Budget shortfall will send government back to the bond market in 2018, presidential advisor says

Facing a $5 billion budget deficit, Ecuador has no choice but to return to the international bond market in 2018, says a financial advisor to President Lenin Moreno.

Miguel Carvajal

According Miguel Carvajal, head of the Moreno’s political affairs office, the government is preparing legislation that would raise the national debt limit to allow emergency bond offerings. “We face enormous difficulties if we do not act quickly to cover the budget gap,” Carvajal told members of the Alianza PAIS (AP) National Assembly delegation on Saturday. “We must cover our immediate needs first and then work toward a long-term solution.”

He added that he hopes the deficit can be covered without raising taxes or eliminating subsidies for gasoline and LP gas but said those options cannot be ruled out.

Part of the pressure on the Moreno administration is last week’s Constitutional Court ruling that the government must resume support of the country’s Social Security (IESS) system, amounting to about $1.6 billion annually. “The decision is correct,” Carvajal says. “Without it, the system would go bankrupt, so we need to plan to cover that cost.”

Raising the national debt limit poses its own problem. “We don’t know exactly what the debt is,” Carvajal says. “Depending on how it’s calculated, it ranges form 36 percent to 67 percent, which means our first challenge is to arrive at a definition.”

He blames the accounting system of former president Rafael Correa for the confusion. “Expediency and convenience dictated the old system of debt calculation and many debts were given other names. Now we face the consequences.”