IMF, Ecuador reach four-year, $4 billion staff-level agreement

3:50 pm Thursday, April 25th, 2024

By Rodrigo Campos

(Reuters) -The International Monetary Fund (IMF) and Ecuadorean authorities have reached a staff-level agreement to underpin a four-year, $4 billion extended fund facility (EFF), the IMF said in a statement on Thursday.

“Amid a challenging macroeconomic outlook, our objective has been and remains to support the authorities’ efforts to improve the living standards of all Ecuadoreans, with a focus on protecting the most vulnerable and promoting sustainable growth,” said IMF mission chief for Ecuador Varapat Chensavasdijai.

The deal is subject to executive board approval, the statement added, without specifying a date for a board discussion.

“The amount is a positive as well as the fact that it is an EFF program,” said Shamaila Khan, head of fixed income for Emerging Markets and Asia Pacific at UBS Asset Management.

“Risk is, as with all IMF programs, being able to stick to the policies required,” she added, noting that the agreement was already expected in financial markets.

Given the $4 billion is roughly similar to what Ecuador needs to repay the fund in principal over the same time period, meaning no additional fresh cash, Goldman Sachs said they do not expect the program to hinge on a demanding set of requirements.

“Payments to the IMF constitute a significant fraction of external debt repayment obligations,” added Goldman economist Sergio Armella in a research note.

“As such, conditional on its approval, the new program should reduce near term financial risks.”

Ecuadorean officials had in the past week hinted that a deal with the Washington lender was near, boosting the price of the country’s international bonds.

Ecuador bonds had returned over 55% year to date at the index level, and on Thursday spreads to comparable U.S. debt narrowed by 41 basis points to 1,118 bps, on track to end the day at the tightest since February 2023 according to LSEG data.

(Reporting by Julia Symmes Cobb and Rodrigo CamposEditing by Marguerita Choy, Frances Kerry and Sandra Maler)