JPRF-F-2021-003 — Guidelines for Public Financial Institution Budgets

Financial Policy and Regulation Board
THE FINANCIAL POLICY AND REGULATION BOARD
CONSIDERING:
That, Article 310 of the Constitution of the Republic provides that “The public financial sector shall have as its purpose the sustainable, efficient, accessible, and equitable provision of financial services. The credit it grants shall be oriented preferentially to increase the productivity and competitiveness of productive sectors that allow achieving the objectives of the Development Plan and of the least favored groups, in order to promote their active inclusion in the economy”; That, Objective No. 4 of the Opportunities Creation Plan 2021-2025 states: “Guarantee the management of public finances in a sustainable and transparent manner.” On the other hand, it establishes in policies 4.5 and 4.6 that it seeks to generate optimal macroeconomic conditions that foster inclusive and sustainable economic growth; and, the consolidation and strengthening of dollarization; That, the Opportunities Creation Plan 2021-2025, in Objective No. 14, proposes “Strengthen the capacities of the State with emphasis on the administration of justice and efficiency in regulatory and control processes, with independence and autonomy”; and, establishes policy 14.2 which seeks to enhance the capacities of different levels of government to fulfill national objectives and provide quality services; That, Article 77 of the Organic Code of Public Planning and Public Finances provides that: “The revenues and expenses belonging to Social Security, public banking, public companies, and decentralized autonomous governments are not considered part of the General State Budget”; That, Article 101 of the Organic Code of Public Planning and Public Finances foresees that the formulation of budget proformas for the public sector, including those of public banking, must obligatorily observe the technical standards, guidelines, classifiers, and catalogs issued by the governing body of the National System of Public Finances (SINFIP); That, according to what is prescribed in Article 112 of the Organic Code of Public Planning and Public Finances, the budget proformas of entities subject to said Code that are not included in the General State Budget shall be approved in accordance with applicable legislation; once the budgets are approved, they shall be sent for informational purposes to the governing body of public finances within 30 days following their approval. Public banking shall also have the same obligation regarding the National Assembly; That, in Article 13 of the Organic Monetary and Financial Code, Book I, reformed by the Reformatory Law to the Organic Monetary and Financial Code for the defense of dollarization, published in the Official Register Supplement No. 443, of May 3, 2021, the Financial Policy and Regulation Board was created as part of the Executive Function, responsible for the formulation of credit, financial, securities, insurance, and prepaid comprehensive health care services policy and regulation; That, Article 14.1, number 14, letter a) of the Organic Monetary
and Financial Code, Book I, establishes that the Financial Policy and Regulation Board must annually approve the budget of the entities of the public financial sector, their reforms, as well as regulate their execution. And, in concordance with Article 13; 14.1 number 9, 365, and 372 of the Organic Monetary and Financial Code ratify the competence of this collegiate body to issue budgetary guidelines for public banking;

