Ecuador says funding gap at $3.5 bln, seeks creditor support
June 4, 2020 |
Deputy finance minister underscores need for an orderly restructuring process
Esteban Ferro, Ecuador's deputy finance minister, said on Wednesday the nation still faces a $3.5 billion financing gap as its struggles to cope with the overwhelming cost of fighting the COVID-19 pandemic.
In a video conference open to the public, he said the shock of not only the pandemic but also the sharp drop in oil prices that slammed the economy prompted a call for "the support of our creditors to address this crisis to help Ecuador back onto a path of growth and development."
Gross financing needs widened in 2020 to $13.5 billion from $5.6 billion, and financing gaps are expected to remain high in the coming years.
"The 2020 financing gap still needs work," Ferro said. "We are left with a $3.5 billion financing gap."
Ferro said negotiations with creditors started on Wednesday. Wall Street analysts have said a formal proposal is due by the first week of July and a signed restructuring deal in the first weeks of August. Creditors have already agreed to defer taking payment on Ecuador's bonds until August. The Andean nation has been heralded for its engagement with the market.
The government reached a deal with creditors late on April 17 to defer an $811 million interest payment on bonds worth more than $19 billion following an online plea from Minister of Finance Richard Martinez that the country needed to conserve cash in order to deal with the pandemic and oil price decline.
"We have made important progress on economic reforms, fiscal consolidation and monetary stability," Ferro said, adding that a new law is giving flexibility to the labor market was recently approved by the national legislature. But, "the two external shocks have caught us in a time when fiscal and international reserve positions are still weak," he said.
The country has a lack of savings and currency to implement expansive monetary policy, and a lack of access to markets puts Ecuador in a very vulnerable position without many tools to counter these shocks, he said.
The country has spent an additional $400 million to buy medical resources and $300 million in cash transfers for the most vulnerable while fiscal revenues are expected to decline by 5.4% of gross domestic product and net oil revenues are expected to fall by half in 2020.
Savings have been sought in the reduction of public servant incomes, non-renewal of temporary public sector work contracts, the elimination of various public entities.
"The administration is doing whatever it can through fiscal consolidation, but this will not be enough. Debt relief will definitely be necessary," he said.