Fitch Raises Ecuador Outlook

Fitch has affirmed Ecuador’s CCC rating with a stale outlook after removing the credit from watch negative, to reflect a perceived reduction in the risk of a distressed debt exchange in the near term. “The government’s manageable financial position provides a sufficient counterbalance to Ecuador’s key credit weakness, which is its willingness to pay,” says Theresa Paiz Fredel, senior director for sovereigns at Fitch. Oil-related trust accounts, which reached $1.2bn at end-August, bolster the financial position as these assets have been used to fund capital expenditures and debt buybacks in the past. However, Fitch says that financing spending with oil trusts is not sustainable and further increases vulnerability to fluctuations in the oil market. “Venezuela remains a potential “lender of last resort” and could replicate the Bono del Sur mechanism to provide financial resources to Ecuador,” adds Fitch. Official reserves are seen ending 2007 at $3.3bn, more than covering 2008 public external debt service of $1.4bn. “External bond debt service of $450m amounts to about 1.1% of estimated gross domestic product (GDP) and total central government financing requirements are estimated at about 4.9% of GDP in 2008, low when compared to other speculative grade sovereigns,” says Fitch.