidity.
27.
The BCE reached record net profit in 2023. The BCE’s net profit reached a maximum of
US$683 million in 2023, double the amount reported in 2022 and triple the value reached in 2021.
Moreover, in line with the COMYF, the BCE's equity was strengthened. Due to the high level ofprofits in the past three years, the BCE now reports an equity of US$100 million and a generalreserve fund of US$500 million. Nowadays, the BCE has an adequate level of buffers in place to deal
with any potential financial losses in the future.

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E. Enhancing the Resilience of Our Financial System and Developing theDomestic Capital Market
28.
Ecuador’s 2023 Financial System Stability Assessment (FSSA) comprehensively
assessed the health and resilience of our financial system, including the areas of credit andliquidity vulnerabilities, financial sector oversight, macroprudential policies, and safety nets. The
FSSA also analyzed the quality of the oversight framework of payment systems, preconditions forcapital market development, and access to finance. Key recommendations included: (i)strengthening financial sector oversight and coordination among agencies involved; (ii) enhancing
the prudential framework governing capital and liquidity; and (iii) fostering financial deepening andcapital market development. We plan to gradually implement the recommendations of thiscomprehensive assessment to ensure our prudential regulatory framework and oversight of thefinancial system meets international standards and best practices and improve services for all
stakeholders of the financial system.
29.
We plan to increase coordination among agencies involved in financial sector
oversight. To this effect, we plan to establish a Financial Stability Committee in line with bestinternational practices, comprising the BCE, the MEF, the Financial Board (JPRF), the Monetary Board(JPRM), the Superintendency of Banks (SB), the Superintendency of Popular and Solidarity Economy(SEPS), the Superintendency of Companies (SCVS), and the Deposit Insurance Corporation (COSEDE)(end-September 2024 structural benchmark). The Committee will facilitate coordination andinformation exchange among the agencies involved, providing a holistic perspective to financial
sector surveillance, and supporting prompt policymaking in response to financial sector
vulnerabilities.
30.
We are enhancing the prudential framework on capital and liquidity. We have prepared
the methodologies to identify the systemically important financial institutions, and plan to issue
macroprudential regulations on bank capital buffers, including surcharges on systemically important
institutions and countercyclical capital buffer (end-November 2024 structural benchmark). These
regulations are expected to enhance capital buffers and support financial stability. In addition, we
have started implementing the FSSA recommendations on liquidity, including the phased
implementation of the Liquidity Coverage Ratio, expected to be achieved by 2028.
31.
We are committed to fostering financial sector development and inclusion. Banks andcredit cooperatives are subject to ceilings on lending rates differentiated by credit types and, in thecase of commercial loans, also by the size of the borrower firms. The 2023 FSSA noted that the caps
on lending rates in the higher interest rate environment have led to margin compression, distortions
in credit supply, and restrictions to financial inclusion. A recent revision in the rule to update theinterest rate caps on commercial and corporate loans led to some relief in these segments, and weare assessing their effects. Further reforms to support financial sector intermediation will help lower
borrowing costs, increase access to credit, and help unlock the economy’s growth potential. To thisobjective, and in line with our financial inclusion strategy, we will undertake and share with Fund
staff a study of the system of interest rates (end-March 2025 structural benchmark). The study will

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include recommendations to reform the interest rate system, with the objective of alleviating
unwarranted credit constraints, enhancing financial inclusion, and supporting economic growth,
while preserving financial stability. Based on these recommendations, we plan to establish an
implementation strategy to improve the system.
32.
We will continue working on developing domestic capital markets to allow financial
deepening and diversifying financing sources for the government and the private sector. At
present, the primary placements of government securities with private domestic stakeholders takeplace through the Guayaquil and Quito Stock Exchanges. We have started to standardize
government securities and develop a domestic yield curve. To foster capital market development,
we will also take actions to improve the domestic capital market infrastructure. Building on thesereforms, we intend to begin regular auctions of government securities as market conditions allow.
We expect these reforms to help develop a deeper domestic capital market to channel resources to
the government and the private sector, contributing to increase investment, productivity, andgrowth.
33.
We will make important investments in BCE’s central securities depository andpayment system to strengthen the domestic capital market and promote digital payments
nationwide. To achieve these objectives, we will sign a contract to implement a new platform for
the BCE’s central securities depository (DCV) to modernize the compensation, liquidation, andcustody functions in line with international standards (end-November 2024 structural benchmark).
We will also work on enhancing the payments system by improving the real time gross settlement(RTGS) system at the BCE. The improvements to the payments infrastructure managed by the BCE
will facilitate payments at the national level through interoperability between the different payment
networks, reducing transaction costs, mitigating the risks related to the use of cash, encouraging thedevelopment of digital commerce, and promoting the revitalization of economic activity.

F. Strengthening the Business Environment, Competitiveness, and Private
Sector-led Growth34.
We are committed to restoring the competitiveness of the economy and raising theliving standards for all Ecuadorians. To this end, we are taking important strides in improving
transparency and economic governance, fighting crime and corruption, addressing bottlenecks forinvestment and employment, and making Ecuador a preferred destination for businesses worldwide,
supported by our international trade agreements. We will further facilitate environmentally
sustainable investment in the mining sector, which in recent years has already increased productionand exports.
35.
We have concluded important trade agreements to foster trade integration andinvestments. In 2024, the National Assembly ratified trade agreements with Costa Rica and China.
As a result, 84 percent of Ecuadorian products exported to Costa Rica will be exempted from tariffs.
Other products will also benefit from gradual tariff reductions over the next five to fifteen years.
With China as Ecuador’s second-largest trading partner and the largest market for its non-

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petroleum exports, the benefits of the new trade agreement should be significant. The agreement
will allow 99.6 percent of Ecuadorian exports to China to benefit from immediate or gradual tariff
reductions. These trade deals will also increase the potential for productive FDI inflows. Ecuador iscurrently in the process of negotiating other agreements with South Korea and Canada.
36.
We will enhance our financial integrity and our efforts against organized crime andrelated illicit activities by strengthening our Anti-Money Laundering and Combating the
Financing of Terrorism (AML/CFT) framework. We expect to enact new AML/CFT legislation tostrengthen the AML/CFT framework in line with Financial Action Task Force (FATF) standards (endFebruary 2025 structural benchmark). Such draft legislation is currently under the consideration of
the National Assembly and was originally developed with IMF’s technical support. We will also work
to further enhance the governance and independence of the UAFE and enhance its capabilities in
producing comprehensive strategic and operational financial intelligence that will be proactively
disseminated to law enforcement agencies for further investigation in financial crimes. More
broadly, we are taking other measures to tackle illicit financial flows. Notably, we recently launched a
Joint Investigation Unit to formally align efforts across key public institutions in the fight againstmoney laundering, tax fraud, and other illegal activities that help finance organized crime.
37.
We remain committed to bringing more accountability and transparency to the public
sector. To this end, we are drafting our first holistic policy on public sector integrity, covering SOEs.
This policy has several strategic lines, including transparency in public spending and conflict ofinterests. To prevent and manage conflict of interests, in 2022 a Draft Law to Prevent Conflict ofInterests in Public Administration (prepared by the General Comptroller together with the AntiCorruption Secretariat) was submitted to the National Assembly to advance public sector integrity
and reduce vulnerabilities to corruption. Once in force, the law would expand the asset declarationsof politically exposed persons (PEPs) to ensure it continues detecting and enforcing against illicit
enrichment while also becoming a fundamental tool to detect and prevent potential conflicts ofinterest in the public sector. It would also encourage transparency, by mandating online publicaccess to relevant information on the assets, incomes, liabilities, and interests in the declarations.
38.
SERCOP has continued to require information on the Ultimate Beneficial Ownership(UBO) of companies awarded public procurement contracts. This information must now be
submitted by state suppliers through an electronic form, which should facilitate its continuous
publication on SERCOP’s website. Within the SOCE, SERCOP maintains an updated section featuring
the UBO information for the most recent public contracts, accessible for public consultation.
Concurrently, the SRI is developing a Registry for Ultimate Beneficiaries, and set to be launched in
the last quarter of 2024. This registry will serve to have a central repository of UBO information andcross-reference information with SERCOP and the Superintendency of Companies.
39.
In another major transparency milestone, financial audits of the national oil company
are under way. In January, we hired an independent top-tier audit firm, with support from the IDB.
The audits, as envisaged during the EFF-supported program that concluded in 2022, will cover the2019 and 2020 financial statements of Petroecuador and Petroamazonas, and the 2021 financial
statement of the now merged entity (Petroecuador). We plan to complete and share with IMF staff
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the 2019 and 2020 audit results (end-March 2025 structural benchmark). We will gradually
address any issues identified in the audits going forward.
40.
To foster private sector-led growth, we have developed a new framework for PPPs. A
law approved by the National Assembly in December 2023 laid out this new framework,
complemented with regulations issued last February. PPP projects in the pipeline prioritize sectors
such as road infrastructure and renewable energies. A fiscal risk unit within the MEF will evaluate theviability of PPP projects, including quantification of risks to the public sector’s balance sheet, andpropose ways to mitigate them. These risks will be clearly presented in our fiscal risk statements,
which will be annexed to the annual budgets.
41.
We are committed to addressing the electricity shortages and increasing renewableenergy generation. Power shortages since late 2023 are largely associated with climate change,
affecting hydroelectrical power generation, and longstanding underinvestment in the energy sector.
It is therefore critical to undertake essential maintenance work on existing plants, including throughprivate investment. The government has developed 12 projects for electricity generation throughNon-Conventional Renewable Energies (NCRE)—solar, wind, and hydroelectric—with support fromthe IDB. These generation projects will contribute 833 MW of power, backed by private investments.
Establishing a mechanism to cover commercial revenue risks, coupled with the commitment fromthe state and an IDB guarantee, has sparked significant interest among private investors andinternational development financial institutions in participating in upcoming bidding processes forelectric generation and transmission projects.
42.
We are strengthening our resilience to climate change and natural disasters bystepping up adaptation and mitigation efforts. Climate policy action is a macroeconomic
imperative for Ecuador. Our exposure to natural disasters calls for preparation, for which thefinancial support of the international community would be needed, including to protect populations
in vulnerable areas. We have established an institutional committee on climate finance within MEF,
with the support of the IDB. We recently expanded several protected areas, including the Galapagos
marine reserve, for which in May 2023 we secured long-term financing for its protection as part of
the world’s largest debt-for-nature swap on record. We continue exploring options to mobilize
climate financing, with support from international partners.

G. Program Monitoring
43.
Program implementation will be monitored through quantitative performance criteria,
indicative targets, and structural benchmarks. These are detailed in Tables 1 and 2, withdefinitions and data requirements provided in the attached Technical Memorandum ofUnderstanding (TMU). The EFF arrangement with the Fund will be subject to triannual reviews during2024-25 and shift to semiannual reviews during 2026-28, with the first and second reviews occurringon or after November 15, 2024, and March 15, 2025, respectively.

