Upon assuming office with depleted financial reserves, the Noboa administration is resorting to unconventional measures to secure immediate funding.
In a bid to address a severe liquidity crunch in the country, the Minister of Economy, Juan Carlos Vega, announced on December 29, 2023, that the Ecuadorian government is taking unprecedented measures by requesting large companies, including retail giant Corporación Favorita, to make advance payments of their Income Tax.
Typically, companies are obligated to declare and settle their Income Tax in April each year. However, faced with a pressing need for immediate funds, the government finds itself compelled to seek early payments to meet substantial state expenses in December 2023. Vega emphasized the urgency of the situation, stating that the fiscal fund’s available resources would fall short of covering the substantial outlays.
Among the corporations receiving such a request is Corporación Favorita, a major player in Ecuador’s business landscape and the manager of renowned supermarket chains like Supermaxi, Megamaxi, and Akí.
According to data from the Superintendency of Companies portal, Corporación Favorita reported impressive revenues of $2.355 billion in 2022, with a net profit of $152.6 million. In the same year, the company fulfilled its tax obligations by paying $47.8 million in Income Tax.
Unprecedented measures being implemented to secure funding
To navigate the financial crisis, the Central Government has implemented various emergency measures, including securing temporary loans from public entities like CFN and Tame and issuing additional internal debt through Cetes.
Compounding the fiscal challenge, the government is grappling with mounting arrears, projected to reach a staggering $5.017 billion by the close of 2023, owed to local governments, suppliers, and social security entities.
As of December 22, 2023, the single treasury account, akin to the State’s current account, held a mere $411 million, marking a significant decrease of $668 million compared to December 2022.
In light of these challenges, Minister Vega is set to travel to Washington in January 2024 to engage with International Monetary Fund (IMF) authorities, seeking additional financing options for Ecuador. The outcome of these negotiations may play a crucial role in shaping the country’s economic trajectory in the months ahead.