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That, in accordance with Article 34 of the Organic Monetary and Financial Code, in concordance with the sixth numeral of Article 47 ibidem, the approval of the budget of the Central Bank of Ecuador has a special regime that corresponds to the Monetary Policy Board; That, with Executive Decree No. 7, of May 24, 2017, the Ministry of Economic and Political Coordination was merged with the Ministry of Finance, changing its name to the Ministry of Economy and Finance; That, the Twenty-Ninth General Provision of the Organic Monetary and Financial Code provides that: “In the current legislation where mention is made of the ‘Monetary and Financial Policy Board’, replace it with ‘Financial Policy and Regulation Board’; That, in the Codification of Monetary, Financial, Securities, and Insurance Resolutions, Book I “Monetary and Financial System”, Title II “National Financial System”, Chapter XXXIII “On the Government and Administration of the Public Financial Sector” (previous Chapter XXXIV, renumbered by virtue of Resolution No. 647-2021-F, published in the Official Register No. 415 of March 22, 2021), Section III “On the Public Financial Sector Capital Budget”, Subsection I “Budget Management Standards for entities of the public financial sector”; in its Article 8 it provides that the Monetary and Financial Policy Board (current Financial Policy and Regulation Board) will define the guidelines, actions, and schedule for the elaboration and presentation of the budget proforma of the entities of the Public Financial Sector. The Ministry of Economic and Political Coordination (current Ministry of Economy and Finance) will act as the counterpart of the entities of the Public Financial Sector in the process of elaboration and presentation of the budget proforma and will issue a report on said proformas prior to their submission to the current Financial Policy and Regulation Board; That, the First Transitory Provision of the Organic Law for Economic Development and Fiscal Sustainability after the Covid-19 Pandemic, published in the Official Register Supplement No. 587 of November 29, 2021, orders in its own words: “FIRST TRANSITORY PROVISION.- In order to achieve the technical and capital parameters necessary to grant low-cost, long-term credit to the agricultural and productive sectors, within sixty (60) days counted from the publication of this law in the Official Register, the competent instances will initiate the pertinent procedures to merge BANECUADOR EP and CORPORACIÓN FINANCIERA NACIONAL EP into a single entity called BANCO DE FOMENTO ECONÓMICO DEL ECUADOR.”; That, on October 12, 2021, the National Assembly took office the members of the Financial Policy and Regulation Board; That, the Technical Secretariat of the Financial Policy and Regulation Board, through memorandum No. JPRF-SETEC-2021-0001-M of December 8, 2021, sends to the President of the JPRF, the technical and legal analyses regarding the guidelines for the elaboration of the budget
proforma of Public Financial Entities for the year 2022, contained in technical reports No. JPRF-CT-2021-001 and No. JPRF-CJ-2021-0001 of December 8, 2021, respectively; That the Financial Policy and Regulation Board in an ordinary session held by technological means, convened on December 8, 2021, on December 10, 2021, knew and approved the text of the following resolution; and, In exercise of its functions,

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RESOLVES:
SINGLE ARTICLE.- In the Codification of Financial, Securities, and Insurance Resolutions, Book I "Monetary and Financial System", Chapter XXXIII "On the Government and Administration of the Public Financial Sector", replace Section XI “Guidelines for the elaboration of the budget proforma of the Central Bank of Ecuador and entities of the Public Financial Sector for the year 2021”, with the following:
“Section XI: Guidelines for the elaboration of the budget proforma of Public Financial Entities for the year 2022.
Art. 135.- GENERAL GUIDELINES

1. The budget proformas of public financial entities must be consistent with economic policy guidelines, and must include all sources and uses necessary for their management.
2. Public financial entities will program their budgets in concordance with what is provided in the Opportunities Creation Plan 2021-2025, insofar as applicable, must observe the Codification of Monetary, Financial, Securities, and Insurance Resolutions, Book I “Monetary and Financial System”, Title II “National Financial System”, Chapter XXXIII “On the Government and Administration of the Public Financial Sector”, Section III “On the Public Financial Sector Capital Budget”, Subsection I “Budget Management Standards for entities of the public financial sector”; the Organic Code of Public Planning and Public Finances and its General Regulation.
3. In addition, the technical standards, guidelines, classifiers, and catalogs issued by the governing body of public finances will be observed, in accordance with Article 101 of the Organic Code of Public Planning and Public Finances, insofar as applicable to Public Banking, considering its administrative, financial, and budgetary autonomy; as well as those established by the respective control bodies of the public sector financial entities.
4. The budget proformas of public financial entities corresponding to the 2022 fiscal year will show the assumptions on the basis of which they were elaborated, as well as must include an explanation of the variations presented in them, compared to the approved and codified budget as of October 2021. The information must be presented according to Annex 1.
5. Budget proformas must consider the strategic plan and the annual operational plan and the multi-year programming for the fiscal year, which must consider at least, the policies, objectives, and goals, as well as having clearly identified the budget required for each project, for which they must consider at least:
   a) Be directly related to each of the institutional objectives; b) Have a quantitative (associated with its budget) and qualitative nature; and, c) Be verifiable in semi-annual periods by the Ministry of Economy and Finance.
6. The annual operational plan will be basically oriented to achieve:
   a) Improvements in the quality of placement in terms of its economic impact, as well as its measurement; b) Improvements in the quality of the portfolio;