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Table 1. Ecuador: Quantitative Performance Criteria and Indicative Targets(US$, unless otherwise indicated)
End-Aug.
2024

End-Dec.
2024

End-Apr.
2025

End-Aug.
2025

Program

ProgramITIT-1,078-2,200200
00-2,295-4,213
360
0
0

-472
-753
50
0
0

-1,245-2,37715000Indicative targets
6. Overall balance of the NFPS (floor ) 1/
-1,628
7. Nonoil primary balance including fuel subsidies (NOPBS) of the NFPS (floor) 1/-4,1008. Change in the stock of NIR (floor ) 1/-200
9. Stock of PGE arrears to the domestic private sector (ceiling)862
10. Number of families in the first three income deciles nationwide covered by cash transfer programs (floor) 1,192,713-2,442-6,528-310
662
1,212,984-491-1,500116
600
1,228,660-982-3,400382
400
1,244,336(US$ million, unless otherwise indicated)
Quantitative performance criteria
1. Nonoil primary balance of the budgetary central government (PGE) (floor ) 1/
2. Overall balance of the PGE and CFDD (floor ) 1/
3. Accumulation of NFPS deposits at the central bank (floor ) 1/
4. Non-accumulation of external payments arrears by the NFPS (continuous performance criterion )5. (No new) Central bank direct and indirect financing to the NFPS (continuous performance criterion )Sources: Ministry of Economy and Finance and IMF staff estimates.
Note: Aggregates and adjustors as defined in the Technical Memorandum of Understanding (TMU).
1/ Cumulative change from January of each year.

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Reform Area

Structural Conditionality

Objectives

Due Date

Prior Actions
Publicfinancialmanagement

1. Prepare and share with the Fund a projected monthly cash flow
and financing plan for the budgetary central government for theremainder of 2024.

Improve mechanisms to monitor real-time fiscal
performance and take corrective action if needed toachieve program targets.

Contingency
planning

2. Prepare a contingency plan to ensure compliance with programfiscal targets if revenues underperform.

Be ready to take corrective action if needed to achieve
program targets.

Structural Benchmarks
Publicfinancialmanagement

1. Publish an updated Medium-Term Fiscal Framework (MTFF) inline with program targets.

Strengthen fiscal planning andmanagement.

End-October 2024

Publicfinancialmanagement

2. Publish a Medium-Term Debt Management Strategy (MTDS) inline with program targets.

Strengthen fiscal planning andmanagement.

End-October 2024

Domestic
arrears

3. Share with Fund staff an updated plan to clear and prevent theresurgence of domestic arrears of the budgetary central
government (PGE), including obligations to the private sector andintra-public sector claims.
4. Prepare and share with the Fund a plan to mobilize non-oil
fiscal revenues, including by streamlining inefficient tax
expenditures and replacing transitory revenue measures withpermanent high-quality ones.

Strengthen the monitoring andreduce accumulation of payment
arrears.

End-November
2024

Inform future efforts to broaden thetax base and streamline tax
expenditures.

Mid-November
2024

Fiscal strategy

5. Enact regulation on revenue and/or expenditure measures toensure that the 2025 fiscal plan is in line with program and MTFF
commitments.

Ensure fiscal consolidation.

December 6, 2024

Social safetynet

6. Share with the Fund a plan to complete the social registry tocover families in the lowest three deciles of the income
distribution throughout the country.

Enhance the social safety net

End-October 2024

Tax reform

ECUADOR80

Table 2. Ecuador: Prior Actions and Structural Benchmarks

Table 2. Ecuador: Prior Actions and Structural Benchmarks (continued)

81

Structural Conditionality

Objectives

Due Date

Governance

7. Establish an updated agreement between the MEF and IESS on
the transfer of healthcare obligations (including both internal andexternal providers), building on the December 2022 agreement.
The updated agreement should include a decision about the 2022
healthcare audits.

Improve expenditure control.

End-October 2024

Governance

8. Establish a timeline to operationalize the National Control
Subsystem (SNC) to increase transparency in procurement.

Strengthen anticorruption frameworkand improve expenditure control.

End-December
2024

Transparency
andgovernance

9. Initiate the tender process to select an auditor to undertake the2023 and 2024 healthcare audits (based on the updated MEF/IESS
agreement).

Improve the quality and reliability offiscal data.

End-December
2024

Transparency
andgovernance

10. Complete the audits of the 2019 and 2020 financial statementsof Petroecuador and Petroamazonas and share the results withFund staff.

Enhance transparency and governancein the oil sector.

End-March 2025

Anti-money
laundering
framework

11. Enact new AML/CFT legislation to strengthen the AML/CFT
framework in line with FATF standards.

Mitigate the risk of illicit flows
including those related to organizedcrimes.

End-February
2025

Financialsector

12. Establish a Financial Stability Committee in line with bestinternational practices, comprising the BCE, MEF, JPRF, JPRM, SB,
SEPS, SCVS, and COSEDE.

Enhance coordination amongagencies involved in financial sector
oversight.

End-September
2024

Financialsector

13. Issue macroprudential regulations on bank capital buffers,
including surcharges on systemically important institutions and acountercyclical capital buffer.

Strengthen financial sector buffers.

End-November
2024

ECUADOR

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Reform Area

INTERNATIONAL MONETARY FUNDINTERNATIONAL MONETARY FUND

Reform Area

Structural Conditionality

Objectives

Due Date

Financialsector

14. Prepare and share with Fund staff a study of the system ofinterest rates, including recommendations to improve credit
allocation, financial inclusion, and economic growth, while
preserving financial stability.

Foster financial sector deepening andimprove economy’s growth potential.

End-March 2025

Domestic
capital market
development

15. Sign a contract to implement a new platform for the BCE’scentral securities depository (DCV) to modernize thecompensation, liquidation, and custody functions in line withinternational standards.

Foster domestic capital market
development.

End-November
2024

ECUADOR82

Table 2. Ecuador: Prior Actions and Structural Benchmarks (concluded)

ECUADOR

Attachment II. Technical Memorandum of Understanding
1.
This Technical Memorandum of Understanding (TMU) sets out the definitions of theperformance criteria (PCs) and indicative targets (ITs) that will be applied under the Extended
Fund Facility, as specified in the Memorandum of Economic and Financial Policies (MEFP) and
its attached tables. It also describes the methods to be used in assessing the program’s
performance and the information requirements to ensure adequate monitoring of the targets.
2.
Any variable that is mentioned herein for the purpose of monitoring a PC or IT andthat is not explicitly defined, is defined in accordance with the Fund's standard statisticalmethodology, such as the Government Finance Statistics and the Balance of Payments
Manual. For any variable or definition that is omitted from the TMU but is relevant for program
targets, the authorities of Ecuador shall consult with the Fund staff on the appropriate treatment toreach an understanding based on the Fund's standard statistical methodology. All references to“days” indicate “calendar days”, unless stated otherwise.
3.
Program exchange rates. For the purposes of the program, the exchange rates of the U.S.
dollar for the duration of the program are those that prevailed on April 23, 2024, as shown in Table
1.
Table 1. Ecuador: Program Exchange Rates
US Dollar to Euro

0.94

US Dollar to Renminbi

7.11

US Dollar to Yen

154.82US Dollar to SDR

1.31

US Dollar to British Pound

0.80

US Dollar to South Korean Won

1,380.60

US Dollar to Swiss Franc

0.91

US Dollar to Canadian Dollar

1.37

US Dollar to Danish Krone

6.99

US Dollar to Swedish Krone

10.87

US Dollar to Norwegian Krone

10.99

US Dollar to Australian Dollar

1.55

US Dollar to Mexican Peso

17.00

US Dollar to Colombian Peso

3,924.82

US Dollar to Gold prices (US$/ounce)
Source: Haver, as of April 23, 2024.

2,313.00

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Table 2. Ecuador: Proposed Quantitative Performance Criteria and Indicative Targets,
2024-25(In millions of US$, unless otherwise indicated)
End-Aug.
2024

End-Dec.
2024

End-Apr.
2025

End-Aug.
2025

Program

ProgramITIT-1,078-2,200200
00-2,295-4,213
360
0
0

-472
-753
50
0
0

-1,245-2,37715000Indicative targets
6. Overall balance of the NFPS (floor ) 1/
-1,628
7. Nonoil primary balance including fuel subsidies (NOPBS) of the NFPS (floor) 1/-4,1008. Change in the stock of NIR (floor ) 1/-200
9. Stock of PGE arrears to the domestic private sector (ceiling)862
10. Number of families in the first three income deciles nationwide covered by cash transfer programs (floor) 1,192,713-2,442-6,528-310
662
1,212,984-491-1,500116
600
1,228,660-982-3,400382
400
1,244,336(US$ million, unless otherwise indicated)
Quantitative performance criteria
1. Nonoil primary balance of the budgetary central government (PGE) (floor ) 1/
2. Overall balance of the PGE and CFDD (floor ) 1/
3. Accumulation of NFPS deposits at the central bank (floor ) 1/
4. Non-accumulation of external payments arrears by the NFPS (continuous performance criterion )5. (No new) Central bank direct and indirect financing to the NFPS (continuous performance criterion )Sources: Ministry of Economy and Finance and IMF staff estimates.
Note: Aggregates and adjustors as defined in the Technical Memorandum of Understanding (TMU).
1/ Cumulative change from January of each year.

4.
In addition to the performance criteria listed in Table 2 above, the arrangement will
include the performance criteria standard to all Fund arrangements, namely:•

no imposition or intensification of restrictions on the making of payments and transfers for
current international transactions;•no imposition or intensification of import restrictions for balance of payments reasons;•no introduction or modification of multiple currency practices;•no conclusion of bilateral payments agreements that are inconsistent with Article VIII of the IMF
Articles of Agreement.

These four performance criteria will be monitored continuously.

• QUANTITATIVE PERFORMANCE CRITERIA: DEFINITIONOF VARIABLES
A. Floor on the Non-oil Primary Balance of the Budgetary Central
Government
Definitions
5.
The budgetary central government consists of the Presupuesto General del Estado(PGE). Revenues and expenditures related to social security, public banks, state-owned enterprises(SOEs), and decentralized autonomous governments are not considered part of the PGE.
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INTERNATIONAL MONETARY FUNDECUADOR

6.
The non-oil primary balance of the PGE is defined as the total revenues of the PGE
excluding oil revenues and interest revenue, minus total non-oil expenditure of the PGE excludinginterest expense.
7.

Non-oil primary revenues are recorded on a cash basis. Revenues explicitly included are:•Tax revenues (ingresos tributarios); and•Other revenues (otros ingresos), including transfers, dividends, administrative fees, proceedsfrom asset monetization, and other.

