Ecuador - The Economy Government Budget Process

Government budget process

Ecuador had a complex and splintered budget process. Only about 65 percent of tax revenues were dedicated to financing the national budget. The remainder were earmarked for direct and automatic allocation to autonomous agencies, state enterprises, and local governments on a predetermined basis. Despite tax reform efforts in the 1980s, several funds continued outside the regular budget process. About 5 percent of income, for example, was designated for revenue sharing with 100 municipalities and 20 provincial governments. This system, which did not require recipients to justify their need for the automatically appropriated sums, reduced the amount of economic planning and fiscal control that could be exercised by policy makers. Not only did recipient agencies and local governments lack the incentive to be frugal, but the central government was left with inadequate funds to begin new programs or establish new agencies as needed.

With the national budget, preparations for current and for capital expenditures were each handled differently. The Ministry of Finance and Credit established current expenditures based on actual budgets from the previous year, allowing for increases needed to offset inflation. The National Development Council (Consejo Nacional de Desarrollo--Conade) formulated a budget proposal for all capital expenditures relying on project requests from public agencies, which was sent to the Ministry of Finance and Credit; a national budget plan was then drafted at the ministry and forwarded to the National Congress (Congreso Nacional--hereafter, Congress).

Authorization for both current and capital expenditures was complete when Congress passed the budget plan, but disbursements against authorizations were at the discretion of the Treasury. The Constitution requires each budget to be balanced, but throughout the 1980s deficits were the norm.

In 1987, of total government revenues, 65 percent was derived from taxes on income and capital gains, 13.7 percent from domestic taxes on goods and services, 17.3 percent from taxes on international trade and transactions, 2 percent from other taxes, and 2 percent from nontax revenues. Total revenues for that year represented about 18.5 percent of Ecuador's gross national product (GNP).

During the same year, of total government expenditures, 11.8 percent was earmarked for the military, 24.5 percent for education, 7.3 percent for health, 0.9 percent for housing and social security, 19.8 percent for economic services, and 35.7 percent for other purposes. Total expenditures represented 16.3 percent of GNP; the overall budget deficit represented 2.1 percent of GNP.

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