Home Research BancTrust BancTrust Says Ecuador 2030 Bond Still a ‘Valid’ Carry Play After Tax Reform Ordered Into Law

BancTrust Says Ecuador 2030 Bond Still a ‘Valid’ Carry Play After Tax Reform Ordered Into Law

BancTrust Says Ecuador 2030 Bond Still a ‘Valid’ Carry Play After Tax Reform Ordered Into Law
Ecuadorian flag on top of Santa Ana hill with a church and the city of Guayaquil visible in the background in Ecuador. Courtesy of Unsplash.com

NEW YORK — Ecuador’s sovereign debt still represents a “valid carry play” after the administration of President Guillermo Lasso ordered on Monday the implementation of a tax reform that increases fiscal revenues and allows production-sharing agreements for the oil sector into law, BancTrust said in a report.

“After the news of the tax reform becomes priced in, we would still consider Ecuador as a valid carry play through the 5% 30s for at least a one-year horizon,” analysts Ramiro Blazquez and Bruno Gennari said in a research note to investors dated November 30. The recommendation of the 2030 bond is anchored by Ecuador’s “manageable medium-term debt profile and supportive terms of trade,” the argue in the note.

On November 26, the nation’s Congress failed to reach a consensus on a tax reform submitted by the government seeking as much as USD1.9 billion in additional revenues in 2022 and 2023, or 0.7% of the GDP, giving the administration the freedom to implement it under fast-track rules starting next year.

Even after Presidente Lasso enacted the bill into law, there are “real risks that the National Assembly (NA) rules against the tax reform,” the analysts said, adding that the lawmakers “can still overturn this with a simple majority” of 70 votes out of 137 (51%). “A legislative setback for Lasso cannot be ruled out,” the analysts of the British investment bank said.

BancTrust echoes press reports indicating that the opposition is gearing up to reject the tax bill, particularly the Democratic Left and the Pachakutick indigenous caucuses. “There is a substantial probability that the bill is either nullified or watered down at the National Assembly. This would inflict a major political setback for President Lasso and severely impair the outlook of the growth-friendly reforms on labour and investment regulations,” they analysts wrote in the note.

IMF Loan

Ecuador’s gross domestic product shrank 7.8% last year, its largest economic contraction in history, as the COVID-19 pandemic curtailed output in key sectors. The International Monetary Fund, which approved a 27-month EFF arrangement on September 30, 2020 for USD6.5 billion in total financing, projects that Ecuador’s GDP is set to recover and expand 2.8% this year and 3.5% in 2022.

The IMF is scheduled to review Ecuador’s economic program this month, which could allow a new USD700 million loan tranche. “We do not see the multilateral giving up on Ecuador even if the tax reform is ultimately rejected. In that scenario, we would expect a waiver that would still open the door to the disbursement,” BancTrust’s analysts said.

To contact journalist of this story:
Email: jearrioja@zignox.com


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