8.
Non-oil primary expenditures are recorded on an accrual basis. Expenditures explicitly
included are:•Wages and salaries (sueldos y salarios);•

Purchases of goods and services (compra de bienes y servicios);•

Transfers to international organizations, decentralized autonomous governments (GADs), IESS,
other social security institutions (ISSFA and ISSPOL), SOEs, and the private sector. Transfers to
private sector explicitly include the “account 99” (cuenta 99) expense items;•

Social assistance benefits;•

Employment-related social benefits; and•Transactions in nonfinancial assets.

9.
Estimated transfers to the IESS for healthcare expenses. PGE transfers to the IESS will
include US$337 million in accrued estimated expenses per year. This amount will be updated assoon as the agreement on the treatment of future healthcare expenditures between MEF and IESS isfinalized.
10.
Government-funded, public-private partnerships (PPPs) will be treated as traditional
public procurements. PGE obligations that are accrued on PPPs would be recorded transparently inbudget data and measured as part of the PGE deficit as they accrue. The accrued but not settled
obligations related to these PPPs will be transparently recorded either as public debt or as acontingent liability of the government (e.g., public guarantees) depending on the nature of theobligation.
11.
Costs associated with divestment operations, with the liquidation of public entities, orthat are otherwise awarded as part of lawsuits shall be recorded as expense. Examples include
but are not limited to the cancellation of existing contracts, severance payments to workers, awards
related to unfair dismissal trials.

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ECUADOR

12.
All expenditures recorded as a credit in “Account 99” (due to the lack of corresponding
budget allocations) will be recorded in the year the obligation was accrued or, if information on theyear is not available, in the year the obligation is credited to the Account 99.

Monitoring13.
All fiscal data referred to above and needed for program monitoring purposes will be
provided to the Fund within 45 days from the end of each test date as shown in Table 2.
Preliminary monthly data will be provided with the lag of no more than 30 days after the end ofeach month.

B. Floor on the Overall Balance of the Budgetary Central Government and
CFDD
Definitions
14.
The budgetary central government and CFDD, for the purposes of the program,consist of the PGE and the oil derivatives financing account, namely the Cuenta deFinanciamiento de Derivados Deficitarios (CFDD).
15.
The overall balance of PGE and CFDD is defined as the net lending/borrowing (NLB) of the
PGE and CFDD, calculated as total revenues of the PGE and CFDD minus their total spending.
16.

Total revenues are recorded on cash basis. Revenues explicitly included are:•

Revenues from oil exports;•

Revenues from the domestic sales of oil derivatives;•

Tax revenues (ingresos tributarios); and•Other revenues (otros ingresos), including transfers, dividends, interest, administrative fees,
proceeds from asset monetization, and other;17.
Total expenditures are recorded on an accrual basis except for interest expense that isrecorded on a cash basis. Expenditures explicitly included are:•Wages and salaries (sueldos y salarios);•

Purchases of goods and services (compra de bienes y servicios);•

Interest expenses (intereses);

86

INTERNATIONAL MONETARY FUNDECUADOR•

Transfers to international organizations, local governments (GADs), IESS, other social security
institutions (ISSFA and ISSPOL), SOEs, and the private sector. Transfers to private sector explicitly
include the “account 99” (cuenta 99) expense items;•

Social assistance benefits;•

Employment-related social benefits; and•Transactions in nonfinancial assets.

18.
Estimated transfers to the IESS for healthcare expenses. PGE transfers to the IESS will
include US$337 million in accrued estimated expenses per year. This amount will be updated assoon as the agreement on the treatment of future healthcare expenditures between MEF and IESS isfinalized.
19.
Government-funded, PPPs will be treated as traditional public procurements. PGE
obligations that are accrued on public private partnerships would be recorded transparently inbudget data and measured as part of the PGE deficit as they accrue. The accrued but not settled
obligations related to these PPPs will be transparently recorded either as public debt or as acontingent liability of the government (e.g., public guarantees) depending on the nature of theobligation.
20.
Costs associated with divestment operations, with the liquidation of public entities, orthat are otherwise awarded as part of lawsuits shall be recorded as expense. Examples include
but are not limited to the cancellation of existing contracts, severance payments to workers, awards
related to unfair dismissal trials.
21.
All expenditures recorded as a credit in “Account 99” (due to the lack of corresponding
budget allocations) will be recorded in the year the obligation was accrued or, if information on theyear is not available, in the year the obligation is credited to the account 99.

Monitoring
22.
All fiscal data referred to above and needed for program monitoring purposes will be
provided to the Fund within 45 days from the end of each test date as shown in Table 2.
Preliminary monthly data will be provided with the lag of no more than 30 days after the end ofeach month.

Adjustors
23.
Adjustor on oil prices: The floor on the overall balance of the budgetary central
government and CFDD will be adjusted upward/downward by US$23.85 million at corresponding
test dates for each US$1 per barrel that the average Ecuador mix crude oil price is above/below the
program assumption defined in Table 3. This adjustor is capped at US$178.9 million atcorresponding test dates. The average price of Ecuador mix oil price will be calculated as the total

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ECUADOR

value of crude oil exports divided by the total volume of oil exports over the period since the priortest date.
Table 3. Ecuador: Oil Price – Program Assumptions
Apr. 2024
Ecuador mix crude oil price (US$ per barrel)
Sources: Ministry of Finance and IMF staff estimates.

67.52

C. Floor on the Accumulation of Non-Financial Public Sector Deposits at
the Central Bank
Definitions
24.
The Non-Financial Public Sector (NFPS, Sector Público No-Financiero) for the purposesof the program consists of the PGE and CFDD, as defined above, Decentralized Autonomous
Governments (including municipal governments, provincial governments and parish boards),
Social Security Funds (including IESS, ISSFA, ISSPOL and BIESS), Non-Financial State-Owned
Enterprises (SOEs, detailed in Table 4), Development Bank of Ecuador (BEDE) as well as
accounts related to the payments to private operators of oil concessions (Ministerio de
Energía y Recursos Naturales no Renovables). The Central Bank of Ecuador falls outside of the
NFPS perimeter.

Table 4. Ecuador: Non-Financial Public Sector Corporations Covered Under the
Definition of NFPS
Empresa Pública de Hidrocarburos del Ecuador Petroecuador - PEC
Empresa Pública Flota Petrolera Ecuatoriana-EP FLOPEC
Empresa Nacional de Ferrocarriles del Ecuador – ENFE (*)
Empresa Pública Línea Aérea del Ecuador TAME (*)
Muestra de Empresas Públicas Menores (Empresas de Agua Potable)(*) SOEs in liquidation process, which will be in fiscal data until the liquidation process is completed.
25.
Deposits of the NFPS at the Central Bank of Ecuador (BCE) include all depository
liabilities (time and on-call deposits) at the BCE of the NFPS, as defined above.

Monitoring
26.
The accumulation of NFPS deposits at the BCE at each test date will be measured as
the change in the stock of deposits between the beginning of the year and the last day of thecorresponding test date month as shown in Table 2.
27.
NFPS deposits at the BCE data will be provided to the Fund at weekly frequency within
5 business days following the end of the week.

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INTERNATIONAL MONETARY FUNDECUADOR

Adjustors
28.
Adjustor on external borrowing. The floor on the accumulation of NFPS deposits will be
adjusted upward/downward by the amount of NFPS borrowing from non-residents above/belowthat envisioned under the program, as reported in Table 5, and net of issuances related to liabilitymanagement operations that have no net impact on fiscal financing. External borrowing willcomprise issuance of international bonds and other borrowing with non-official external creditors.
Table 5. Ecuador: External Borrowing – Program Assumptions(In millions of U.S. dollars)Aug. 2024
Total external borrowing consistent with program targets (cumulative) 1/

0.0

1/ Cumulative from January 1, 2024.

29.
Adjustor on disbursements from the IMF and other multilateral institutions. The floor
on the accumulation of NFPS deposits will be adjusted upward/downward by the amount of theexcess/shortfall in program loan disbursements from the IMF and other multilateral institutions (theIDB, World Bank, CAF, and FLAR), relative to the baseline projection reported in Table 6. Program
loan disbursements are defined as external loan disbursements (excluding project financing
disbursements) from official creditors that are freely usable for the financing of the NFPS budget
operations.
Table 6. Ecuador: Program Loan Disbursements by Multilateral Creditors – Program
Assumptions(In millions of U.S. dollars)Aug. 2024
Expected disbursement of IMF credit 1/
Expected disbursements of program loans by other multilaterals 1/
1/ Cumulative from January 1, 2024.

1,000
1,608

30.
Adjustor on oil prices. The floor on the accumulation of NFPS deposits will be adjusted
upward/downward by US$11.93/US$23.85 million at corresponding test dates for each US$1 per
barrel that the average Ecuador mix crude oil price is above/below the program assumption definedin Table 3. This adjustor is capped at US$178.9 million at corresponding test dates. The average
price of Ecuador mix oil price will be calculated as the total value of crude oil exports divided by the
total volume of oil exports over the period since the prior test date.

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ECUADOR

D. Ceiling on External Payment Arrears by the Non-Financial Public Sector
Definitions
31.
External debt is determined according to the residency criterion except in the case of thedebt securities for which the criterion is the place of issuance of the instrument.1 The term “debt”
will be understood to mean a current, i.e., not contingent, liability, created under a contractual
arrangement through the provision of value in the form of assets (including currency) or services
and which requires the obligor to make one or more payments in the form of assets (including
currency) or services, at some future point(s) in time; these payments will discharge the principal
and/or interest liabilities incurred under the contract. Debts can take several forms; the primary ones
being as follows:•

Loans, i.e., advances of money to the obligor by the lender made on the basis of an undertaking
that the obligor will repay the funds in the future (including deposits, bonds, debentures,commercial loans and buyers’ credits) and temporary exchanges of assets that are equivalent tofully collateralized loans under which the obligor is required to repay the funds and usually pay
interest, by repurchasing the collateral from the buyer in the future (such as repurchaseagreements and official swap arrangements);•

Suppliers’ credits, i.e., contracts where the supplier permits the obligor to defer payments until
sometime after the date on which the goods are delivered or services are provided; and•Leases, i.e., arrangements under which property is provided which the lessee has the right to use
for one or more specified period(s) of time that are usually shorter than the total expected
service life of the property, while the lessor retains the title to the property. For the purpose of
the program, the debt is the present value (at the inception of the lease) of all lease payments
expected to be made during the period of the agreement excluding those payments that cover
the operation, repair or maintenance of the property.

32.
Under the definition of debt set out above, arrears, penalties and judicially awarded
damages arising from the failure to make payment under a contractual obligation that
constitutes debt are debt. Failure to make payment on an obligation that is not considered debt
under this definition (e.g., payment on delivery) will not give rise to debt.
33.
External payment arrears for program monitoring purposes are defined as (i) external debt
obligations (principal and interest) falling due after May 1, 2024 that have not been paid within
90 days of the due date, considering the grace periods specified in contractual agreements, as wellas (ii) payment arrears on goods delivered or services rendered by external entities.

