Ecuador Bi-Weekly Report

Putting fiscal accounts in order

November 17, 2017BancTrust & Co. Research Team
  • The 2018 budget was sent to the National Assembly with a reduction of 5.3% in expenditure and with new financing needs of USD8.25bn
  • Government is proposing a tax reform to support better results in fiscal sustainability for 2018
  • After the resignation of petroleum manager, Byron Ojeda, negotiations on crude oil contracts are delayed

On November 01 President Lenin Moreno forwarded to the National Assembly the budget for fiscal year 2018. It amounts to USD34,853mn, representing a decrease of 5.3% or minus USD2bn in relation to the budget approved by congress for the current year. In detail, this draft estimates that the fiscal deficit would represent 3.9% of GDP for the mentioned year. We believe that the fact that the government has submitted a more austere budget is the first step to achieve better fiscal results for 2018, an issue we know has been one of the biggest inconveniences in the recent economic crisis.

Ecuador Bi-Weekly Report

A Financing Avalanche

November 3, 2017BancTrust & Co. Research Team
  • Ecuador had busy days recently looking for financing sources mainly to cover the fiscal gap and reinforce the international reserves. We disentangle the set of financial operations including bond issuances and gold swaps
  • The government has set the financing needs at USD10bn for 2018 and, while the financing sources remain unknown, disclosed why they need such important amount
  • Petroecuador is doubling on its efforts to renegotiate the oil presales’ debt, as its CEO considers that the conditions of the contracts are “inapplicable”

Last week, Ecuador sold a 10-year dollar-denominated bond for an amount of USD2.5bn and a coupon of 8.875% – it had an initial price guidance of 9.25%. These securities were rated B- and B by S&P and Fitch respectively, and even though similarly-rated countries exhibit lower coupons, the 8.875% rate is 75bps lower than that of the bonds maturing also in 2027 but issued back in February. Regarding the use of proceeds, these would only be used to finance Government programs and to refinance the existing external debt obligation on more favorable terms.

Ecuador Bi-Weekly Report

A Bittersweet “Economic Plan”

October 20, 2017BancTrust & Co. Research Team
  • Lenin Moreno presented a series of economic measures that gained positive and negative reviews. We break down and assess the details on these
  • The IMF and ECLAC updated their forecasts for the Ecuadorean economy in 2017 and 2018, projecting slight increases in economic activity
  • President Lenin Moreno says that debt service in 2017 would amount USD10bn – blaming Correa for this

President Lenin Moreno presented on Thursday 12 October a series of economic measures that, at first, was thought to be a general economic plan that would set the course of the Ecuadorean economy for the next years; in the end, it ended being mostly a tax reform plan that got not only mixed reviews but also many doubts in the aftermath of its presentation. Thus, the President announced (among other measures) that the corporate tax income (IR in Spanish) rate will increase 3 percentage points to 25% – except for small enterprises –; the elimination of the advanced-payment of the IR for companies with earnings lower than USD300k; the devolution of the capital tax export to the exporting companies; the increase in custom tariffs for 375 goods aiming towards decreasing the smuggling; and the elimination of the tax to rural lands.

Ecuador Bi-Weekly Report

Making An Effort

October 6, 2017BancTrust & Co. Research Team
  • We expect for 12 October new proposals for economic policy that take into account the recommendations made by the Productive and Tributary Advisory Council, which comprises private initiatives for investments
  • In our view, this new approach of dialogue with productive sectors results in a very positive perception as it demonstrates a clear change from previous economic framework
  • The government is also planning to help itself with the sale of some assets in 2018 and the adjudications of some projects into private hands, that would help collect some necessary income

In Ecuador is all about what can be done to boost the economy and the government has proven to be open to receive advice from different sides. About this subject, this week President Lenin Moreno received 139 proposals from the Productive and Tributary Advisory Council which is integrated by Ministers and representatives of smalls, medium and great enterprises. Recommendations lie on five main subjects: Tax reforms (31.4%); Productive environment (22.6%); innovation quality and entrepreneurship (20.6%); Investment and Financing (14.6%); and the access to markets (10.8%). In detail, the tax reforms are trying to implement a change in the calculation of income tax while the council let Moreno know of an investment package of USD3bn from private investors. On 12 October, is expected for the President to release the new economic policy path along with the proposals that he will take into account.

