During a recent interview, Vice Minister of Finance, Daniel Lemus, said that Ecuador will need an additional $1.0 billion in external credits to cover expenses for 2023.
External and internal issues are causing concern for Ecuador’s financial stability that only 5 months ago seemed to be improving dramatically after exiting the covid-19 pandemic.
Recently, Ecuador’s Vice Minister of Finance, Daniel Lemus, shared his views on the situation and outlined the steps the government is taking to prepare for a fall in oil prices, the upcoming costs to bear for the recent earthquake, and the overall view of the country in international markets.
Here is a summary of what Lemus had to say:
“The country not only needs external credit to finance infrastructure reconstruction after the earthquake of March 18th and due to the rains, but also to face an adverse external scenario.
While the World Bank, the Inter-American Development Bank (IDB), and CAF will finance almost $200 million worth of damages caused by the earthquake and harsh winter, financial uncertainty in the United States and Europe has caused a decrease in the income of the General State Budget.
From a fiscal point of view, the General State Budget contemplates oil revenues of around $3.8 billion in 2023, using a price of $65 per barrel as a reference. The fall in the price of oil has led to a fiscal impact that is still manageable as the country has stopped receiving oil revenues of $100 million so far in 2023.
However, if the fall in oil prices continues, Ecuador will have to look for additional sources of financing. The government is already seeking extra funding through traditional lenders, such as the IDB, the World Bank, and CAF, and exploring options with other multilaterals they haven’t worked with before, like the Asian Infrastructure Investment Bank.
The country will need $1.0 billion in credits to finance specific projects, including $800 million for the increase in the public works budget and an increase of $200 million for security. Ecuador cannot issue debt bonds in the international market due to the country risk, which is above 1,900 points. The government is talking to lenders who lend at reasonable rates, and multilaterals who work by quotas to analyze additional credit alternatives.
Ecuador has obtained external credit worth $170 million thru February 2023. There are other lines about to materialize in one or two months, as they have already been signed or approved by the Debt Committee, such as a line of $100 million from the World Bank for health expenses, of which they are waiting for a disbursement of $80 million. There are also lines of credit to be disbursed of $630 million from multilaterals, such as CAF, the Division for Financing for Development, and other organizations.
Regarding the IMF, Ecuador concluded the last credit program with the organization in December 2022. At present, the construction of a new credit program with the Fund is not underway.
The IMF will continue to carry out semi-annual reviews in 2023 to evaluate how Ecuador is doing, as part of the commitments of the program that has just ended. However, this does not imply new disbursements, and having a new program is always an open option, but the government has not started dialogues in that regard.”