IMF evaluates financing for Ecuador
May 1, 2020 |
Fund also approves $650 mln in emergency funding for the Dominican Republic and adds $90 mln to an existing facility for Barbados
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The International Monetary Fund (IMF) is expected to approve on Friday a request from Ecuador for $500 million in emergency financing to weather the "perfect storm" of the coronavirus pandemic, plunging oil prices and limited access to external funding, sources told LatinFinance.
"Ecuador is aggressively seeking multilateral and bilateral aid," said Siobhan Morden, head of Latin America fixed income strategy at Amherst Pierpont Securities in New York, adding that the country could get more funds from the South American development bank CAF, the World Bank and others.
Other countries in South America have rolled out an array of stimulus measures to lessen the impact of the coronavirus outbreak on the economy, but Ecuador has enacted a more limited response due to a tight fiscal situation, according to analysts.
"Ecuador has been unable, as of yet, to devise a stimulus program that compensates the loss of income of its population and its enterprises," economists at Credit Suisse said in a note to clients earlier this week.
However, the government has pleaded with creditors to provide liquidity relief and sought a consensual agreement as debt service costs threaten to consume 31% of fiscal revenues in 2020.
Finance Minister Richard Martínez said in a tweet on Wednesday that the Inter-American Development Bank (IDB) approved the disbursement of $700 million to fund the government's response to the COVID-19 pandemic.
The IDB redirected some of the funds from other projects or delivered money from other loans ahead of schedule, according to a letter that Martínez posted on Twitter.
Of the $700 million, $250 million will go to healthcare services to lower the mortality rate of COVID-19 and $93.8 million will support small businesses in Ecuador, the IDB said in the letter.
The funds will bring some relief to Ecuador in the short term, but they may not reassure investors.
"These funds will give the country a few months of peace," said an investor in the Caribbean. "But the root problem will persist."
In the long run, according to the economists at Credit Suisse, "the actual fix to Ecuador's debt sustainability relies on improving its macroeconomic fundamentals, rather than just obtaining debt relief."
In the meantime, with Ecuador effectively locked out of the external funding markets, it will have to rely on multilateral lenders.
"Multilaterals are, after all, last-case lenders when the market no longer works," said an economist at a multilateral lender. "If multilaterals don't lend, who will?"
DR & Barbados
On Wednesday, the IMF approved $650 million in emergency financing for the Dominican Republic to deal with the economic effects of the coronavirus pandemic in the Caribbean country.
"The severity of the global COVID-19 shock has disrupted the Dominican Republic's economy and created urgent balance of payments and fiscal financing needs," Tao Zhang, deputy managing director and acting chair of the IMF executive board, said in a press release.
The financing equals 477 million special drawing rights (SDRs), or all of the country's quota, and will be disbursed through the IMF's Rapid Financing Instrument (RFI), the fund said.
Still in the Caribbean, the IMF agreed to add $90 million to an extended fund facility for Barbados and also lower the primary fiscal surplus target to 1% of GDP to give the country more flexibility to combat the coronavirus pandemic.
"The ongoing global coronavirus pandemic poses a major challenge for the economy, which is heavily dependent on tourism," Bert van Selm, head of the IMF team that went to Barbado, said in a press release.
The IMF expects GDP in Barbados to fall more than 10% in 2020, van Selm added.
The fund granted the four-year facility for $290 million in September 2018. Barbados reached a restructuring deal with creditors in October last year.
Earlier this week, the IMF approved $508 million through the RFI for Costa Rica at a rate of 1.55% per year. It also granted $65.6 million in emergency financing for Dominica, Grenada and Saint Lucia to cover balance of payment needs during the pandemic.