Current spending makes the task of fiscal adjustment difficult

Ecuadornews:

Analysts agree that the decisions taken by the government point to the right direction, but its effects will be minimal without complementary measures. Do more with fewer resources. Under this premise, the government carries out austerity measures in public spending and until August managed to reduce 53.5% compared to 2017.

Three economic analysts consulted by EL TELÉGRAFO believe that although the figures are positive and the decisions point to the objective correct (lower the fiscal deficit), are still superficial, do not solve the complexity of reducing current spending and require complementary actions that increase revenues.

A recent study by the Inter-American Development Bank (IDB) places Ecuador as one of the five countries in the region that spend the most, with an average that exceeds 35% of the Gross Domestic Product (GDP).

The economist Lorena Konanz said that between last year and the present, more officials have joined the State (15,000) compared to those who have left (13,000), so to obtain a favorable result it is necessary that the personnel cut be higher. The merger and elimination of public entities is key, but, added Konanz, remunerations that, on average, are higher than those of the private sector should also be analyzed.

The IDB confirms this in its research and indicates that the salary burden is one of the factors that most increase spending in Latin America. The countries that waste the most are those with the highest wage premiums and the lowest proportion of unskilled workers.

Within this list are El Salvador, Guatemala, Honduras, Mexico and Ecuador (more than 20%), and Colombia and Costa Rica (more than 15%). For this year, the government has budgeted to spend around $ 10 billion on the salaries of public officials.

Konanz warns that little effect will have the adjustments indoors if they do not go hand in hand with a reduction of procedures, and review of taxes and legislation that contribute to the competitiveness of the productive sector. Fausto Ortiz, former finance minister, mentioned that according to estimates of the coded budget, the government expects current spending to increase this year by more than $ 1,700 million (9%).

Part of this increase is influenced by the import of petroleum derivatives, whose values rose due to the boost in the international price of crude oil. Ecuador can correct that by reviewing subsidies, such as the elimination of the super gasoline subsidy, although it is not enough to achieve the proper balance, Ortiz said.

He added that this year the growth of current spending could be covered with the resources left by the remittance of interest, but the scenario will be more complex in 2019 when the State must pay about $ 1,500 million for the 40% contribution to Security. Social.

Traditionally, adjustment has focused more on public investment; that is, the government decreases the construction of infrastructure. In this regard, the IDB notes that in practice this can compromise the performance of private companies that require roads, ports and more.

In the opinion of David Castellanos, of the consultancy Multienlace, it is not a question of the government suddenly stopping investment but rather that it be planned and coherent with the size of the economy. For this year, the initial amount of the Annual Investment Plan was $ 4,719 million, of which $ 1,476 million accrued up to August.

The government should not only see how to attack the costs but also find ways to generate income, otherwise there will be no balance and the harmful dynamics of recent years of contracting debt will be maintained to try to keep the ship afloat, stressed Castellanos. (I)

Source: https://www.eltelegrafo.com.ec/noticias/economia/4/gastocorriente-ajustefiscal-ecuador