_______________________ c) Optimization of credit granting times without implying less rigor in the analyses performed; d) Implementation and/or improvement in comprehensive risk management; e) Rigorous costing of the offer of financial products and services; f) Optimization, rationalization, and quality of expenditure; g) Improvement or redesign of critical processes; h) Improvements in capacity, planning, and others related to human talent management; i) Strengthening of personnel capacities; j) Internal control processes; and, k) Others prioritized by the entity.
7. The budget proformas of public financial entities corresponding to the 2022 fiscal year will present meticulously and justified the assumptions on the basis of which they were elaborated; as well as, must include a detailed explanation of the variations presented in them.
8. Public financial entities will also observe, insofar as applicable to them, the norms of optimization and austerity of public expenditure issued by the National Government.
ON REVENUES:
9. In the case that public financial entities receive resources from the General State Budget, the budgets of these entities must be consistent with the guidelines given for said budget.
The revenues corresponding to financing sources with resources from the General State Budget or international funding sources must have the respective amortization tables.
ON EXPENDITURES:
10. The estimation of this component will take into account at least, the following:
a) It is prohibited to finance the administrative execution budget with debt or with resources from the policy budget. b) The administrative execution budget must be oriented to reduce or maintain expenses, particularly considering the economic situation and the need to allocate a greater amount of resources for productive reactivation. c) The budget proforma for the year 2022 will not include items for non-specific rubrics, transfers to the private sector that do not have legal backing, nor the granting of aid, donations, or contributions in favor of any natural or legal person, public or private, that are not determined in the Law. d) The management of human talent will be subject to the provisions contained in the Organic Law of Public Service, its General Regulation, the resolutions and agreements issued by the Ministry of Labor, insofar as applicable. e) For the 2022 fiscal year, the contracting of occasional services will observe what is established in the second paragraph of Article 58 of the Organic Law of Public Service: “it may not exceed twenty percent of the total personnel of the contracting entity; in case this percentage is exceeded, prior authorization from the Ministry of Labor must be obtained.”

