Plan of austerity reduces the fiscal deficit by 57%, according to Finance

Ecuadornews:

The projection of Finance is to close 2018 with an overall deficit of 4.1% of GDP. The expenses incurred by the entities are evaluated “line by line”. Cuts in capital expenditures and in the Annual Investment Plan, plus the increase in tax revenues, would be the main factors that explain this reduction.

Between January and September of 2018 and the same period of 2017, the State deficit was reduced from $ 2,894.93 million to $ 1,230.19 million (57% less). While the primary deficit went from $ 1,081 million to a surplus of $ 861 million.

Although the results are positive, the most difficult structural problem to solve is current spending: salaries and public purchases, Economy Minister Richard Martinez said at the forum on Investment Incentives held in Guayaquil. He said that in this scenario the fiscal objectives established in the Prosperity Plan are ratified to reach an overall deficit of 4.1% of GDP and a primary deficit of 1.2%.

“One of the factors to reach these figures has been the reduction of capital expenditure; It is easy and quick to shorten, although it has a recessive effect. We managed to balance the accounts, but there is a sacrifice of economic growth “.

In order to achieve these goals, the State Portfolio proposes to implement more transparent processes of public procurement and the expenses incurred by the entities are evaluated “line by line”. For next year we work with guidelines in a “zero budget”, that is, that will not be spent beyond what is strictly necessary.

Another item that was reduced was the Annual Investment Plan approved for 2018 in COP $ 4,739 million, of the which, at the moment, have reduced $ 588 million. Martinez explained that the adjustment was made in projects that did not have real financing or budget certification.

He pointed out the possibility of contracting some operations with multilateral organizations, bond markets and investment banks. Another objective is to reconstitute international reserves through foreign direct investment and expand trade agreements. Current expenditure allocations for Education, Health and Social Inclusion have not stopped, the minister said. For example, the Human Development Bonus, which exceeds $ 700 million, is normally handled.

For the president of the College of Economists of Guayas, Larry Yumibanda, the gap between the growth of current spending and the reduction of investment spending causes all revenues to be used for permanent expenses and there is no margin to finance public works.

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He considers that the austerity policies are fulfilling the goal of reducing the fiscal deficit, but they are generating productive stagnation. “An adequate business climate must be generated so that private investment generates greater economic movement”.

José Hidalgo, director of the Corporation of Studies for Development (Cordes), added that the reduction of the deficit is due to the sharp cut in capital spending and also to the increase in oil and tax revenues to the General State Budget (PGE).

Hidalgo said that in the last months of the year the fiscal deficit tends to increase because the institutions execute a good part of the expenditure they did not make in the previous months.

It is believed viable that the deficit closes this year with 4.1% of GDP, although it does not rule out that it is lower than projected.

Austerity measures

The permanent expenses of the Government were reduced by $ 361 million with the application of Executive Decree 135 (optimization and austerity of public spending), in force since September 2017.

Through the Ministry of Labor new hiring was prohibited under the modality of services Occasional until the end of 2018 and all of 2019. The number of advisors was reduced from 676 to 241 in the entire Executive Function.

The 10% reduction of the unified monthly remunerations of the higher hierarchical level is still active and variable remunerations for efficiency and per diem expenses for residence expenses are suspended. The purchase of high-end vehicles was also prohibited. Real Estate completed 62 vehicles of this type for an approximate amount of $ 962,000. In relation to non-permanent expenditures, Finance ordered the cutting in projects that do not have real financing and that an analysis will be made, case by case, between the institutions and that State portfolio of new investments financed with external or internal credits not identified or not contracted.

They work also in a diagnosis of optimization of public companies with the technical assistance of the IDB, CAF and WB and in the process of unification of the salary scale of these companies with the rest of the public sector. (I)

Source: https://www.eltelegrafo.com.ec/noticias/economia/4/plan-austeridad-reduccion-deficit-fiscal