The oil boom reached Correa with surpluses of more than $4.6 billion. Lasso inherited deficits of more than $250 million a month and debt of 60% of GDP.
This March 7, 2022, the WIT crude oil barrel pricewhich is the benchmark for Ecuador, is trading above $116.
The main reason for this new escalation is that the European Union has announced that it will issue a new package of sanctions against Russia. Those sanctions would include concrete steps to begin reducing Europe’s dependence on Russian gas.
Many voices have been raised in the country, especially since February 28, 2022 when the Petroleum began trading at more than $100, demanding the Government of Guillermo Lasso to spend as in the second oil boom during the government of Rafael Correa.
Freddy García, director of Economic and Statistical Studies of the firm Intelligence Business, assured that these claims “are not only fueled by a kind of oil psychosis but also by fiscal amnesia.”
The following details why the current situation is completely different between the reality of Ecuador in 2022 and in 2008:
1.- Belt, before the oil prices skyrocketed, he inherited a tax situation with surplus of more than 2% of GDP (more income than expenditure) and a public debt which did not exceed 30%.
2.- Lasso inherited a fiscal deficit almost -8% of GDP in 2020; and -3% in 2021. In addition, payments of more than $6,000 million annually are needed to pay a debt which exceeds 60% of GDP.
3.- The current government lacks between $250 million and $400 million per month to cover all expenses and obligations, so it has to continue borrowing. Correa had low payments of debt and even received millionaire savings. The former president of the Republic, Alfredo Palacios, in an interview with El Universo, assured that he inherited from Correa, in the first place, more than $2,000 million for oil surpluses. In addition, he $2.6 billion in additional savings in two trusts to spend on public works, health, education, among others.
That amount of resources, according to Palacios, allowed belt He will govern at the beginning of his mandate by means of emergency decrees and will spend without any type of control or counterweight.
To all that favorable base scenario that had beltit is added that since 2009, and leveraged in the good oil prices, it began to indebt massively to China. This debt it allowed him to spend without consequences for a few years, but when payment deadlines began to expire, the fiscal crisis broke out.
4.- The current government has had an international price of a barrel of oil above $90 for less than a month. The government of belt experienced a bonanza of more than 996 days with an average price above $94 per barrel. According to estimates, a price of between $108 and $118 would currently be needed for at least two years for the reality of the second oil boom to be replicated.
5.- If you average the oil price from January 1, 2022 to date, the value reaches $90.5. Unlike the past bonanza, today the fracking industry allows, by reaching a high enough price, a lot of oil reserves in the United States to be exploited quickly, putting downward pressure on the international crude oil price. That means high prices can’t last as long as they used to.
6.- In the current circumstances, the Lasso government must intelligently use the good prices of the raw. On the one hand, reduce debt needs that were budgeted for this year at $7,000 million. On the other hand, set aside part of the surplus to help three sectors: exporters (war hit)health and education.
7.- The tall ones oil prices it has a side B where costs for subsidies and fuel imports skyrocket. The additional expense could reach $2,000 million in 2022. In addition, gasoline liberalized since December 2018, such as super, is already priced at more than $5 per gallon in the United States, and in Ecuador could exceed $4 during the next March 12, 2022. (JS)
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