Ecuadorian economy is decreasing due to falling oil, exports, debts and health emergency

The panorama envisions more debt to get out of the crisis.

The fall in the price of oil, the almost zero exports and the need to get into debt reveal, according to investment bank JP Morgan, the critical situation of the Ecuadorian economy.

First, the collapse of the oil price (average of USD 26 per barrel in the last month) causes an immediate reduction in tax revenues and exports. Only with this, in JP Morgan’s opinion, the deficit in the public accounts will shoot up to 5.7% of the GDP, that is, around USD 6.1 billion, which represents more than USD 2.6 billion above the goal established by beginning of the year.

Alberto Morrillo, economist and analyst of international markets, explained that the pressure to obtain external financing increases and causes the Government to try to act intelligently so as not to fall into default on the external debt and at the same time allocate resources to prioritize the attention, mainly, in health.

To cover the fiscal gap would require at least USD 11.9 billion in this year.

JP Morgan considered that the country can only obtain these funds through credits from multilateral organizations and bilateral debt. In this last point, the greatest hope is in China, which has offered to deliver in a few days between USD 1,000 and USD 1,500 million.

In relation to the International Monetary Fund (IMF), in addition to the contingent financing of USD 500 million, which would also come in the short term, according to Guillermo Avellán, economist and research director of Ecuador Libre, progress must be made not only in modifying the goals of the original agreement, but to expand credit lines by at least USD 2 billion, bringing the program with the multilateral organization from USD 4.2 billion to USD 6.2 billion until 2021.

In the case of exports, levels have reached minimums and zero in the flower sector.

Likewise, due to import restrictions, due to the drop in world trade, industries are also unable to acquire machinery and raw materials, so sustaining production is complicated.

These impacts could cause, as long as the restrictions do not last more than 60 days, accumulated losses of at least 2.2% of GDP, only in foreign trade.

The Ecuadorian economy would suffer a decrease of not less than 2.7% of GDP, which means less income per Ecuadorian, less employment and a higher risk of poverty.

For Santiago García, economist and professor at the Central University, it is still very difficult to establish an estimate of the exact percentage of the fall in GDP in 2020; but there is no doubt that it will be very large.

García recommended evaluating strategies such as the creation of a trust with resources that, instead of going to the budget and public spending, are used to finance working capital; and even the payment of wages and salaries of companies.

Source: La Hora, social networks