Ecuador will need another USD 1,000 million in external credit

In an interview with PRIMICIAS, the Vice Minister of Finance, Daniel Lemus, says that an additional USD 1,000 million in external credits will be needed to cover the expenses of 2023.

Ecuador must not only look for external credits to finance the reconstruction of the infrastructure after the earthquake of March 18 and the rains, but to face an adverse external scenario.

The damages caused by the earthquake of March 18 and for the strong winter total almost USD 200 million, which will be financed by the world Bankthe Inter-American Development Bank (IDB) and CAF.

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But the financial uncertainty in the United States and Europe has caused a oil price dropwhich will decrease the income of the General State Budget this year.

All this at a time when the Ministry of Finance expected to increase the budget for public works and security.

To what extent financial uncertainty in the United States and Europe can hit Ecuador?

In the short or medium term, it would have no effect on the Ecuadorian financial system, since the sector has a very high level of solvency. And, it is not as interrelated as other banks in the world, which insulates us from the possible effects of the crisis.

Another element to consider is that the international banks hit so far are regional and operate in specific niches.

Now, the crisis can always escalate. And, for this reason, we maintain constant monitoring of the international scenario.

From a fiscal point of view, what is the effect of external uncertainty on the State Budget and what is the plan to mitigate it?

The General State Budget contemplates oil revenues of around USD 3.8 billion in 2023, using a price of USD 65 per barrel as a reference.

It must be remembered that when we presented the budget Proforma to the Assembly, there were voices from legislators who asked to work with a price of USD 80 per barrel, but we insisted that it be USD 65 per barrel.

For this reason, we now see a fiscal impact from the fall in the price of oil that is still manageable. We have stopped receiving oil revenues of USD 100 million so far in 2023.

However, if the fall in oil prices continues, we will have to look for additional sources of financing.

If the fall in oil prices continues, we will have to look for additional sources of financing.

We are already working to have those sources of financing or credit, especially to cover the allocations that we have announced for security and public works, for USD 1,000 million.

Where is that extra funding being sought?

With the country risk that we have now, above 1,900 points, we cannot issue debt bonds in the international market.

The interest that we would have to pay for such an issue would exceed 19%, which makes it unfeasible.

We are talking to traditional lenders, who lend at a reasonable rate, such as the Inter-American Development Bank (IDB), the World Bank, and CAF, the Development Bank of Latin America.

With these organizations we analyze additional credit alternatives, since they work by quotas. It is not a matter of going and asking for more money.

And we’re exploring options with other multilaterals we haven’t worked with before, like the Asian Infrastructure Investment Bank.

Multilaterals do not finance security spending. For this matter, we are in conversations with countries that provide equipment with certain credit conditions.

How much extra financing will Ecuador need?

We are talking about USD 1,000 million in credits to finance specific projects. That includes USD 800 million for the increase in the public works budget and an increase of USD 200 million for security.

It must be considered that the budget for public works will not be executed immediately, but there are projects planned for 2023, others for 2024 and the rest for 2025.

How much has Ecuador obtained in external credits so far in 2023?

External credit was USD 170 million until February 2023. But there are other lines that are about to materialize in one or two months, because we have already signed them or they have already been approved by the Debt Committee.

For example, there is a line of USD 100 million from the World Bank for health expenses, of which we are waiting for a disbursement of USD 80 million.

And there are lines of credit to be disbursed of USD 630 million from multilaterals, such as CAF, the Division for Financing for Development and other organizations.

Does the IMF enter into the options to request more credit?

Ecuador successfully concluded the last credit program with the IMF in December 2022. At this time, the construction of a new credit program with the Fund is not underway.

The IMF will continue to carry out semi-annual reviews in 2023, to evaluate how Ecuador is doing, as part of the commitments of the program that has just ended, but this does not imply new disbursements.

The construction of a new credit program with the IMF is not underway.

Having a new program is always an open option, but we have not started dialogues in that regard.