1 As defined in Guidelines on Public Debt Conditionality in Fund Arrangements, Decision No. 16919-(20/103).

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INTERNATIONAL MONETARY FUNDECUADOR

Coverage34.
This performance criterion covers the NFPS. This performance criterion does not cover(i) arrears on short-term trade credit or letters of credits; (ii) arrears on debt subject to renegotiation
or restructuring; and (iii) arrears resulting from the nonpayment of commercial claims that are thesubject of any litigation initiated prior to May 1, 2024.

Monitoring
35.

This PC will be monitored on a continuous basis.

E. Ceiling on BCE Direct and Indirect Financing to the NFPS
Definitions
36.
BCE direct financing to the NFPS and indirect financing to the NFPS through the publicbanks includes overdraft transfers from the BCE to the entities of the NFPS as defined above,
advance distribution of unrealized profits from the BCE, the BCE acquisition of government debt on
the primary market or by purchase from public institutions, and the BCE lending to public banks forthe purpose of acquisition of government debt on the primary market or by purchase from public
institutions.

Monitoring
37.
This PC will be monitored on a continuous basis. Monthly data on amortizations anddisbursements of BCE credit to NFPS and to publicly owned banks for the purpose of financing the
NFPS will be provided within five business days to the Fund.

INDICATIVE TARGETS (IT): DEFINITION OF VARIABLES
A. Floor on The Non-Oil Primary Balance Including Fuel Subsidies of theNon-Financial Public Sector
Definitions
38.

The Non-Financial Public Sector (NFPS) is defined as above.

39.
The Non-oil Primary Balance of the NFPS is defined as primary non-oil revenues (ingresos
primarios no petroleros) minus primary non-oil spending (gastos primarios no petroleros).
40.
•

Primary non-oil revenues are recorded on a cash basis and include the following items:
Tax revenues of the PGE and of GADs;

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ECUADOR•

Social security contributions; and•Other revenues (otros ingresos), including administrative fees, sales of market and nonmarket
establishments, and other Transfers not elsewhere classified.

41.
Primary non-oil revenues explicitly exclude interest, proceeds from the sale of financial
assets, revenues from the privatization of government-owned entities, revenues from oil exports,
and revenues from the domestic sales of oil derivatives.
42.

Primary non-oil spending is recorded on accrual basis and comprises:•

Wages and salaries (sueldos y 92alaries);•

Purchases of goods and services (compra de bienes y servicios), excluding purchases of goods
and services and investments (“servicios petroleros”) of Petroecuador, CFDD and payments to
private oil companies (SHE);•

Grants;•Social benefits, including social security benefits (beneficios de seguridad social), social
assistance, and employment related social benefits;•

Dividends paid by social security funds;•

Current and capital transfers, including “Account 99”; and•Transactions in nonfinancial assets.

43.
Petroleum product subsidies include, but are not limited to, subsidies for gasoline, diesel,liquefied petroleum gas, and sectoral subsidies granted to specific industries (including for
consumption of jet fuel and fuel oil). Subsidies are defined as the difference between the distributor
sale price of the product and the cost of this product. The cost of the product is a weighted average
between the cost of imported petroleum derivative products and the cost of domestically produced
petroleum products, cost of transportation, storage, and commercialization. For the cost of
domestically produced petroleum products, the export price of Eastern crude (opportunity cost) is
considered as raw material, as well as the cost of refining. The import cost includes the price at FOB
value plus freight and insurance.
44.
The non-oil primary balance of NFPS, including fuel subsidies, is defined as the non-oil
primary balance of the NFPS minus spending on subsidies on petroleum products.
45.
Government-funded, PPPs will be treated as traditional public procurements. PGE
obligations that are accrued on public private partnerships would be recorded transparently inbudget data and measured as part of the PGE deficit as they accrue. The accrued but not settled
obligations related to these PPPs will be transparently recorded either as public debt or as a

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INTERNATIONAL MONETARY FUNDECUADOR

contingent liability of the government (e.g., public guarantees) depending on the nature of theobligation.
46.
Costs associated with divestment operations, with the liquidation of public entities, orthat are otherwise awarded as part of lawsuits shall be recorded as expense. Examples include
but are not limited to the cancellation of existing contracts, severance payments to workers, awards
related to unfair dismissal trials.
47.
All expenditures recorded as a credit in “Account 99” (due to the lack of corresponding
budget allocations) will be recorded in the year the obligation was accrued or, if information on theyear is not available, in the year the obligation is credited to the Account 99.

Monitoring48.
All fiscal data referred to above and needed for program monitoring purposes will be
provided to the Fund within 60 days from the end of each test date as shown in Table 2. In
addition to revenue and expenditure data, the data submission would also include fuel subsidies
expenditures provided by Petroecuador, as well as below the line data. Preliminary monthly data will
be provided with the lag of no more than 45 days after the end of each month.

Adjustors
49.
Adjustor on oil prices. The floor on the non-oil primary balance including fuel subsidies of
the NFPS will be adjusted downward/upward by US$23.85 million at corresponding test dates foreach US$1 per barrel that the average Ecuador mix crude oil price is above/below the programassumption defined in the Table 3. This adjustor is capped at US$178.9 million at corresponding test
dates. The average price of Ecuador mix oil price will be calculated as the total value of crude oil
exports divided by the total volume of oil exports over the period since the prior test date.

B. Floor on the Overall Balance of the Non-Financial Public Sector
Definitions
50.

The Non-Financial Public Sector (NFPS) is defined as above.

51.
The overall balance of the NFPS is defined as the net lending/borrowing of the NFPS. It is
calculated as the non-oil primary balance of the NFPS defined above, plus the oil balance of the
NFPS, plus interest revenues of the NFPS, minus interest expenditures of the NFPS. NFPS revenues
and interest expenses are recorded on a cash basis, while NFPS primary expenditures are measured
on an accrual basis.
52.
The oil balance of the NFPS will be defined as the (i) revenues from oil exports anddomestic sales of oil derivatives, minus (ii) expenditures on imports of oil derivatives (CFDD), (iii)payments to private oil companies (SHE), and (iv) goods and services expense and investments ofPetroecuador, including “servicios petroleros”.
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ECUADOR

Monitoring53.
All fiscal data referred to above and needed for program monitoring purposes will be
provided to the Fund with a lag of no more than 90 days after the end of each test date as
shown in Table 2 and preliminary data with the lag of no more than 60 days after the end of eachmonth. In addition to revenue and expenditure data, the data submission would also include below
the line data.

Adjustors
54.
Adjustor on oil prices. The floor on the overall balance of the NFPS will be adjusted
upward/downward by US$23.85 million at corresponding test dates for each US$1 per barrel thatthe average Ecuador mix crude oil price is above/below the program assumption defined in the
Table 3. This adjustor is capped at US$178.9 million at corresponding test dates. The average priceof Ecuador mix oil price will be calculated as the total value of crude oil exports divided by the total
volume of oil exports over the period since the prior test date.

C. Floor on the Change in the Stock of Net International Reserves (NIR)
Definitions
55.
Net International Reserves (NIR) of the central bank are computed under the program as
the US dollar value of the usable gross international reserve assets of the BCE minus (i) gross reserve
related liabilities of the BCE to nonresidents, and (ii) the reserve holdings of domestic banks anddeposits of other financial institutions held at the BCE. Non-U.S. dollar denominated foreign assets
and liabilities will be converted into U.S. dollar at the program exchange rates.
56.
Usable gross international reserve assets comprise all readily available claims on nonresidents denominated in convertible foreign currencies and controlled by monetary authorities,
consistent with the Balance of Payments and International Investment Position Manual (Sixth
Edition). Specifically, they include: (i) currency and deposits; (ii) monetary gold; (iii) holdings of SDRs;(iv) the reserve position in the IMF; (v) securities (including debt and equity securities); (vi) financial
derivatives; and (vii) other claims (loans and other financial instruments).
Specifically excluded from gross international reserves are:•Any precious metals or metal deposits, other than monetary gold, held by the BCE;•

Assets in nonconvertible currencies and illiquid assets;•

Claims on residents; and•Any reserve assets that are pledged, collateralized or otherwise encumbered (in so far as thoseassets are not already excluded from gross international reserve assets of the central bank),
including assets tied up in repurchase agreement transactions.

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INTERNATIONAL MONETARY FUNDECUADOR

57.

Gross reserve-related liabilities comprise:•

All short-term liabilities of the BCE vis-à-vis non-residents denominated in convertible foreign
currencies with an original maturity of one year or less;•

Short-term loans, securities, and other liabilities (excluding account payables) of the central
government with an original maturity of less than 30 days;•

The stock of IMF credit outstanding; and•The nominal value of all derivative positions (including swaps, options, forwards, and futures) of
the BCE, implying the sale of foreign currency or other reserve assets.

The reserve holdings of domestic banks held at the BCE comprise:•

All liabilities of the BCE to other depository institutions (otras sociedades de depósitos, as
defined in the BCE’s Metodología: Información Estadística Mensual, 4th Edition of May 2017).

The deposits of other financial institutions at the BCE comprise:•

All liabilities of the BCE to other financial institutions (otras sociedades financieras, with the
exception of deposits of the BEDE and BIESS, including those held in trust funds (fideicomisos
BIESS y fideicomisos IESS).

Adjustors
58.
Adjustor on external borrowing. The floor on net international reserves will be adjusted
upward/downward by the amount of borrowing from non-residents above/below that envisioned
under the program, as reported in Table 5 above and net of issuances related to liabilitymanagement operations that have no net impact on the outstanding stock of NFPS debt. Externalborrowing will comprise issuance of international bonds and other borrowing with non-official
external creditors.
59.
Adjustor on disbursement from other multilateral institutions. The floor on net
international reserves will be adjusted downward/upward by the shortfall/excess in loan
disbursement by multilateral institutions (the IDB, World Bank, CAF, and FLAR), and grants, relative
to the baseline projection reported in Table 6. Program loan disbursements are defined as externalloan disbursements (excluding project financing disbursements) from official creditors that are freely
usable for the financing of the NFPS budget operations.
60.
Adjustor on oil prices. The floor on the net international reserves will be adjusted
upward/downward by US$11.93/US$23.85 million at corresponding test dates for each US$1 per
barrel that the average Ecuador mix crude oil price is above/below the program assumption definedin the Table 3. This adjustor is capped at US$178.9 million at corresponding test dates. The average

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price of Ecuador mix oil price will be calculated as the total value of crude oil exports divided by the
total volume of oil exports over the period since the prior test date.

Monitoring
61.
The change in net international reserves (NIR) will be measured as the cumulativechange in the stock of NIR between the beginning of the year and the last day of thecorresponding test date month as shown in Table 2.
62.
Foreign exchange asset and liability data will be provided to the Fund at weekly
frequency within 5 business days following the end of the week.

