Washington, DC: The Executive Board of the International Monetary Fund (IMF) met on November 29, 2023 to discuss the Ex-Post Evaluation (EPE) of Ecuador's Exceptional Access Under the 2020 Extended Fund Facility (EFF).
The 2020 EFF arrangement approved by the Executive Board on September 30, 2020 (Press release No. 20/302) followed Fund emergency support to Ecuador in May 2020 and the previous EFF arrangement approved by the IMF Executive Board in March 2019 that was canceled in May 2020.The total amount of arrangements implied exceptional access to Fund resources and therefore led to an EPE of the 2020 EFF. The EPE reviews the program design and outcomes, examines the application of Fund policies, and assesses the achievements under the 27-months arrangement.
In the early months of the pandemic, the Ecuadorian authorities used the Fund's Rapid Financing Instrument (RFI) to meet urgent balance of payment needs stemming from the outbreak of COVID-19 and to support healthcare and social protection. They also conducted a successful debt exchange with external bondholders. The 2020 EFF arrangement aimed 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. The EFF concluded on December 14, 2022.
The EPE report finds that the EFF program achieved its primary objective of restoring macroeconomic stability against the backdrop of a historic economic downturn. Most of the program conditionality was eventually implemented, despite some delays to fiscal and structural reforms. The authorities strengthened fiscal buffers, taking advantage of higher oil prices. Fiscal structural reforms comprehensively revamped Ecuador's fiscal framework, although their successful implementation will hinge on building and retaining institutional capacity. Passing the COMYF reform was a major achievement to strengthen the Central Bank's independence and the dollarization regime. Nevertheless, market access has not been restored due to political uncertainty and remaining large fiscal vulnerabilities, including the strong reliance of government revenues on volatile oil prices. The report also finds that extensive technical assistance provided to the authorities has helped to strengthen capacity in critical areas, especially fiscal accounting. Ultimately, reform efforts will need to be reinvigorated to ensure fiscal sustainability and restore market access. Finally, the EPE finds that Fund policies and procedures for financing under exceptional access were followed.
Executive Board Assessment[1]
Executive Directors welcomed the ex-post evaluation (EPE) of Ecuador's 2020 Extended Fund Facility (EFF). They noted that the large and frontloaded financing provided to Ecuador was instrumental in supporting the country during the COVID-19 pandemic, stabilizing the economy against the background of a historic economic downturn, and accommodating the mounting financing needs, especially spending on health and social protection. Directors also welcomed that the program catalyzed financing from other international financial institutions and a successful debt restructuring, which was critical for the success of the program.
Directors agreed that policy implementation under the EFF was broadly in line with program objectives. They welcomed the implementation of the reform agenda to boost fiscal resilience and strengthen institutions, including amendments to the monetary and financial code that helped strengthen central bank independence and the dollarization regime. However, Directors noted that vulnerabilities persist and more reforms will be needed to restore market access which remains elusive. In this context, they acknowledged that the program was implemented in a fragmented political environment and highlighted the importance of contingency planning in initial program design when uncertainty is high, as well as of appropriate political assurances to protect against policy reversals.
Directors observed that saving the windfall from higher-than-expected oil prices and expenditure restraint supported by the program allowed Ecuador to rebuild fiscal and external buffers. However, they underscored that non-oil revenues remain relatively low and noted that conditionality could have put greater emphasis on the quality and composition of fiscal consolidation. Directors considered that the suspension of the fuel subsidy reform following the social unrest and the redesign of the tax reform during the program hindered the authorities' consolidation efforts and allowed vulnerabilities to linger. In this context, some Directors pointed out the significantly frontloaded disbursements and backloaded conditionality, which pushed some of the fiscal consolidation beyond the program duration, noting the staff's assessment that reform implementation could have benefited from extending the program. However, Directors generally agreed that frontloading the disbursements was necessary for program success, and some Directors supported the authorities' view that an extension was not necessary as the program achieved its objectives. More careful sequencing of the reforms and clearer communication with regard to the social measures implemented to offset the impact of the fuel subsidy reform could have also been beneficial.
Directors welcomed the EPE's finding that the exceptional access policy was applied in line with Fund practices. However, they agreed that, while Ecuador clearly met criteria for exceptional access at the start of the program, assessment of some exceptional access criteria, particularly with regard to market access and implementation capacity, became increasingly difficult as the program proceeded. In this regard, they noted that the EPE's findings should provide a valuable input for future implementation of the EA framework and looked forward to the outcomes of the ongoing IEO evaluation.
Directors noted that the program was a good example of successfully integrating capacity development and program design and encouraged continued collaboration between the authorities and the Fund.
[1]At the conclusion of the discussion, the Managing Director, as Chairman of the Board, summarizes the views of Executive Directors, and this summary is transmitted to the country's authorities. An explanation of any qualifiers used in summing ups can be found here:http://www.IMF.org/external/np/sec/misc/qualifiers.htm.
