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IMF assesses impact of the most recent political decisions in Ecuador

Published on November 16, 2021

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Update to: The latest IMF report on Ecuador is optimistic
Published: Volume 6, Issue 1

A technical team from the agency was sent to Ecuador to verify the fiscal impact of the decision to abandon the price band for diesel and gasoline.

A team from the International Monetary Fund (IMF) is in Ecuador “evaluating the impact of recent political decisions,” which were not part of the original agreement.

These decisions include the abandonment of the price bands for low-octane gasoline and diesel as part of an opening to dialogue with the indigenous organization Conaie and representatives of the commercial passenger and cargo transport sector, among other groups.

All of this relates to parts of the credit agreement that the IMF reached with Ecuador, for $6.5 billion, in September 2020. Of that total, the IMF has already disbursed $4.802 billion for Ecuador.

According to the program with the Fund, it is expected that in December 2021 Ecuador will receive another disbursement of $700 million, as long as it meets 12 structural goals.

One of the key goals is tax reform, which is analyzed by the Assembly’s Economic Development Commission. The initiative should have been approved in October 2021. With the tax reform, the State would collect around $1.9 billion between 2022 and 2023, according to the Ministry of Finance.

What about fuels?

Another goal that the country must meet is to eliminate subsidies for Extra and Ecopaís gasoline and diesel by 2022, until international prices are reached.

But protests by the indigenous movement, transporters and other groups led the government to suspend the price band system for these fuels on October 23rd.

Without the band system, the government decided to freeze the price of a gallon of diesel at $1.90 and of Extra and Ecopaís gasoline at $2.55.

According to Petroecuador, with these prices the gallon of diesel still has a subsidy of $0.40 and that of Ecopaís is $0.09; while Extra gasoline is already at an international price.

But indigenous organizations such as Conaie asked the government to freeze prices at $1.50 for a gallon of diesel and $2.10 for a gallon of Extra and Ecopaís, which could represent a cost of up to USD 1,000 million for the fiscal coffers.

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