D. Ceiling on the stock of PGE payment arrears to the domestic private
sectorDefinitions
63.

The PGE is defined as above.

64.
Arrears are defined as other accounts payable included in the definition of PGE debt,
which are overdue for more than 90 days from the date of accrual. Stocks of “cartas de crédito”
are explicitly excluded from the definition of arrears for this IT.

Monitoring
65.
Below the line fiscal data referring to PGE accounts payable needed for program
monitoring purposes will be provided to the Fund with a lag of no more than 60 days after theend of each test date as shown in Table 2 and preliminary data with the lag of no more than 45 days
after the end of each month. The data will include a breakdown by economic sector of accounts
payable (e.g., health, education, infrastructure, etc.), with an “of which” detail for amounts overdueby more than 90 days from the date of accrual.

E. Floor on Social Assistance Scheme Coverage
Definitions
66.
Social assistance coverage of poor families for the purpose of the program iscomputed as the sum of all active beneficiary family units in the three bottom deciles of theincome distribution that benefit from at least one social assistance programs. Poor beneficiaryfamilies are defined according to information in the RS2018. Coverage expansion will occur throughthe following social assistance programs, that are in force on the date of issuance of the program:
Bono de Desarrollo Humano (BDH), BDH con Componente Variable (BDH-V), Bono Joaquin GallegosLara, Pension Mis Mejores Años, Pensión Toda Una Vida, Bono para niños, niñas y adolescentes ensituación de Orfandad por muerte violenta de la madre o progenitora, Cobertura de Contingencias,

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Bono para personas afectadas por eventos de origen natural o antrópico, and Bono 1000 Días, andothers monetary transfers that might set into place for strengthen the social protection net. The
level (size) of benefits, understood as number of family units, of any of the cash transfer programs inthe bottom three deciles of the income distribution should not be reduced (with respect to theirlevel on May 1, 2024).

Monitoring
67.
Monthly data on (i) number of family units in the lowest three income deciles covered by
the social assistance protection programs, and (ii) monthly data on numbers of registries withinformation updated and validated following RS2018 by income decile will be provided to the Fundwith a lag of no more than 30 days after the end of each month.

OTHER INFORMATION REQUIREMENTS
68.
In addition to the data needed to monitor program conditionality, the authorities will also
provide to Fund staff the following data so as to ensure adequate monitoring of economic variables:69.
In accordance with IMF Government Finance Statistics Manual (GFSM) 2014 and Public
Sector Debt Guide for compilers and users total gross debt covers all liabilities that are debt
instruments. A debt instrument is defined as a financial claim that requires payment(s) of interest
and/or principal by the debtor to the creditor at a date, or dates, in the future. The following
instruments are considered debt instruments:•

Special drawing rights (SDRs);•

Currency and deposits;•

Debt securities;•

Loans;•

Insurance, pension, and standardized guarantee schemes; and•Other accounts payable.

70.
All liabilities included in the GFSM balance sheet are considered debt, except for liabilities in
the form of equity and investment fund shares and financial derivatives and employee stock options.
Equity and investment fund shares are not debt instruments because they do not require thepayment of principal or interest. For the same reason, financial derivatives are not considered debt
liabilities because no principal is advanced that is required to be repaid, and no interest accrues on
any financial derivative instrument.
For the purpose of the program, Ecuador’s NFPS debt includes the following instruments:

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ECUADOR•

Deposit liabilities;•

Debt securities including short term liquidity instruments (held by nonresidents, and by
residents not included in the NFPS entities);•

Loans; and•Other accounts payables.

71.
Any liabilities issued by entities of the NFPS, held as an asset by other entity of the NFPS
should be netted out. Since the consolidation is done at the level of NFPS, central bank lending to
the government is included in the stock of NFPS debt.

Monitoring72.
The data on NFPS stock of debt in US$ will be provided to the Fund monthly with a lag of no
more than 90 days after the end of each month. The data submission will also include crossholdings among NFPS entities.

Daily
73.
Daily monetary and financial data in the template agreed with Fund staff, no later than
1 business days after the end of the day. This template at least will include: (a) movements ofinternational reserves by inflows and outflows; (b) Main balance sheet accounts of financial
institutions, broken down by private banks, cooperatives and mutuals; and (c) Daily oil production.

Weekly74.
Consolidated balance sheets of the banking system, by main accounts, including deposits inthe banking system, available funds, credit to the private sector, and credit to the government.
75.

BCE balance sheet. Financial Indicators: Deposits of banks at the BCE.

76.
Weekly monetary data in the template agreed with Fund staff, no later than 5 business days
after the end of the week.
77.
Weekly data on international reserves and foreign currency liquidity, in line with SDDS
requirements (see http://data.imf.org/?sk=2DFB3380-3603-4D2C-90BE-A04D8BBCE237), no later
than 5 business days after the end of the week.

Monthly
78.
Data on stocks and flows (above- and below the line), disaggregated by each subsector of
the NFPS (budgetary central government and CFDD, rest of the central government, subnational
governments, SOEs and social security) using the templates previously agreed with the IMF team.
One template with the detailed data on revenues and expenditures of each of the subsectors and98

INTERNATIONAL MONETARY FUNDECUADOR

the consolidations between them, and the other template data by subsectors with a summary ofabove the line data and the comparison with the below the line data for monitoring the statistical
discrepancy and data on stocks of financial assets and liabilities and the financing (below the line
data) also by subsectors.
79.
NFPS financing data compiled based on the detailed information on financial assets andliabilities, namely, deposits, loans, securities, equities, other accounts payable including oil related,
and their amortizations, disbursements, and arrears accumulation.
80.
Data on amortizations and disbursements of credit from the BCE to NFPS and to publiclyowned banks for the purpose of financing the NFPS will be provided within five business days fromthe end of the month.
81.
PGE cash flow data from the beginning to the end of the current fiscal year, with a lag of no
more than 60 days after the closing of each month. This will include expected monthly amortizations
and repayments on NFPS debt as defined above.
82.
Data on social spending, including Bono de Desarrollo Humano (BDH), Bono de Desarrollo
Humano con Componente Variable (BDH-V), Personas con discapacidad, Pensión para Adultos
Mayores, Mis mejores años, Pensión Toda Una Vida, and Bonos Mis Primer 1000 Dias, Bono paraniños, niñas y adolescentes en situación de Orfandad por muerte violenta de la madre oprogenitora, Cobertura de Contingencias, Bono para personas afectadas por eventos de origen
natural o antrópico, as well as Bono Joaquin Gallegos Lara.
83.
Data to determine the latest net SDR position at the end of each month. For the central
government, this would include total external liabilities with the SDR department. For the central
bank, this would include total SDR holdings. All reported data should be denominated in SDRs.
84.
Provision of detailed information on collateralized debt and debt with similar arrangements,
such as repo transactions and other similar debt involving the pledge, sale/resale, or encumbranceof assets within 2 weeks of signing new contracts. The information on collateralized debt and debt
with similar arrangements will include all contracts related to such debt; information on the escrowaccounts overseas that serve as collateral; and detailed information for each creditor on the stock ofdebt, its terms (including on the amounts pledged, sold/resold, or encumbered, as well as any
related commitments or obligations to purchase related or unrelated goods and/or services fromthe lender), and expected repayment schedules.
85.
Export price of Ecuador mix crude oil, with a lag of no more than 20 days after the closing ofeach month.

Quarterly
86.

Detailed balance of payments data, no later 90 days after the end of the quarter.

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ECUADOR

87.
Detailed fiscal and debt data by the subsectors of NFPS, no later than 90 days after the endof the quarter. This data includes: above and below the line data, summary of the statistical
discrepancy, calendar of amortization and payment of interest by instrument of debt stock at theend of the quarter and stock of gross debt.

100 INTERNATIONAL MONETARY FUNDECUADORASSESSMENT OF FINANCIAL RISKS TO THE FUND
May 23, 2024

Approved By
Zuzana Murgasova(FIN) and Bergljot
Barkbu (SPR)

Prepared by the Finance and Strategy, Policy, and Review
Departments.

CONTENTSINTRODUCTION ______________________________________________________________________ 2
PAST FUND ARRANGEMENTS _______________________________________________________ 2
DEBT SITUATION AND OUTLOOK ___________________________________________________ 3
FINANCIAL IMPLICATIONS OF THE PROPOSED ARRANGEMENT FOR
THE FUND ____________________________________________________________________________ 4
ASSESSMENT _________________________________________________________________________ 5
TABLES
1. Proposed Access and Phasing Under the Extended Fund Facility _____________________7
2. IMF Financial Arrangements and Fund Exposure, 1988-2038 _________________________8
3. Capacity to Repay Indicators _________________________________________________________9
4. Impact on GRA Finances ___________________________________________________________ 10
FIGURES1. Debt Ratios for Exceptional Access Arrangements _________________________________ 11
2. Approved GRA Exceptional Access Cases Since September 2008 __________________ 12
3. Projected Credit Outstanding Path Under Existing Arrangements
and Proposed EFF ____________________________________________________________________ 12
4. Credit Outstanding in the GRA Around Peak Borrowing ___________________________ 13
5. Peak Fund Exposure and Debt Service Ratios for Recent Exceptional Access Cases_ 14
6. Credit Concentration of Fund GRA Exposure _______________________________________ 15

ECUADORINTRODUCTION
1.
The Ecuadorian authorities have requested access under the Extended Fund Facility(EFF) arrangement equivalent to 430 percent of quota (SDR 3 billion). Building on the 2020 EFF,
the new 48-month EFF-supported program will aim to strengthen fiscal sustainability, enhancefinancial stability and integrity, and rebuild liquidity buffers, safeguard dollarization andmacroeconomic stability, and advance the structural reform agenda to promote sustainable andinclusive growth. The proposed access would meet Ecuador’s residual financing needs afterfactoring in an ambitious fiscal consolidation and financing from international financial institutions
and official bilateral creditors, and renewed access to international capital markets. The program
would start with tri-annual reviews during 2024-25 and shift to semi-annual reviews during 2026-28.
The phasing would be driven by the size and timing of the estimated financing gaps and would bebroadly aligned with the fiscal adjustment effort.
2.
The proposed program would be subject to the General Resources Account (GRA)
Exceptional Access (EA) Framework. Given that Ecuador’s existing Fund credit stands at SDR 5.8
billion (835 percent of quota), already exceeding normal cumulative access levels, the newarrangement would be subject to the Fund’s exceptional access policy.
3.
This note assesses the financial implications of the proposed arrangement for theFund. The assessment is provided in accordance with the policy on EA and based on the assumptionthat all four exceptional access criteria are met.1

PAST FUND ARRANGEMENTS
4.
Ecuador has had several Fund arrangements in the last decade (Table 2). In July 2016,
the Executive Board approved a disbursement of SDR 261.63 million (37.5 percent of quota) under
the Rapid Financial Instrument (RFI) to help the country meet an urgent fiscal and balance of
payments need following an earthquake that caused significant damage to infrastructure, housing,and agriculture. In March 2019, an EFF arrangement was approved for an amount of SDR 3,035
million (435 percent of quota) to address Ecuador’s systemic vulnerabilities, including high non-oil
primary deficit and rising public debt. During that program, despite steps taken by the authorities toimprove public finances, shortcomings in institutional capacity and a lack of coordination among
government entities led to deficiencies in the compilation of government finance statistics. The
resulting misreporting of fiscal data after the completion of the combined second and third reviews
masked significantly larger than targeted fiscal deficits. Only three out of eleven scheduled reviews
were completed before the program went off track, with only 145 percent of quota drawn (one-thirdof the total amount approved in 2019) before cancellation of the arrangement in April 2020.

