Ecuador : First Review Under the Extended Arrangement Under the Extended Fund Facility and Request for Modification of Quantitative Performance Criteria-Press Release; Staff Report; and Statement by the Executive Director for Ecuador

ECUADOR

IMF Country Report No. 20/325

FIRST REVIEW UNDER THE EXTENDED ARRANGEMENT UNDER DECEMBER 2020 THE EXTENDED FUND FACILITY AND REQUEST FOR

MODIFICATION OF QUANTITATIVE PERFORMANCE CRITERIA- PRESS RELEASE; STAFF REPORT; AND STATEMENT BY THE EXECUTIVE DIRECTOR FOR ECUADOR

In the context of the First Review Under the Extended Arrangement Under the Extended Fund Facility and Request for Modification of Quantitative Performance Criteria, the following documents have been released and are included in this package:

• A Press Release including a statement by the Chair of the Executive Board.
• The Staff Report prepared by a staff team of the IMF for the Executive Board's consideration on December 21, 2020, following discussions that ended on November 20, 2020, with the officials of Ecuador on economic developments and policies underpinning the IMF arrangement under the Extended Fund Facility. Based on information available at the time of these discussions, the staff report was completed on December 9, 2020.
• A Debt Sustainability Analysis prepared by the staff of the IMF.
• A Staff Statement updating information on recent developments.
• A Statement by the Executive Director for Ecuador.

The documents listed below have been or will be separately released. Letter of Intent sent to the IMF by the authorities of Ecuador* Memorandum of Economic and Financial Policies by the authorities of Ecuador* Technical Memorandum of Understanding*

*Also included in Staff Report

The IMF's transparency policy allows for the deletion of market-sensitive information and premature disclosure of the authorities' policy intentions in published staff reports and other documents.

Copies of this report are available to the public from

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PR20/387

IMF Executive Board Completes First Review of the Extended

Fund Facility Arrangement for Ecuador

FOR IMMEDIATE RELEASE

• The IMF Executive Board completed today the first review of the extended arrangement under the Extended Fund Facility (EFF) for Ecuador, allowing for an immediate disbursement equivalent to US$2 billion for budget support.
• The economic recovery is under way, following the worst contraction on record as a result of the pandemic. The authorities continued to expand and improve targeted social assistance, bringing in more than 270,000 low-income families into the social safety net since July.
• The authorities have continued to advance their reform agenda in key areas, including the recent approval of amendments to the anticorruption law with broad support across the political spectrum in the National Assembly.

Washington, DC: The Executive Board of the International Monetary Fund (IMF) completed today the first review of the extended arrangement under the Extended Fund Facility (EFF) for Ecuador. The Board's decision allows for an immediate disbursement of SDR 1.42 billion (about US$2 billion), bringing Ecuador's total disbursements for budget support under the arrangement to about US$4 billion.

Ecuador's 27-month EFF arrangement was approved by the Executive Board on September 30, 2020 (see Press Release No. 20/302) for SDR 4.615 billion (about US$6.5 billion or around 661 percent of Ecuador's quota). The program aims to support Ecuador's policies to stabilize the economy and protect lives and livelihoods, expand the coverage of social assistance programs, ensure fiscal and debt sustainability, and strengthen domestic institutions to lay the foundations for strong, job-rich, and long-lasting growth that benefits all Ecuadorians.

Following the Executive Board discussion on Ecuador, Ms. Antoinette Sayeh, Deputy Managing Director and Acting Chair, issued the following statement:

"The Ecuadorian economy is showing nascent signs of economic recovery after bottoming out in the second quarter. New COVID-19 infections and deaths have moderated compared to the high levels seen in the Spring, reflecting the authorities' decisive actions to contain the outbreak. Economic activity is now projected to contract by 9½ percent in 2020, which is an improvement over the 11 percent contraction anticipated at program approval.

"The authorities' vigilant approach leading up to program approval helped cushion delays in external financing. All end-September quantitative performance criteria and indicative targets were met with large margins. Moreover, the authorities continued to expand and improve well- targeted social assistance, bringing in more than 270,000 low-income families into the social safety net since July, ahead of their end-December goal, and helping to mitigate the impact of the crisis on the most vulnerable groups.

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"The authorities have continued to advance their reform agenda in key areas. On governance and transparency, the National Assembly has approved near unanimously the amendments to significantly enhance the anti-corruption framework, and the authorities have expanded public access to asset declarations of politically exposed persons. They have taken important steps to strengthen the foundations for dollarization by aligning the central bank's internal audit function to best international standards and finalizing the amendments to the organic monetary and financial code (COMYF) for submission to the National Assembly. The authorities have also adopted regulations on fiscal rules and the medium-term fiscal framework under the organic budget code and developed a financial plan for next year. These steps will improve public financial management and support fiscal sustainability.

"Going forward, further reprioritization of spending as the recovery takes hold will buttress fiscal sustainability and reduce public debt as a share of GDP. Furthermore, a credible medium-term fiscal strategy that includes an ambitious and progressive tax reform, and better aligns Ecuador's spending levels to regional peers would reduce the debt burden on future generations.

"Swiftly enacting the reform amendments to COMYF will strengthen the underpinnings of the dollarized system; as would the rebuilding of buffers. Continuing to prudently apply regulatory and supervisory tools will help the financial system withstand economic stress in the post- pandemic period. Vigilantly monitoring credit risk accumulation and ensuring the liquidity fund has the resources to provide emergency liquidity as intended will be important. These arrangements should be complemented by strengthening further the legal framework for the financial system, including enhanced contingent arrangements.

"The EFF-supported program continues to face considerable risks. Globally, uncertainty about the depth and duration of the pandemic still lingers. Domestically, building a broad-based consensus and buy-in across the political spectrum for key program objectives and policies would help mitigate significant program implementation risks. With continued capacity development and close coordination across public sector agencies, the authorities can achieve their objectives and deliver a robust, job-rich recovery that benefits all Ecuadorians."

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