Moreno proposes deep budget cuts, new taxes as oil prices drop and the coronavirus spreads; Labor and indigenous groups may protest

Mar 11, 2020 | 5 comments

Acknowledging that Ecuador has been hard-hit by the dramatic drop in oil prices and the coronavirus, President Lenin Moreno is proposing a combination of budget cuts and new taxes to shore up government finances. “The country is in a delicate economic situation today and we are asking our citizens for their support and understanding to help us overcome difficulties that arrived beyond our control,” he said.

President Lenin Moreno

The new measures were rejected by national labor organizations and indigenous groups, which insisted that taxes be raised on the wealthy instead. Leaders of the United Workers Front said they will consider calling a national strike in protest.

To reduce the budget deficit, the president plans to cut salaries of federal employees by four to eight percent, depending on pay grade. In addition, a variety of government projects, purchases and services will be eliminated or reduced, more than a dozen government institutes and offices will be closed, and four ministries will be consolidated into two. “We are not eliminating jobs but are asking for a temporary sacrifice from our employees,” the president said.

A new five percent tax will be applied to owners of cars and trucks purchased at $20,000 or more and large companies will pay an additional .75 percent in income tax under the plan.

Moreno can order the government budget changes by presidential decree but the new taxes must be approved by the National Assembly.

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The budget cuts and new tax revenue will reduce the fiscal deficit by $2.25 billion, Moreno said. He added that the budget plan does not include a reduction of fuel subsidies although that will be considered at a later date.

Responding to reports that future loan disbursements to Ecuador by the International Monetary Fund were in jeopardy, Moreno said there has been no breakdown in the relationship with the IMF. “They are aware of the difficulties we face and have pledged to work with us to find solutions and we fully expect their continued support,” he said.

Moreno said the drop in oil prices means that the country is currently losing $8 million a day. “The national budget was based on oil at $51 a barrel while the Tuesday’s price was $33,” he said. “If this doesn’t change, we are facing a loss of almost $2 billion for the year, which is forcing the measures I am announcing today.” He added, that his fiscal plan guarantees there will be no disruption to education, health care and law enforcement.

In addition to the growing costs to contain and treat the coronavirus, Moreno said that the health crisis has affected overseas trading markets, reducing exports. “Many buyers of our seafood and agricultural products in China, for example, have temporarily suspended purchases due to reduced demand,” he said.

The two ministry mergers are telecommunications with transportation and tourism with productivity.

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