1 See paragraph 5 of Decision No 14064-(08/18), adopted 2/22/2008, as amended, and The Acting Chair’s Summing

Up of the Review of Access Policy Under the Credit Tranches and the Extended Fund Facility, and Access Policy inCapital Account Crises—Modifications to the Supplemental Reserve Facility and Follow-Up Issues Related to
Exceptional Access Policy (3/5/03).
2

INTERNATIONAL MONETARY FUNDECUADOR

5.
In 2020, Ecuador requested Fund financial support to address the impact of the
COVID-19 pandemic. On May 2020, the Executive Board approved Ecuador's request for
emergency financial assistance under the RFI for an amount of SDR 469.7 million (67.3 percent of
quota) to meet the urgent balance of payments needs stemming from the outbreak of COVID-19
before a more comprehensive arrangement could be negotiated. During the summer of 2020,
Ecuador completed a successful restructuring of global bonds with parameters structured aroundthe debt sustainability targets provided in the RFI. In September 2020, the Executive Board approved
a 27-month EFF with total access of SDR 4,615 million (661 percent of quota) to help restore
macroeconomic stability, expand social assistance programs in the aftermaths of the COVID-19
pandemic, ensure debt sustainability, close the financing gap, and lay the foundations forsustainable growth. Access under the arrangement triggered EA policies, and the exceptional accesscriteria were considered to be met. The program ended in December 2022 and all reviews werecompleted.

DEBT SITUATION AND OUTLOOK
6.
Following a rapid increase over 2014-2020, Ecuador’s public debt stock has declined
since 2020. Ecuador’s public debt increased rapidly between 2014 and 2020 from under 30 percent
of GDP to over 60 percent of GDP. However, since 2020, the public debt-to-GDP ratio has declined
to an estimated 55.3 percent of GDP at end-2023, driven, in part, by the debt-for-nature swap thatlowered the amount of international bonds outstanding by US$ 970 million, coupled with thedifficulty in accessing new financing (Ecuador has not accessed the market since 2019), that also
forced the government to draw down deposit buffers.
7.
Ecuador’s public debt remains sustainable but not with high probability.2 The fiscal anddebt projections assume successful implementation of the EFF-supported program and a return tointernational capital markets in 2025. Under the program, the primary balance of the non-financial
public sector would turn to surplus in 2025, increasing to about 2 percent of GDP in the medium
term. This fiscal adjustment is expected to contribute to a sustained decline in the public debt-toGDP ratio, which is forecasted to decline from 55.3 percent in 2023 to 40 percent by 2032, the debt
limit embedded in the organic budget code. However, the planned primary consolidation under the
program, while necessary to restore fiscal sustainability, is ambitious compared to cross-country
historical realizations. Downside risks to the fiscal and debt outlook stem mainly from
implementation capacity of the fiscal adjustment. Risks to revenue mobilization partly arise from thepossibility of growth underperforming, given the uncertainty due to the security situation, as well as
possible disruptions in oil production. Risk mitigating factors in the debt sustainability assessment
include the large share of multilateral and bilateral official debt, with comparatively low rollover risk
and long maturities.
8.
Ecuador’s total external debt service burden will peak at 13.2 percent of GDP in 2027
before declining to an average of 11.3 percent of GDP per year during 2030-34. In terms ofexports of goods and services, total external debt service would peak at 48.6 percent in 2027 and2

See the Sovereign Risk and Debt Sustainability Framework (SRDSF) included in this staff report.
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ECUADOR

decline to an average of 42.5 percent per year during 2030-34 (Table 3). The ratio of external debt
service to exports of goods and services is somewhat above the median for other recent GRA
exceptional access cases (Figure 1). Debt service due to the Fund in 2024-34 would average 1.0
percent of GDP per year, peaking in 2027 at 1.4 percent of GDP.

FINANCIAL IMPLICATIONS OF THE PROPOSEDARRANGEMENT FOR THE FUND
9.
The IMF’s credit outstanding to Ecuador at end-April 2024 was SDR 5.8 billion (835percent of quota). This exposure originates from purchases of SDR 1.0 billion under the 2019 EFF
arrangement, SDR 469.7 million under the 2020 RFI, and SDR 4.6 billion under the 2020 EFF.3 Afterthe scheduled purchase upon approval of the proposed arrangement, Ecuador’s debt outstanding to
the IMF would increase to SDR 6.5 billion (935 percent of quota) by end-May 2024. Repurchases
under the 2020 EFF arrangement begin in the first half of 2025, while repurchases under the
proposed EFF arrangement would begin in 2028. Total scheduled Fund repurchases amount to SDR
306 million in the remainder of 2024, SDR 759 million in 2025 and SDR 796 million in 2026.
10.

The proposed EFF arrangement would increase the Fund’s exposure to Ecuador.

•

After the scheduled purchase upon the approval of the arrangement, Ecuador would remain the
Fund’s fourth largest GRA borrower, with credit outstanding that would account for 7.1 percent
of total Fund credit (Figure 6).

•

Credit concentration measured by the Fund’s exposure to the top five borrowers would increaseslightly from 70.0 percent to 70.2 percent following the purchase upon approval of the proposedarrangement (Table 4).

•

The Fund’s current level of precautionary balances (PB) would continue to comfortably exceed
the credit exposure to Ecuador. Fund GRA exposure to Ecuador after the purchase upon
approval of the proposed arrangement would be modest and amount to 26.8 percent of PBs(Table 4), rising to 28.5 percent when credit to Ecuador peaks (assuming the level of
precautionary balances at end-January 2024, which is slightly below the medium-term PB targetof SDR 25 billion).

11.
Although Ecuador’s access in terms of quota under the proposed EFF would be modest
relative to other EA cases, the Fund’s total exposure to Ecuador would peak at 1,002 percent
of quota in November 2025, similar to the median of comparators. At 430 percent of quota,
Ecuador’s access under the proposed EFF would be below the median access for other GRA
exceptional access arrangements since 2008 (700 percent of quota; Figure 2). However, sinceEcuador’s debt outstanding stands already at 835 percent of quota (see ¶9), the Fund’s exposure to
Ecuador would increase to 935 percent of quota after the purchase upon approval of the proposed
EFF and peak at 1,002 percent of quota in November 2025 assuming all purchases and repurchases
3

4

Through end-April 2024, repurchases from the 2019 EFF and 2020 RFI totaled SDR 269 million.
INTERNATIONAL MONETARY FUNDECUADOR

are done according to schedule. This peak would be in line with the median peak for comparatorssince 2008 and above the peak for Ecuador’s 2020 EFF (874 percent; Figure 4).
12.
Ecuador’s capacity to repay the Fund is subject to significant risks and depends on fullprogram implementation and timely external financing. Ecuador’s peak Fund exposure and peak
payments obligations metrics compared to other GRA exceptional access cases are mixed (Figure 5).
Ecuador’s peak Fund exposure in terms of gross international reserves is the highest of comparator
cases—only below that of Ecuador at the time of the approval of the 2020 EFF. Peak Fund exposurein terms of total external debt is also above the median of comparators, while the peak in terms of
GDP is slightly below the median. With regards to peak payments obligations, debt service to theFund in percent of exports of goods and services and in percent of total external debt service isbelow the median of other GRA exceptional access cases.
13.
The proposed EFF arrangement would have a modest impact on the Fund’s liquidity
position. The Fund’s Forward Commitment Capacity (FCC), which stood at SDR 163.9 billion as ofApril 24, 2024, would fall by 1.8 percent following the approval of the proposed EFF arrangement(Table 4).
14.
Income risks would be moderate. Fund income from Ecuador is projected to account for
about 17 percent of total lending income in FY2025, based on a desk survey scenario for projected
program demand as of February 2024. If Ecuador were to accrue arrears on charges and surcharges
in FY25, the Fund’s burden sharing mechanism would be sufficient to cover such arrears. Total GRA
charges and surcharges for Ecuador for FY25 are SDR 454 million, accounting for 34.5 percent of theFund’s current residual burden-sharing capacity of SDR 1.32 billion (as of April 24, 2024).

ASSESSMENT
15.
The proposed EFF arrangement would help Ecuador face its pressing balance of
payments needs. In the context of a full dollarization regime, Ecuador is facing balance of payments
needs driven by weak fiscal balances—including due to the decline in oil exports and subsequent
contraction in net oil receipts—and pressures on the financial account due to capital outflows, large
external debt obligations and lack of market access. After factoring in fiscal consolidation under the
program and support from other international financial institutions and official bilateral creditors,
the country faces an estimated financing gap of US$4 billion in 2024-2028. The proposedarrangement will aim to strengthen fiscal sustainability and rebuild liquidity buffers, safeguard
dollarization and macroeconomic stability, and advance the structural reform agenda to promotesustainable and inclusive growth.
16.
Ecuador’s capacity to repay the Fund is subject to significant risks. Key downside risks
include a further deterioration in the security situation that would impact investment, tourism,
economic activity, the fiscal accounts, and the financial sector. Political fragmentation could delay
reform implementation and lead to additional liquidity pressures. Unexpected declines in oil prices
or disruptions to oil production that reduce oil revenue would also affect the country’s capacity to

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ECUADOR

repay. Finally, tighter financing conditions could affect Ecuador’s ability to re-access the market in2025 as envisaged. Upside risks include stronger-than-expected global growth and higher oil prices.
17.
The proposed arrangement would have a modest impact on the Fund’s liquidity
position, while the Fund’s credit exposure to Ecuador would increase further. The Fund’s FCC
would fall by 1.8 percent following the approval of the proposed EFF arrangement. After thepurchase upon approval of the EFF, Ecuador would remain the fourth largest GRA borrower and willaccount for 7.1 percent of total GRA Fund credit outstanding. Assuming all proposed purchases are
made according to schedule, Ecuador’s GRA debt outstanding would peak slightly above 1,000
percent of quota in November 2025.
18.
Full program implementation would be critical to mitigate financial risks to the Fund.
Ecuador’s capacity to repay the Fund depends critically on steadfast program implementation andtimely external financing as the country has run out of liquidity buffers. Credible reform
implementation is also key to regaining access to private international bond markets and mobilize
resources from other official creditors. Despite the authorities’ strong ownership, risks to policy
implementation are high stemming from a fragmented National Assembly and forthcoming generalelections in early 2025. If policy slippages—or reversals—were to materialize, the risks of arrears to
the Fund would not be insignificant given Ecuador’s large repurchases scheduled for the next five
years.

