Elimination of gasoline subsidy is coming soon with diesel cuts to follow, government says

Planning for the elimination of gasoline subsidies is underway and will be implemented within a matter of months, according to Deputy Government Minister Esteban Torres. “This is not something we are planning for next year or sometime in the future, it is a change that is coming very soon.”

Deputy Government Minister Esteban Torres

The subsidy elimination will apply first to Extra and Ecopaís gasolines but will apply to diesel fuel later in the year, he said.

Torres said there will be targeted subsidies for vulnerable populations and some businesses. “We are in talks with the industrial, business and social sectors to develop a plan of targeted fuel price reductions. “The elimination of subsidies will not affect our poorest citizens or business operations that require assistance to remain competitive,” he said.

Currently, Extra and Ecopaís gasolines receive subsidies of 59 and 80 cents per gallon, respectively. When these are eliminated, prices will rise from $2.46 and $3.05 a gallon to $3.26.

Torres said that public transportation services is one area that will continue to receive a subsidy. “Although we are working on the final details, the government is considering providing taxi companies and drivers with direct compensation through bank transfers and this will be extended to bus companies when we eliminate the diesel subsidy.”

Although the International Monetary Fund (IMF) recommended that Ecuador phase out fuel subsidies, Torres said the government had decided earlier to eliminate the subsidies before the IMF decision to grant Ecuador a $4 billion loan. “This was already in the works since eliminating and reducing subsidies is essential for the country’s long-range fiscal stability,” he said. “We are not under any direct obligation from the IMF to do this.”

In its loan comments, the IMF “strongly suggests” that Ecuador eliminate most fuel subsidies by 2027, saying the government would save an estimated $3.5 million annually if it follows through.

Torres said elimination of subsidies for Extra and Ecopaís gasolines will result in government savings of $408 million for the balance of 2024 and $700 million in 2025.

Indigenous groups, including the Confederation of Indigenous Nationalities of Ecuador (Conaie), are complaining that they have not been included in discussions with the government about subsidies. Conaie leadership says it rejects any subsidy reduction.

“The elimination of subsidies does not seek to save $2 billion from the state budget, but to meet the condition demanded by the International Monetary Fund (IMF) to deliver a loan for $4 billion. The government is lying,” Conaie said in a statement.

In his press conference, Torres said there are no plans to eliminate or reduce the subsidy for LP gas.