We see with good eyes this way of proceeding with continue dialogue with the productive sectors and even taking into account its recommendations, as it generates more confidence from the economic sectors and generates an attraction for foreign investors as it signals the likelihood of implementing structural changes in the country. In our view, these are necessary to start making the economy dynamic again, something that Correa’s government tried with great difficulty in its last year of ruling.

In other aspects to help the country to improve its performance, Finance and Economy Minister, Carlos de la Torre, estimated that with the recently announced austerity measures the country will save around USD500mn annually, which would be part of the new economic actions remembering that the President has told in the past that the country needs around USD8bn to USD10bn annually to deal with the current debt level.

Exports as another Key Driver

Finance Minister, Carlos de la Torre, previously talking about economic goals for the upcoming four years, referred that they are directed to strengthen the dollarization and the banking system; and in order to achieve this, they intend to boost exports that will help with currency generation. In this respect, Trade Minister Campana wil travel to 11 countries – including US and China – in order to improve trade relations and get the necessary attention for next year’s sale of assets.


Ecuador Bi-Weekly Report

Revitalizing the Ecuadorean Oil Industry

September 22, 2017BancTrust & Co. Research Team
  • We believe that bringing back the spot oil sales and the new use of the hydroelectrical generation for the operations of Petroamazonas will give new life to Ecuador’s oil industry
  • The mining industry looked recently as a modern version of the Dr. Jekyll and Mr. Hyde story: the Mining Ministry affirmed that the sector could become the backbone of the Ecuadorean economy, while yesterday were felt the consequences of spread illegal mining
  • In the past two weeks, many news have been received regarding new investments in the country as well as the possible signing of new trade agreements

The oil industry has been receiving some good news in the last two weeks and we think this situation could be the beginning of a good streak – or, at least, gives quite a breather – for the most important economic sector of the country. This week, Petroecuador carried away on 13 September its first oil sale in the spot market since 2014, the first year where it was violated a regulation mandating that at least 10% of the oil sales were made in the spot market. In our view, bringing back the spot oil sales will boost Petroecuador’s cash flow in times this is heavily compromised after practically all its output is directed to presales mainly to China.

  • Wednesday, November 15 2017


    - Amid uncertainty after the investors meeting, the attention continues to be on the interest payments which grace period expired this week (PDV’27, VENZ’19 and VENZ’24) and the call for default for both Venezuela and PdVSA. In this sense, the ISDA which is in charge since last week of assessing a credit default decision over the PDV’17 payment (which also arrived later than the day expected) said that they will meet again on Thursday with a deadline until Friday to make any decision on

  • Tuesday, November 7 2017


    - The selloff in sovereign and quasi-sovereign curves continued yesterday, with the first leading with an average 11.47% drop – thanks mostly to the whopping correction of both VENZ’18, as the old fell 51.73% and the new decreasing 48.64%. Meanwhile, the PDVSA curve closed the day with a -4% average result. This situation is likely to continue, in our view, for as long as payments of coupons in grace period are not being made, situation aggravated by the closeness of the deadlines of each gr

  • Thursday, November 2 2017


    - After yesterday’s comments of the Depository Trust Company of Venezuela’s bond payments, confirming the transaction and extra official information about some holders that already received payment on 2020 bond, the Venezuelan bonds showed positive movements. In this sense, we can use the PDV’20 experience to expect a similar process for the funds of the PDVSA 2017N to matured today for a total amount of USD1.170mn between principal and interest, with an announcement of the payment during

  • Wednesday, November 1 2017


    - Until today 01 January 2017, will be held the process to postulate for the municipal elections, which are expected for around 10 December. However, there is no clear information on the ongoing process and the opposition response has not been clear either. In detail, seven opposition parties has decided to not participate in the next electoral process, however we do not discard that some of its member could –at the very last minute- decide that they will participate as an independent candidat


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