6

INTERNATIONAL MONETARY FUNDECUADOR

Table 1. Ecuador: Proposed Access and Phasing Under the Extended Fund Facility
Availability Date
May 22, 2024
November 15, 2024
March 15, 2025
July 15, 2025
November 15, 2025
March 15, 2026
September 15, 2026
March 15, 2027
September 15, 2027
March 15, 2028
Total

Amount of purchase
Millions of SDRs
Percent of Quota
752.9
107.9
375.9
53.9
312.9
44.8
312.9
44.8
312.9
44.8
186.9
26.8
186.9
26.8
186.9
26.8
186.9
26.8
184.9
26.5
3,000.0

Conditions
Approval of arrangement
First review and end-August 2024 performance/continuous criteria
Second review and end-December 2024 performance/continuous criteria
Third review and end-April 2025 performance/continuous criteria
Fourth review and end-August 2025 performance/continuous criteria
Fifth review and end-December 2025 performance/continuous criteria
Sixth review and end-June 2026 performance/continuous criteria
Seventh review and end-December 2026 performance/continuous criteria
Eighth review and end-June 2027 performance/continuous criteria
Ninth review and end-December 2027 performance/continuous criteria

430.0

Source: IMF staff estimates.

INTERNATIONAL MONETARY FUND

7

ECUADOR

Table 2. Ecuador: IMF Financial Arrangements and Fund Exposure, 1988-2038(In millions of SDR)
Type of New

Date ofDate of Expiration

Amount of New

AmountFund

Year

Arrangement

Arrangement

or Cancellation

Arrangement

Drawn

Exposure 1/

1988

SBA

4-Jan-1988

28-Feb-1989

75.4

15.1

300.7 2/

1989

SBA

15-Sep-1989

28-Feb-1991

109.9

39.3

247.2

SBA

11-Dec-1991

10-Dec-1992

75.0

18.6

1990
1991

186.0
127.5

1992

72.6

1993
1994

51.8
SBA

11-May-1994

11-Dec-1995

173.9

98.9

135.7

1995

116.7

1996

100.9

1997

98.9

1998

49.5

1999
2000

0.0
SBA

19-Apr-2000

31-Dec-2001

226.7

226.7

113.3

2001

151.1

2002
2003

226.7
SBA

21-Mar-2003

20-Apr-2004

151.0

60.4

262.3

:

:

:

:

2011

0.0

2012

0.0

2013

0.0

2014

0.0

2015
2016

0.0
RFI

8-Jul-2016

8-Aug-2016

261.6

261.6

2017

261.6

2018
2019
2020

261.6
261.6

EFF

11-Mar-2019

29-Apr-2020

3,035.0

1,011.7

1,240.6

RFI

1-May-2020

5-May-2020

469.7

469.7

4,419.5

EFF

30-Sep-2020

16-Dec-2022

4,615.0

4,615.0

4,419.52021

4,889.42022

6,096.4

2023
2024

EFF

May-2024
Arpil-2025

April-2028

5,924.7
6,650.1 3/

2025

6,829.4 3/2026

6,407.4 3/

2027

5,843.5 3/

2028

5,027.8 3/2029

3,930.1 3/2030

2,800.7 3/2031

2,082.4 3/

2032

1,455.8 3/2033

955.8 3/2034

518.6 3/2035

232.8 3/2036

93.0 3/2037

15.4 3/2038

0.0 3/

Source: Finance Department.
1/ As of end-December, unless otherwise stated.
2/ Fund exposure in 1988 included outstanding credit from arrangements prior to 1988.
3/ Figures including transactions under the proposed program are in italics. Fund exposure is derived assuming purchases anddisbursements are made as per the schedule in Table 1 and Ecuador remains current on all its scheduled repurchases andrepayments.

8

INTERNATIONAL MONETARY FUNDECUADOR

Table 3. Ecuador: Capacity to Repay Indicators1/
2024

2025

2026

2027

2028

2029

2030

2031

2032

2033

2034

6,650.1
953.1
464.9
868.3

6,829.4
978.8
540.2
1,299.6

6,407.4918.4
544.9
1,340.6

5,843.5837.5
509.6
1,447.4

5,027.8
720.6
461.6
1,462.2

3,930.1
563.3
381.9
1,479.7

2,800.7
401.4
291.8
1,421.1

2,082.4
298.5
208.3
926.6

1,455.8
208.7
149.7
776.3

955.8
137.0
102.3
602.3

518.6
74.3
74.8
512.1

48.4
41.9
7.3
11.8
0.9

48.7
42.5
7.2
12.6
1.4

48.0
42.0
6.6
13.1
1.4

47.0
41.0
5.8
13.2
1.4

45.1
39.3
4.8
12.7
1.4

42.7
37.1
3.6
12.2
1.4

39.8
34.8
2.5
12.8
1.3

37.0
32.4
1.8
12.0
0.8

34.3
30.0
1.2
11.2
0.6

31.9
28.0
0.7
10.4
0.5

29.7
26.0
0.4
10.0
0.4

In percent of Gross International Reserves
Total external debt
External debt, public
GRA credit to Ecuador
Debt service due on GRA credit

1,131.8
979.0
169.6
22.1

912.2
795.8
135.5
25.7

713.2
624.1
97.6
20.4

578.9
504.4
71.2
17.6

479.3
416.9
50.9
14.8

401.7
348.5
33.8
12.7

333.5
292.0
20.7
10.5

309.8
271.3
14.8
6.6

287.2
251.5
9.9
5.3

267.7
234.4
6.3
3.9

249.3
218.3
3.3
3.2

In percent of Exports of Goods and Services
Total external debt service
Debt service due on GRA credit

41.4
3.3

45.3
5.0

48.3
5.1

48.6
5.3

47.0
5.2

45.9
5.1

48.3
4.7

45.1
3.0

42.1
2.4

39.3
1.8

37.8
1.4

In percent of Total External Debt
GRA credit to Ecuador

15.0

14.9

13.7

12.3

10.6

8.4

6.2

4.8

3.5

2.3

1.3

In percent of Total External Debt Service
Debt service due on GRA credit

8.0

10.9

10.5

10.8

11.0

11.1

9.8

6.6

5.6

4.5

3.8

In percent of Total Public External Debt
GRA credit to Ecuador

17.3

17.0

15.6

14.1

12.2

9.7

7.1

5.4

3.9

2.7

1.5

Exposure and Repayments (In SDR millions)
GRA credit to Ecuador(In percent of quota)
Charges due on GRA credit
Debt service due on GRA credit
Debt and Debt Service Ratios
In percent of GDP
Total external debt
External debt, public
GRA credit to Ecuador
Total external debt service
Debt service due on GRA credit

Source: Ecuadorian authorities, Finance Department, and IMF staff estimates.
1/ Assumes full drawings. Indicators based on the baseline macroeconomic scenario presented in the staff report.

INTERNATIONAL MONETARY FUND

9

ECUADOR

Table 4. Ecuador: Impact on GRA Finances(In millions of SDRs unless otherwise noted)
As of 04/24/2024
Liquidity measures
Current one-year Forward Commitment Capacity (FCC) 1/
Impact of approval on FCC 2/(in percent of current one-year FCC)

163,937-3,000-1.8

Prudential measures
Fund GRA credit outstanding to Ecuador upon approval 3/
In percent of current precautionary balances
In percent of total GRA credit outstanding

6,580
26.8
7.1

Fund GRA credit outstanding to top five borrowers
In percent of current precautionary balances
In percent of total GRA credit outstanding
In percent of total GRA credit outstanding upon approval 3/

64,273
261.7
70.0
70.2

ECU's GRA charges/surcharges in FY25 in percent of residual burden sharing capacity
Memorandum items
Fund's precautionary balances (as of end-January 2024)
Fund's residual burden-sharing capacity 4/

34.5

24,557
1,318

Sources: Finance Department, and IMF staff estimates.
1/ The FCC is defined as the Fund's stock of usable resources less undrawn balances under existing arrangements, plus projected
repurchases during the coming 12 months, less repayments of borrowing due one year forward, less a prudential balance. The
FCC does not include resources under the New Arrangements to Borrow or the Bilateral Borrowings Agreements.
2/ A single country's negative impact on the FCC is defined as the country's sum of Fund credit and undrawn commitments
minus repurchases one-year forward.
3/ Projected credit outstanding for Ecuador at time of approval of the proposed arrangement, which includes the scheduled firstpurchase.
4/ Burden-sharing capacity is calculated based on the floor for remuneration which, under current policies, is 85 percent of the
SDR interest rate. Residual burden-sharing capacity is equal to the total burden-sharing capacity minus the portion being utilized
to offset deferred charges.

10

INTERNATIONAL MONETARY FUNDECUADOR

Figure 1. Debt Ratios for Exceptional Access Arrangements1/ 2/
Total External Debt
(In percent of GDP at time of approval)

External Debt Service(In percent of Exports of Goods and Services at time of
approval)

Public External Debt
(In percent of GDP at time of approval)

Total Public Debt
(In percent of GDP at time of approval)

Source: Ecuadorian authorities and IMF staff estimates.
1/ Estimates as reported in relevant staff reports on the request or augmentation of SBAs or EFF arrangements approved since
September 2008. For Ecuador, ratios reflect end-2023 data.
2/ Asterisks indicate PRGT-eligible countries at the time of the program.

INTERNATIONAL MONETARY FUND

11

ECUADOR

Figure 2. Approved GRA Exceptional Access Cases Since September 20081/
45

3500
Access (in SDR billions) - LHS

40
35

30
25

3000

Access (in percent of quota at approval) - RHS

2500

Median (in percent of quota at approval)

2000

20

1500

15

1000

10

500

5

0

Mongolia
Costa Rica
El Salvador
Armenia
GuatemalaGeorgia
JordanIceland
LatviaSri Lanka
Romania 2013
Kenya EFF
BelarusEgypt 2022
Ecuador 2024
Romania 2011
Egypt 2020
Ecuador 2020
Pakistan
Ukraine 2010
Hungary
Ukraine 2014
Ukraine 2008
Romania 2009
Ukraine 2015
Ireland
Portugal
Greece EFF
Greece SBA
Argentina 2022
Argentina 20180

Source: Finance Department and IMF staff estimates.
1/ FCL arrangements as well as arrangements with relatively low access in SDRs are not included.

Figure 3. Projected Credit Outstanding Path Under Existing Arrangements and Proposed EFF
8.0

RFI

1050
900

6.0

750

SDR Billions

5.0
4.0

EFFs

600

3.0

450

2.0

300

1.0

150

0.0

0

Source: Finance Department and IMF staff estimates.

