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Ecuador’s New Government Embarks on Radical Economic Reforms in First 100 Days
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The international community has witnessed a significant shift in Ecuador’s economic policies under the new administration of President Guillermo Lasso. In just over three months, the government has made notable progress in implementing reforms and presenting key proposals.
Agreement with the IMF
On September 8, 2021, the International Monetary Fund (IMF) staff and Ecuadorian authorities reached an agreement on economic policies to conclude the combined second and third reviews of the Extended Fund Facility (EFF) program. This agreement provides access to nearly $800 million in financing for the country.
Vaccination Efforts
As part of its electoral campaign promises, the new government has successfully vaccinated over 9 million Ecuadorians, representing more than half of the population.
Proposed 2021 Government Budget
On August 22, 2021, the government submitted its proposed 2021 budget to the National Assembly. The budget outlines key macroeconomic assumptions, including:
- Average price of $59.80 per barrel of crude oil for export
- Oil production of 177.26 million barrels
- GDP growth of 3.02%
- Nominal GDP of $103.88 billion
The total income of the proposed budget is $23.04 billion, while total expenses amount to $27.86 billion, resulting in an overall deficit of $4.81 billion, equivalent to 4.63% of projected GDP.
Future Tax Reforms
As part of its agreement with the IMF, Ecuador’s government has committed to implementing tax reforms. The proposed reforms aim to increase tax revenue without significantly raising tax rates.
Key Aspects of Tax Reforms
- Increase tax revenue without raising tax rates
- Promote a well-structured tax authority with reduced bureaucratic norms and processes
- Implement new technologies to modernize the tax system
Conclusion
President Lasso’s approach has been to combat corruption and promote transparent public management. The government has signed a Memorandum of Understanding with the United Nations to take measures against corruption and promote efficient public management.
Going Forward
The new administration is expected to issue new government bonds in the international markets by 2022, guaranteeing effective management of the economy and tax system. The approach to increasing collection using new technologies and modernizing the tax system will help comply with IMF requirements and make the country more attractive for investors.
Authors
Diego Andrés Almeida is the Administrative Partner at Almeida Guzmán & Asociados, and Cesar Molina is a Tax Associate at the firm. They may be contacted at daa@almeidaguzman.com and cmolina@almeidaguzman.com.