Noboa announces gasoline subsidy reduction, cuts to government agencies, upgrades to electrical grid

President Daniel Noboa said Wednesday that Ecuador will begin a gradual reduction of its gasoline subsidy in May or June. He also announced plans to eliminate some government agencies and reduce the size of others. “This is essential for reducing our budget deficit and providing funding for essential services,” he said in a television interview.

President Daniel Noboa

Among the essential services requiring funding, he said, was the police and military campaign against criminal gangs, which he has designated as terrorist groups.

Noboa said reducing government expenditures is essential for providing money to fight crime and restore economic vitality. “In addition to fighting international crime and providing social services, we must provide financial support for improving the country’s electrical grid and building a better petroleum refining system.”

The president’s announcement come as the National Assembly debates a package of tax increases which could include an increase the VAT and new taxes on banks and corporations. The Assembly is scheduled to vote on the measure February 6.

“We agree with targeting fuel subsidies,” Noboa said in an interview with Ecuavisa. “We must, however, be careful in our plan since we cannot eliminate subsidies that affect the most vulnerable population or the country’s business competitiveness. The reductions will be progressive and must coincide with other plans to improve government efficiency.”

In 2023, it is estimated that the government spent about $4 billion on fuel subsidies.

The government is looking for foreign investment to build a diesel refining system, Noboa said. “Because much of the diesel sold in Ecuador is imported, there is a massive difference with the expenditure recovered at the pump as a result of the subsidy.”

Noboa said improvements in the country’s power grid involve expanding both hydro and thermal electric generation capacity and creating interconnections with Colombia and Peru. “All of this requires new investment but it cannot be delayed.”