(Bloomberg) — Ecuador’s dollar bonds were the biggest gainers in emerging markets on Wednesday as traders welcomed President Daniel Noboa’s move to use his line-item authority to raise the value-added tax, signaling a resolve to contend with the nation’s budget deficit.
The nation’s bonds due in 2030 jumped 1.1 cent to 55.6 cents on the dollar, the highest level in a year, according to indicative pricing data collected by Bloomberg. Notes due in 2035 soared 0.9 cent to 43.9 cents on the dollar, also a one-year high.
In a line-item veto of a tax package passed by the assembly earlier Tuesday, he established a permanent VAT band of 13% to 15%, hinging on fiscal requirements and the balance of payments. Noboa, who has an approval rating of 80%, is seeking the increase to help address the government’s fiscal strains and deal with the mounting costs of a crackdown against drug cartels after a series of violent episodes.
The legislature would have to muster a super-majority to override the increase. Investors cheered Noboa’s persistence as a sign of commitment to addressing the country’s fiscal deficit.
“The worst-case scenario of the government’s tax bill being blocked in the Assembly has been avoided,” Alejandro Arreaza, an economist at Barclays in New York wrote in a note Wednesday. “A potential approval of the tax bill could pave the way for the government to reach an agreement with the International Monetary Fund.”
Here’s what Wall Street analyst are saying:
More from Arreaza:
Siobhan Morden, managing director for Latin America fixed income at Santander in New York:
Ricardo Penfold, managing director at Seaport Global in New York:
Lucila Barbeito, an economist at JPMorgan Chase & Co. in Buenos Aires:
–With assistance from Stephan Kueffner.
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Published: 08 Feb 2024, 12:37 AM IST