Ecuador government proposes $214 million hike in security spending

By Thomson Reuters Feb 21, 2024 | 12:16 PM

By Alexandra Valencia

QUITO (Reuters) – The government of Ecuadorean President Daniel Noboa has proposed raising security spending by $214 million in 2024, as it deploys the military to help fight violence blamed on drug trafficking gangs, and could raise value-added tax to 15% from April.

Noboa declared gangs to be terrorist groups last month after the latest surge of violence, when dozens of prison guards were taken hostage and gunmen invaded a television station during a live broadcast.

Security spending would reach $3.52 billion under the budget proposal described in a statement published late on Tuesday by the economy ministry, up from $3.3 billion last year.

The budget, which totals $35.5 billion and includes a fiscal deficit of $4.8 billion, must be approved by lawmakers.

Noboa, who took office in November 2023, has so far enjoyed better relations with the often fractious legislature than his predecessor, but lawmakers initially rejected his attempt this month to raise value-added tax to 15% to fund security.

Using an administrative measure and lawmakers’ impasse over the bill, Noboa was able to force through a permanent 13% increase, rising to 15% when economic needs demand it.

The measure will begin to be implemented from April, Economy Minister Juan Carlos Vega said on Wednesday.

“We are going to start with VAT at 15% to actively sustain the successful campaign to fight security issues,” Vega told local television, saying the government would monitor the economy and investment to determine when the measure might become unnecessary.

Ecuador will put $4.8 billion toward paying debt this year and expects to need financing of $11 billion, part of which will be covered with debt from multilateral lenders.

The country has not made a specific request for financing to the International Monetary Fund, Vice Minister of Economy Daniel Falconi told journalists.

The budget proposal includes a projection for economic growth of 0.8% in 2024, a price per barrel of crude of $66.7 and 156 million barrels of oil production. It does not include increased funds that could be raised by the VAT increase, the ministry statement said.

The oil output estimate takes in to account the gradual shutdown of an oil field in the Yasuni nature reserve, which was backed by a majority of voters last year, Vega said.

(Reporting by Alexandra Valencia in Quito; Writing by Julia Symmes Cobb; Editing by Chizu Nomiyama and Matthew Lewis)