_______________________ f) The Budgetary Distributor of Unified Monthly Remunerations will only contain those positions established in the updated and current manual of description, valuation, and classification of positions.
All public financial institutions will have the obligation to elaborate and carry out administrative actions to keep the approved Budgetary Distributor of Remunerations for the fiscal year updated.
If applicable, they must consider rubrics to establish processes of optimization, rationalization of human talent, and compensation for retirement due to mandatory and non-mandatory retirement. g) Movable and immovable goods may only be acquired if indispensable for the replacement of existing ones due to deterioration situations, provided that they are not available in the respective entities, or if such goods constitute inputs to achieve the goals of the entity's annual operational plan. h) All processes of contracting goods and services will observe the principles of legality, fair treatment, equality, quality, timeliness, optimization, competition, and transparency, in accordance with the Organic Law of the National Public Contracting System and other regulations issued by the National Service of Public Contracting (SERCOP). i) In exceptional cases, public financial entities may include the partial renewal or increase of their vehicle fleet if and only if the need and cost-benefit of such action is justified in detail. The replaced vehicles must be alienated and the product of the sale of these will constitute extraordinary income for the entity. j) In case there are projects of an informational nature, they must observe the guidelines of the pertinent organism. k) For the execution of the budget, in the case of leasing, remodeling, or acquisition of immovable goods, the opinion of the Technical Secretariat of Public Real Estate Management or the entity that acts in its place must be obtained. l) The projects planned for the 2022 fiscal year must contain, the objectives, the goals, and the respective feasibility studies and cost-benefit analysis, which duly justify the urgent need for the expenditure. The necessary resources for both expenses and investments must be programmed in a special item within the budget until the product or service is implemented. The expenses and investments required for the delivery of the new product must be registered within the corresponding accounts of the budget.
11. Investment, credit, and financing programs will take into account the following general guidelines:
a) The guidelines of the Opportunities Creation Plan 2021-2025, Credit Programs for entities of the public financial sector in accordance with the resolutions that the Financial Policy and Regulation Board issues regarding this matter; and, the programs promoted by the National Government. b) The investments of public financial entities, excluding the exclusive investments of the Bank of the Ecuadorian Social Security Institute (Mortgage Loans, Unsecured Loans, and Pledge Loans), will be channeled primarily to the financing of activities related to: innovation, entrepreneurship, diversification of exports, social and public interest housing; water and sanitation programs; economic inclusion of vulnerable and priority attention groups and incentives for SMEs; as well as, they will take into account the guidelines of the Opportunities Creation Plan 2021-2025, maintaining consistency with the figures of the General State Budget and the resolutions of the Financial Policy and Regulation Board. c) In investment decisions, public financial entities must consider a balance between security and return on investment, in such a way that invested resources are protected at all times. d) The financing of public financial entities will be channeled primarily to the segments: productive, microcredit, public investment, real estate, social and public interest housing; as well as, to the financing of plans aimed at post-pandemic economic reactivation and the programs promoted by the National Government. GENERAL PROVISION.- The execution of this resolution is entrusted to the government and administration bodies of public financial entities. TRANSITORY PROVISIONS.- FIRST.- The elaboration of the budgets of BANECUADOR EP and CORPORACIÓN FINANCIERA NACIONAL EP, in addition to the defined guidelines, must consider aspects that guarantee the efficient use of resources, taking into account the fusion process that will take place between the entities. SECOND.- The budget proformas must be delivered to the Financial Policy and Regulation Board, on this single occasion, by December 22, 2021, approved by the corresponding government and administration bodies. THIRD.- The budget proformas must be approved by the Financial Policy and Regulation Board on this single occasion, by December 30, 2021. FINAL PROVISION.- This resolution will enter into force from the present date, without prejudice to its publication in the Official Register. NOTIFY.- Given in the Metropolitan District of Quito, on December 10, 2021. THE PRESIDENT, Mgs. María Paulina Vela Zambrano The preceding resolution was processed and signed by Master María Paulina Vela Zambrano, President of the Financial Policy and Regulation Board, in the Metropolitan District of Quito, on December 10, 2021.- I CERTIFY. TECHNICAL SECRETARY Dr. Nelly Arias Zavala

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Annex No. 1
NAME: PUBLIC FINANCIAL ENTITY
2022 BUDGET PROFORMA
In dollars
EXECUTED BUDGET
October
2021
I. ADMINISTRATIVE BUDGET
ORDINARY BUDGET
REVENUES
XXX XX
XXX XX
EXPENDITURES
XXX XX
XXX XX
ORDINARY SURPLUS (+) DEFICIT
(-)
XXXXX
XXXXX
EXTRAORDINARY BUDGET
REVENUES
XXX XXX
EXPENDITURES
X XX xxxxx
EXTRAORDINARY SURPLUS (+) DEFICIT
(-)
ADMINISTRATIVE SURPLUS (+) DEFICIT
(-)
II. POLICY BUDGET
REVENUES
XXXXX
XXXXX
EXPENDITURES xxxxx xxxxx
POLICY SURPLUS (+) DEFICIT
(-)
GLOBAL SURPLUS (+) DEFICIT
(-) (I + II)
TOTAL REVENUES
TOTAL EXPENDITURES
TOTAL BUDGET YEAR
2022
PROFORMA
2022
VARIATION
CODIFIED
2021 VS
PROFORMA
2022 (USD)
VARIATION
CODIFIED
2021 VS
PROFORMA
2022 (%)
CONCEPT
EXECUTED BUDGET
DECEMBER
2019
EXECUTED BUDGET
DECEMBER
2020
APPROVED BUDGET
2021
CODIFIED BUDGET
2021
PROJECTED BUDGET
DEC-2021