IMF国际货币组织全球-Ecuador_Second-and-Third-Reviews-Under-The-Extended-Fund-Facility-Arrangement-and-Request-for-a-Waiver-of-Nonobservance-and-Modifications-of-Performance-Criteria_98页_1mb

Ecuador: IMF Second and Third Reviews Under the Extended Fund Facility

Core Content Overview

The International Monetary Fund (IMF) completed the second and third reviews of Ecuador's Extended Fund Facility (EFF) program on December 19, 2019. The 36-month EFF arrangement, with a total access of SDR 3.035 billion (about US$4.189 billion), was approved on March 11, 2019. The reviews enabled the release of SDR 361.3 million (about US$498.4 million). The staff supported the authorities' request for a waiver of nonobservance of the end-September QPC on net international reserves (NIR), citing a minor impact on program implementation. The program also requested modifications to end-December performance criteria on the non-oil primary balance including fuel subsidies (NOPBS), NIR, and social assistance spending.

Main Views and Key Information

Program Context

• Ecuador's government has faced resistance in implementing important economic reforms.
• A key reform was the elimination of fuel subsidies, which triggered widespread protests and social unrest.
• The government retracted the decree and is currently negotiating a revised fuel subsidy policy with civil society.
• An emergency economic package was submitted to the National Assembly on October 18, 2019, but was rejected on November 17.
• The revised tax code was approved on December 9, 2019, and the government plans to submit revised versions of the central bank and organic budget codes in the coming months.

Economic Developments

• Growth: Real GDP growth slowed to 0.4% in 2019H1 from 1.1% in 2018H2, with further deceleration expected due to political instability and policy uncertainty.
• Inflation: Consumer price inflation dropped to 0% in November 2019, following a temporary increase in October due to fuel price hikes.
• Current Account: The current account deficit reached US$0.3 billion in 2019H1, with a projected deficit of 0.8% of GDP for 2019. The real effective exchange rate (REER) is overvalued by about 34%.
• Credit Growth: Credit growth to the private sector remained robust, though the gap with deposit growth narrowed. Risky segments like consumption and microcredit dominated credit growth.

Fiscal Performance

• Quantitative Performance Criteria (QPCs): All end-June and end-September QPCs were met, except the end-September NIR QPC.
• Indicative Targets (ITs): The NOPBS and overall balance targets were overperformed in both periods.
• Social Assistance: Social assistance spending targets were met with margins, and the program's floor on social assistance was raised to support efforts to improve the social safety net.

Institutional Reforms

• Tax Reform: The recently approved tax reform is expected to increase revenues and make the system more growth-friendly, simple, and equitable.
• Central Bank Autonomy: Reforms to the central bank code aim to strengthen autonomy, accountability, and governance, supporting the dollarization regime and prudent management of reserves.
• Public Financial Management: The revised Organic Budget Code is a key reform to improve expenditure controls, limit budget discretion, and introduce mechanisms to address arrears.
• Debt Management: Continued efforts in debt management are necessary to reduce borrowing costs and ensure efficient resource allocation.

Financial System

• The financial system remains stable, but asset quality has deteriorated slightly, with past-due loans trending upward.
• The Central Bank of Ecuador (BCE) managed the short-lived increase in cash demand during social unrest.
• Regulatory reforms are needed to strengthen credit risk management, close regulatory gaps, and build a macroprudential framework.

Competitiveness and Social Priorities

• Efforts to raise competitiveness should focus on improving transparency, governance, public sector efficiency, and labor market conditions.
• Protecting the poor and enhancing the social safety net remain central to the government's program. Continued work is needed to upgrade the social registry for better targeting of social assistance.

Program Implementation

Performance Criteria

• End-June 2019: All QPCs and ITs were met, including the NOPBS target and the overall balance.
• End-September 2019: The NOPBS target was met with a margin, and the overall balance overperformed expectations. However, the NIR QPC was not met, leading to a waiver request.
• Social Assistance: The targets for social assistance spending were met with margins, and the program floor was raised to support continued improvements.
• Continuous Performance Criteria (CPCs): All CPCs were met, including the repayment of debts to the public bank Corporación Financiera Nacional (CFN) and compliance with restrictions on multiple currency practices and external arrears.

Outlook

• Growth: The growth outlook remains broadly unchanged, with a forecast of -0.5% for 2019, 0.2% for 2020, and 1.6% for 2021.
• Inflation: Average inflation is projected at 0.3% in 2019 and 0.9% in 2020, with subdued inflation expected in the medium term.
• External Position: The external position is expected to be weaker than at the time of the first review, with a projected current account deficit of 0.8% of GDP in 2019.
• Financing Needs: Gross external financing requirements for 2019 are estimated at US$10 billion, up by US$1.2 billion from the first review. The authorities issued a US$2 billion international bond in September 2019 to help cover the budget gap and meet revised NIR targets.

Key Recommendations

• Structural Reforms: Continued focus on completing the revised Organic Budget Code and central bank code is essential for program success.
• Social Safety Net: Upgrading the social registry and expanding the social safety net will improve the targeting of social assistance.
• Fiscal Prudence: Maintaining fiscal prudence is critical for long-term sustainability.
• Debt Management: Reducing borrowing costs and improving the efficiency of resource allocation are priorities.
• Regulatory Improvements: Strengthening credit risk regulation, closing regulatory gaps, and building a macroprudential framework are needed to ensure financial system resilience.

Conclusion

The IMF Executive Board concluded that the second and third reviews of Ecuador's EFF program were successfully completed, with the exception of the end-September NIR QPC. The staff supported the waiver and modifications to the performance criteria, recognizing the minor impact of the breach. The program remains on track, with continued efforts to strengthen fiscal and external positions, improve the financial system, and protect the poor. The government's commitment to structural reforms and social safety net improvements is critical for long-term economic stability and growth.