Following up on earlier warnings that Ecuador will need to reduce its national budget, the administration of President Rafael Correa has ordered government ministries to prepare for tough times.
The administration says the cuts will amount to $1.5 billion. It also said it plans to sell $1.7 billion in 20-year treasury notes and seek loans from the Chinese government, among measures to bring in more revenue.
Like other oil producing countries, Ecuador has been rocked by the fall in crude prices which have fallen to five-year-lows. Ecuador’s national budget depends on oil revenues to fund about 30% of costs. Yesterday, the per barrel price of benchmark Texas crude hovered just about $60 mark.
Although Correa has said the government would trim the building program for new schools and police facilities, he has made no other concrete suggestions of where cuts might come. In his weekly television broadcast two weeks ago he said the country would continue to invest in infrastructure for oil and mining projects that would produce future revenue. “This is not the time to reduce spending for those projects,” he said.
In addition to budget cuts, the government also says it is closing loop holes in its taxing policies to generate more revenue. The director of the country’s internal revenue service, Ximena Amorosos, announced earlier this week that tax deductions for junk food production, advertising and sale would no longer be allowed. She also said deduction for Ecuadorians living overseas and for senior citizens would also be reduced. In all, she said, the country will save about about $200 million.
Correa has been steadfast in his prediction that oil prices will rebound by the second half of 2015. “Until then, we will have to live within our means,” he said.