IMF and Ecuador reach a technical agreement for new credit for USD 4,000 million

In record time, the Government of Daniel Noboa reached a technical agreement with the IMF. The credit program will have a duration of 48 months.

The International Monetary Fund (IMF) and the Government of Daniel Noboa reached an agreement at a technical level for a new credit program this April 25, 2024 for USD 4,000 million.

This is an Expanded IMF Facility (SAF) type program, which will have a term of 48 months. Ecuador had already signed programs under this mechanism in its last two signed agreements:

• In 2019, during the government of Lenín Moreno.
• And in 2020, also under Moreno’s management and renegotiated in 2021, during the Government of Guillermo Lasso.

The SAF program is an agreement that provides financial assistance to countries that have structural deficiencies in their fiscal accounts, which will take time to resolve.

SAF agreements are typically approved for periods of three years but can also be approved for periods of up to four years, in order to implement deep and lasting structural reforms, the IMF says.

Thus, Ecuador is heading towards the 23rd credit program with this multilateral organization.

The negotiations for this new agreement have been carried out in record time.

Only on March 7, 2024, the IMF confirmed that the Government had formally requested the start of negotiations.

And later, on April 2, 2024, an IMF technical team visited Ecuador.

Part of the credit will be to pay the IMF itself.

The new IMF credit is key for Ecuador, which has strong pressures to pay its external debt between 2024 and 2026.

In those three years, the external debt capital that Ecuador must pay amounts to USD 9,294.7 million, with several creditors.

29.7 % of that amount (USD 2,761 million) is debt with the IMF itself, for previous loans, so analysts believe that the new credit program with the Fund would serve to pay previous loans with this multilateral.

With that, Ecuador would have about USD 1.3 billion for other types of expenses of the new credit program.

The IMF statement.

The Monetary Fund, for its part, said that “amid a challenging macroeconomic outlook, the new SAF agreement will support Ecuador as it continues to move forward to help strengthen fiscal sustainability.”

The program will also allow Ecuador to ” safeguard macroeconomic stability and promote strong and inclusive growth, while protecting the most vulnerable.”

This agreement, the IMF said, would provide support for Ecuador’s economic policies over the next four years.

Varapat Chensavasdijai, head of the IMF mission in Ecuador, said the program aims to “support the authorities’ efforts to improve the living standards of all Ecuadorians, with a focus on protecting the most vulnerable and promoting growth.” sustainable”.

Chensavasdijai said IMF staff welcome the reform efforts made by the authorities “to help strengthen fiscal sustainability, safeguard macroeconomic stability, and foster a stronger and more inclusive economy.”

The IMF official refers to the tax reform that increased the Value Added Tax (VAT), starting in April 2024.

“The authorities have put together a solid plan and have started taking important policy measures to address the fiscal and liquidity situation,” Chensavasdijai said.