Ecuador’s Finance Minister Fausto Herrera says that “aggressive reductions” in the 2016 national budget demonstrate to the world that the country is squarely facing the economic difficulties that lie ahead.
“We understand the risks that we face from lower oil prices and a strong dollar and we have developed a budget to reflect this reality,” Herrera said on Wednesday.
The proposed 2016 budget is $29.8 billion, is more than $5 billion below the 2015 budget.
The new budget shows a deficit of $6.6 billion, of which $4.6 billion will be covered by loans from the World Bank, the Interamerican Development Bank, and the government of China. Herrera says he is confident that loans yet to be obtained can cover the other $2 billion.
“We have been very transparent about our financial situation and this should open up more options for us,” Herrera said. For the first time since President Rafael Correa took office in 2006, the government allowed the International Monetary Fund (IMF) to review Ecuador’s books this year.
“Next year’s budget deficit represents 2.4% of GDP, which is a healthy ratio,” Herrera said.
The 2016 budget assumes a $35 per barrel price for oil, which Herrera calls “conservative.” On Tuesday, the international price per barrel stood at $48. “Obviously, if this price holds or increases, our position improves dramatically,” he said.
Despite the budget cuts, Correa insists that the country’s most vulnerable groups, the poor, the young and the handicapped, will not be affected. “We take care of them first,” he said. “Health care, education and other social services budgets will not change.” Correa also said that all infrastructure projects currently underway or budgeted, will not be affected.
According to Herrera, most budget cuts will come through the elimination of fuel subsidies, downsizing of government offices, including layoffs of staff, and delays to several large capital projects.
The proposed budget goes to the National Assembly where it is expected to be approved.