The IMF Board allowed a disbursement of 1 billion immediately after approval of the agreement, on May 31, 2024.
The Executive Board of International Monetary Fund (IMF) approved a new credit for approximately 4 billion dollars for Ecuadorwithin a period of 48 months, under the modality of Expanded Service (SAF). Of that amount, the country will receive 1.5 billion dollars this year.
The decision of the Board of Directors allowed a disbursement of 1,000 million immediately after the approval of the agreement, on May 31, 2024. The amount will serve to finance the government budget and cover a part of the budget deficit or shortfall, which this year is around the 6 billion dollars.
While the rest of the credit, 3 billion dollars, will be disbursed in nine payments between 500 million and 250 million dollars, from November of this year until March 2028. These disbursements will be made after reviewing whether fulfilled the conditions agreed upon at the signing of the agreement.
What are the conditions for this new IMF credit?
To receive the new IMF loanEcuador has committed to, at least, making tax reforms and eliminating fuel subsidies this year.
Tax reforms:
Before receiving the second disbursement of 500 million dollars from the IMF, in November 2024, the Government must present a plan to increase tax revenue. To this end, it is committed to improving collection efficiency taxes and reduce tax evasion.
In the first months of the year, the government of Daniel Noboa moved forward with one of the multilateral demands, which is the increase in taxes. One of the first measures was the increase in value added tax (VAT) from 12% to 15%. This will represent an increase of 800 million this year.
Also, the tax rate on foreign exchange outflows (ISD) increased from 3.5% to 5%. But he promised to eliminate this tax completely. The Government expects 300 million dollars for this concept at the end of the year.
The agreement aims to have a new tax reform for the next few months. Since the Government has also committed to review and rationalize the tax expenditure as a key measure to improve the tax collection and ensure greater equity in the tax system.
Tax expenditure is the amount that the State stops receiving for exemptions, deductions and other tax benefits that are granted to people and companies, such as VAT refunds to older adults, people with disabilities, decentralized autonomous governments, universities, among others.
Subsidy Review:
The Government also committed to improving the targeting of subsidies so that they exclusively benefit the most vulnerable groups. The elimination of the subsidy must be done in the coming months, before the end of the year. The Minister of Energy in charge, Roberto Luque, already spoke on May 30, 2024 about the targeting of subsidies for extra gasoline and ecopaís. He noted that a “quite robust list of those affected” has been made to work on compensation for these groups, but did not give more details on how that compensation will be applied. The Government seeks to gradually eliminate fuel subsidies, to reduce the tax burden, which this year will exceed 3 billion dollars, including diesel, domestic gas, gasoline, among others. There has only been talk of eliminating the gasoline subsidy. These measures are part of a broader set of structural and fiscal reforms agreed with the IMF to guarantee Ecuador’s macroeconomic stability.
By: THE TRADE