Ecuador’s debt is much higher than officially reported, government sources show

Although the government claims that Ecuador’s national debt is $27.3% of GDP (gross national product), its own figures show that it is actually 40.2%.

According to Ministry of Finance information, the country’s debt stood at $40.47 billion at the end of March. Technically, this violates the country’s public finance code which limits debt to 40% of GDP.

Official debt is red, unofficial debt is blue. (El Comercio)

Some economists claim the government is playing games to come up with the 27% debt level. “Basically, they have engaged in some creative bookkeeping to come up with the number,” says Guayaquil financial advisor Carlos Miller. “The government has changed its own rules of accounting to exclude much of its debt, including debt within the country, such as money owed contractors and some government entities, including the IESS and the state bank. It has also decided that some of the debt to China is not really debt.”

The “word game” Miller says the government plays involves calling its official debt “consolidated” while the total debt, including internal debt, is “aggregate.”

The finance ministry, which has made several changes to its financial reporting procedures in recent years, the latest in October 2016, says its numbers reflect international standards and accurately reflect the country’s financial health. “Many countries do not include internal expenses when they calculate debt,” a statement from the ministry said in March.

Miller counters that however the government figures debt, international lenders and ratings agencies look at the entire debt. “They can say the debt is $5 if they want, but the international markets can add up the numbers to see the true picture.”

Of particular concern to economist Walter Spurrier is the fact that the government is borrowing from the central bank because the cost of borrowing on the international market is too expensive. “This practice is becoming all too common, and because of the way the debt is calculated, it is not reflected as debt.”

Spurrier, editor of the Ecuador Weekly Analysis, says that more than $1.5 billion has been borrowed from the central bank.

Miller agrees with the finance ministry that Ecuador’s debt is significantly lower than many other countries, including the U.S. and most of the EU, but says the country faces serious borrowing limitations. “First, we can’t print our own money and second, we have bad credit, which makes our interest rates among the highest in the world.”