Ecuador Third Inclusive and Sustainable Growth DPL

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The Third Inclusive and Sustainable Growth Development Policy Financing (DPF) is the final operation in a programmatic series of three. The first operation (for $500 million) was approved by the World Bank's Board of Executive Directors in June 2019. It aimed to support Ecuador’s efforts to restore fiscal sustainability and build the foundations for inclusive and sustainable economic growth through improved procurement practices, reduced subsidies for fossil fuels for commercial uses, revenue boosting measures and other measures. Considering the strong commitment to reforms, but slower than expected implementation due to new challenges posed by the COVID-19 crisis, the second operation was split into two (DPF-2 and DPF-3). A new pillar was added to support the COVID-19 response (Pillar 1). This pillar included measures to protect vulnerable households, facilitate telework and raise tax revenues in the least painful way possible, all during the period of the crisis. The priority areas identified during the design of the DPF series remained critical to recover from the crisis and to continue supporting Ecuador's transition towards a sustainable and inclusive growth model in the post-pandemic period. These priority areas were grouped into two pillars, one to remove barriers to private sector development (Pillar 2) and one to promote public sector efficiency and fiscal sustainability post-crisis (Pillar 3). This third operation maintains this structure, with Pillar 1 supporting measures that help to alleviate the impact of the ongoing global COVID-19 pandemic on vulnerable households and those made unemployed, as well as special measures to protect vulnerable refugees. As in DPF-2, Pillars 2 and 3 support significant structural reforms that will contribute to longer-lasting growth-enhancing change in Ecuador. These are discussed in detail in this document. Special considerations are given to climate change and natural resource management, including through fiscal risk management, energy price controls and subsidies, and transparency in natural resource management. This operation provides critical financing to Ecuador in a context of deep crisis. As with the previous operation, it will include a concessional contribution on a non-reimbursable (grant) basis under the Global Concessional Financing Facility (GCFF) of 14.1 million dollars (DPF-2 included a 6 million dollars grant). The GCFF was set up to support middle-income countries hosting large numbers of refugees, as Ecuador has done during the unprecedented exodus of Venezuelan migrants.