Ecuador: FinMin submits 2024 budget proposal to Congress, with USD 35.5bn spending

• The budget proposal increases by 13.0% from the 2023 budget
• Fiscal deficit is projected to hit USD 4.8bn in 2024, below initial estimates of USD 6.0bn
• Budget focuses on security, health, and education, with 9.9% allocated to the security sector
• Govt expects GDP growth to slow to 0.8% in 2024
• Additional revenues from VAT increase not contemplated in the text

Daniel Noboa's administration submitted on Tues. night its 2024 budget proposal, known as Proforma, to the National Assembly, with expenditures at USD 35.5bn, the finance ministry announced in a?communiqué. This figure marks a notable 13.0% increase from the budget allocated for 2023, which totaled USD 31.5bn. When compared to the executed budget of 2023, totaling USD 30.8bn, the proposed increase amounts to 15%. As expected, the budget focuses on the security sector alongside health and education.

Notably, the budget allocates USD 3.5bn for security, representing a USD 214mn increase from the 2023 allocation. Moreover, the proposal adheres to the 0.5% GDP increase for health, with USD 4.4bn allocated, and for primary and secondary education, with USD 4.6bn allocated. It also designates USD 1.2bn for social bonds benefiting vulnerable populations, and USD 3.0bn for social security entities such as the IESS. Moreover, the text includes the Annual Investment Plan (PAI) of USD 1.7bn for projects like prison construction, police equipment, and infrastructure improvements.

The document forecasts an average oil export price of USD 66.7 per barrel, higher than last year, and projects a total oil production of 156mn barrels per year. This translates to a daily output of 427,000 barrels, which is 60,000 barrels less than the current production level. Notably, the text considers the closure of the ITT oil block, scheduled for August of this year, despite Noboa's proposal to postpone it.

With total revenues at USD 24.0bn and expenses reaching USD 28.8bn the resulting fiscal deficit stands at USD 4.8bn. This is lower than the initial estimate of USD 6.0bn projected by Finance Minister Juan Carlos Vega. Moreover, Vega stressed that the budget didn't include the additional revenues generated by the VAT increase and temporary taxes as the corresponding law has not yet been published in the Official Registry. Once published, these revenues will be incorporated into the general state budget, providing additional resources for security and increased allocations to decentralized autonomous governments, he said.

Overall, Noboa's administration anticipates a reduced fiscal deficit compared to initial estimates, seeking external financing primarily from the IMF. However, keyquestions remain unanswered, including the specifics of public spending adjustments, the fate of fuel subsidies, and the source of financing to cover deficits and arrears. Moreover, uncertainties persist regarding Noboa's proposal to postpone the closure of the ITT oil block, which could impact revenues. The Assembly has 30 days to study the proposal.