The scope of the COVID-19 crisis is global and is forcing all economies to make strenuous efforts at every level. Below, we analyze the specific case of Ecuador and the consequences that the Coronavirus is having on a country and its 17 million inhabitants.
The economy of Ecuador, a country rich in natural resources, is based principally on activities related to mining and oil, commodity exports, the output and marketing of food and supplies from production chains, as well as tourism. A significant share of the income contributing to the General State Budget (PGE) derives from tax revenues (principally VAT and Income Tax), followed by oil and social security contributions. These sources of income have been affected by the paralysis of the national productive apparatus resulting from the Coronavirus crisis. Not only have cash flows become a problem but the collapse of oil prices has had a negative impact on the balance of payments (prices have fluctuated between US$20 and US$25 per barrel). Furthermore, exports to the United States, Ecuador’s main trading partner, and to China have dropped as global demand has fallen.
According to Central Bank of Ecuador data, the “agriculture, livestock, hunting and forestry and fishing” sector accounts for the largest number of active jobs in Ecuador (29.4% of total employment), followed by “general commerce” with 17.9% and then “manufacturing industries ”with 10.32%. These three sectors of the economy have been particularly affected by the global crisis.
The government sector as well as unions and business associations have submitted proposals to address the effects that the global crisis may unleash on the productive apparatus and on socioeconomic indicators. Approaches include strengthening and transforming business models (with carefully considered investments by entrepreneurs to ensure cash flows and to encompass all actors in business value chains), adopting digital transformation (which requires a profound change in the mentality and culture of the workforce)and implementing immediate action plans for business continuity and risk management, among others.
With respect to regulatory matters, the Government has established a series of measures with the principal objective of injecting liquidity into the economy, protecting the workforce and focusing efforts on priority issues.
The most relevant measures are as follows:
- Deferral of obligations related to tax, customs duties and social security. These measures will benefit exporters, SMEs, airlines, agribusiness, tourism, voluntary affiliates and individuals with no employment contract.
- Restructuring and refinancing mortgages and commercial obligations with public and private banks.
- Agreements between employees and employers with respect to teleworking, deferral of the working day and the form of paying wages, while safeguarding the fundamental rights of employees.
- Some public bodies have postponed administrative processes required of taxpayers and general users until further notice, thus enabling resources to be focused on priority issues.
- Finally, the National Government has sent the National Assembly a series of measures focused on mitigating the effects of the crisis for consideration and approval. Such involve, principally, contributions to be made by public and private employees from their salaries, contributions from companies in accordance with the size and line of their businesses, and others matters related to labor issues that must be discussed and approved.
The Coronavirus crisis poses a series of significant challenges for all companies and, in this context, information is essential. At Auxadi, we are experts in providing value-added services in accounting, finance, tax compliance, payroll and technology management, acting as a strategic partner in your business. Should you require further information on the matters set out above, please do not hesitate to contact us.