12

Total Credit Outstanding

INTERNATIONAL MONETARY FUND

Percent of Quota

7.0

ECUADOR

Figure 4. Credit Outstanding in the GRA Around Peak Borrowing1/ 2/(In Percent of Quota)

Source: Finance Department and IMF staff estimates.
1/ Peak borrowing “t” is defined as the highest level of credit outstanding for a member. Repurchases and repayments are
assumed to be on an obligations basis.
2/ Based on quotas at the time of approval, i.e., pre-14th General Review of Quotas for all countries except Argentina, Ecuador,
Egypt, and Kenya. Median credit outstanding at peak is 1,002 percent of quota; average is 1,369 percent of quota.

INTERNATIONAL MONETARY FUND

13

ECUADOR

Figure 5. Peak Fund Exposure and Debt Service Ratios
for Recent Exceptional Access Cases1/ 2/
Peak Fund Exposure(In Percent of GDP)

Peak Total External Debt Service(In Percent of Exports of Goods and Services)

Peak Fund Exposure(In Percent of Gross International Reserves)3/

Peak Debt Service to the Fund
(In Percent of Exports of Goods and Services)

Peak Fund Exposure(In Percent of Total External Debt)4/

Peak Debt Service to the Fund
(In Percent of Total External Debt Service)

Source: Ecuadorian authorities, Finance Department, and IMF staff estimates.
1/ Estimates as reported in relevant staff reports on the request or augmentation of SBAs or EFF arrangements approved since
September 2008.
2/ Asterisks indicate PRGT-eligible countries at the time of the program.
3/ Excluding arrangements with members belonging to the euro area at the time of the approval of the arrangement: Greece,
Ireland, and Portugal.
4/ For arrangements of which total external debt (or debt service) ratio is not available, public external debt ratio is shown
instead.

14

INTERNATIONAL MONETARY FUNDECUADOR

Figure 6. Credit Concentration of Fund GRA Exposure1/(As a percentage of total credit outstanding)

Source: Finance Department.
1/ Total credit outstanding refers to credit outstanding as of April 24, 2024, plus Ecuador’s first purchase under the proposed EFF
arrangement.

INTERNATIONAL MONETARY FUND

15

Statement by Afonso Bevilaqua, Executive Director for Ecuador,
Bruno Saraiva, Alternate Executive Director,
and Bernardo Acosta, Senior Advisor to Executive Director
May 31, 2024
1.
On behalf of our Ecuadorean authorities, we wish to express our appreciation to
management and staff for their swift response to Ecuador’s request for this EFF arrangement. We
would like to recognize the mission team for their hard work and comprehensive report.
Context2.
Ecuador made important progress in restoring macroeconomic stability andstrengthening domestic institutions with the implementation of the 2020 EFF. As a result of
the implementation of the 27-month arrangement, an overall fiscal deficit of 7.1 percent of GDP
in 2020 was turned into a small surplus in 2022, the first surplus since 2008. Economic growthrecovered, exceeding expectations at program approval, and inflation remained among the lowest
in the world. Far-reaching structural reforms were implemented, including a progressive tax
reform and legislation that strengthened the fiscal framework, bolstered Central Bank governanceand autonomy, and criminalized corruption.
3.
Political turmoil and external shocks brought about renewed fiscal vulnerabilities andeconomic challenges in 2023. Amid a complex political landscape, snap general elections were
held in the second semester of the year, halting Ecuador’s reform momentum and increasing
political uncertainty. Fiscal revenues declined as a result of lower oil production and prices, while
expenditures increased because of higher interest payments on external public debt and policy
loosening on current expenditures. The overall fiscal balance deteriorated from a small surplus in
2022 to a deficit of 3.6 percent of GDP in 2023. Treasury deposits declined markedly, andgovernment domestic arrears rose well above historical averages. Climate shocks resulted innationwide power outages at the end of the year, weighing on economic activity. Following astrong post-pandemic recovery, growth weakened from 6.2 percent in 2022 to 2.4 percent in 2023,
with a contraction of 0.7 percent (y/y) in the last quarter of the year. With limited external financing
sources, international reserves fell sharply, resulting in a balance of payments need associated withpressures on the financial account.
4.
Ecuador has faced an unprecedented security crisis. In recent years, the country has
drifted from one of the safest in Latin America, with a homicide rate of 6.7 per 100,000 in 2019 –similar to that in the United States–, to an estimated 45 per 100,000 in 2023, making Ecuador thedeadliest country in Latin America. A presidential candidate was assassinated 11 days before the2023 election. The surge in crime has become the population’s main concern and has taken a toll
on economic activity, mainly by altering investment and consumption decisions. Additionaltargeted public expenditures are needed to effectively tackle organized crime and enhance public
security.
5.
The current administration has proactively taken crucial steps to address theweakened fiscal position and security conditions. In its first five months in office, it managed
to get five significant economic reforms approved by the National Assembly. These bills raisedthe value added tax and created transitory contributions from corporations, among other measures
to incentivize youth employment and to promote electricity generation by private companies.
These revenue measures are expected to yield a net fiscal adjustment of around 1.8 percent of GDP
in 2024. In addition, President Noboa announced his administration’s commitment to target
gasoline subsidies. In relation to the security crisis, the population supported the governments’policies by approving by a large margin nine security related questions in a referendum held in
April.
Program Objectives
6.
The proposed arrangement seeks to strengthen fiscal sustainability and advance a
broad structural reform agenda to safeguard macroeconomic stability and foster strong andinclusive economic growth. Building upon the considerable progress made under the previous
Fund-supported programs, our authorities developed a robust macroeconomic program, aimed atstrengthening fiscal sustainability, bolstering social protection, enhancing financial stability andintegrity, and promoting sustainable and inclusive growth. Program design, including the pace offiscal consolidation and reform sequencing, has been thoroughly considered and discussed withFund staff.
Macroeconomic Policies and Structural Reforms
7.
An ambitious medium-term fiscal consolidation will ensure the sustainability of
public finances. The fiscal plan is anchored on a consolidation of the non-oil primary balance
including fuel subsidies of 5.5 percent of GDP over the program period, including a frontloaded
adjustment of 2.2 percent of GDP in 2024. The envisaged adjustment combines balanced revenue
and expenditure efforts and preserves space for priority spending on security, social protection,and public investment. As a result of the consolidation plan, public debt-to-GDP will continue tosustainably decline to reach the 40 percent legal limit by 2032.
8.
Key reforms will underpin the fiscal consolidation efforts. Recent and forthcoming
actions confirm our authorities’ commitment with fiscal consolidation and their overarching goalof reducing the dependency of public finances on volatile oil revenues. In addition to the bold
economic reforms enacted in early 2024, our authorities’ fiscal plan includes additional permanent
revenue mobilization, targeting of fuel subsidies, and expenditure consolidation. They will also
continue strengthening public financial management, fiscal statistics, and revenue administration.
Our authorities have carefully designed a credible fiscal plan that they can implement. If needed,
they stand ready to take further actions to meet program objectives.
9.
Priority will be given to continue expanding the social safety net. Building upon theremarkable expansion of the social assistance programs during the previous EFF arrangement –which increased the number of households in need receiving cash transfers from three out of 10 toeight out of 10–, our authorities aim to incorporate in the social safety net all families in the lowest
two deciles of the income distribution and most families in the third decile during theimplementation of this program. To achieve this goal, they plan to add about 50,000 new families
each year to the cash transfer programs and to complete the social registry. They are determined2

to ensure that the most vulnerable population is shielded from immediate negative effects of fiscal
adjustment.
10.
Financial reforms will focus on gradually loosening financial repression,
strengthening the oversight framework, and developing the domestic debt market. Cognizant
that a complex system of caps on lending rates have led to distortions and restrictions in the credit
market, our authorities are committed to gradually phasing out financial repression measures andenhancing market efficiency. With the purpose of addressing coordination issues among agencies
involved in financial sector oversight, a Financial Stability Committee will be established, in linewith best international practices. Given that the domestic debt market lacks liquidity and depth,
our authorities will improve market infrastructure and take other actions to help develop thedomestic debt market –which will be crucial to boost domestic financing for public and private
agents. The financial policy agenda, which includes additional measures, focuses on implementing
the recommendations of the 2023 FSSA.
11.
Efforts to strengthen transparency, governance, and the AML/CFT framework willcontinue. Our authorities will establish a new agreement between the Ministry of Economy and
Finance and the Social Security Fund to settle healthcare obligations, with the purpose of providing
a clearer picture of social security spending and underlying fiscal risks. They have assigned highpriority to finalizing the audits of the state-owned oil company and improving transparency,
accountability, and ultimately efficiency of SOEs. With the purpose of mitigating the risk of illicit
flows –including those related to organized crime–, they will continue to work with legislators toenact new AML/CFT legislation in line with FATF standards.
Financing
12.
The financing strategy relies on multilateral and bilateral sources in the near term
and is centered on regaining market access as soon as 2025. The program is fully financed for
its first 12 months, with the EFF arrangement playing a catalytic role in mobilizing international
financing, including from multilateral partners. Our authorities have assigned the highest priority
to securing sustained financing support from our official bilateral creditors and are engaging withthem on a continuous basis and at the highest level, with the goal of ensuring that each one of them
maintains its exposure to Ecuador. After the deep fiscal reforms approved early this year, sovereign
spreads declined about 800 basis points. With rigorous program implementation, including thebuild-up of fiscal buffers, our authorities plan to restore market confidence and regain access tointernational capital markets in the second half of 2025.
Final Remarks
13.
Timely engagement with the Fund through an exceptional access EFF arrangement
will be critical to safeguard macroeconomic stability and support the reform agenda. The
economy faces balance of payments needs, mainly from pressure on the financial account arisingfrom external debt obligations. Given limited financial buffers and large financing needs in the
short and medium run, staff assessed Ecuador’s public debt to be sustainable, but not with highprobability. Fund’s financial assistance will help bridge the most pressing period in terms offinancing needs, helping ensure debt sustainability. Successful program implementation, including3

the completion of the ambitious reform agenda, should further reduce sovereign spreads and enable
Ecuador to regain market access as well as boost the economy’s potential growth. The country has
proven capacity to implement a demanding program, and there is broad political support to themain objectives of the EFF arrangement, as showcased by the legislative approval of five importanteconomic reforms between December 2023 and April 2024.
14.
Our authorities took swift and bold actions to address the tight liquidity conditions
and strengthen fiscal sustainability. They reaffirm their commitment to implement thisambitious program, which –in addition to the demanding fiscal plan– contains 15 structural
benchmarks for the first 12 months, well above the average of 11 per year in other exceptional
access programs. The Fund has been a crucial partner of Ecuador and our authorities are gratefulfor its continued financial, policy, and technical support.

4