Ecuador Gets a B

Fitch has upgraded Ecuador’s foreign currency issuer default rating to B minus from CCC, with a stable outlook, because of increased bilateral lending and a decrease in financing constraints due to the recovery of international oil prices. Loan agreements with China worth $2.6bn and financing from the social security agency have provided Ecuador with resources for budgetary support and infrastructure spending, says Fitch. However, the upgrade did affect spreads in the secondary bond market, with analysts and economists saying the rating is still not high enough to attract institutional investors. “There has been very little debt being traded since the default, and I don’t expect this to have a significant impact,” Eduardo Checa, president at Analytica Securities, tells LatinFinance. A LatAm economist says institutional investors will remain uninterested in Ecuador’s debt. The country’s ratings are constrained by weak willingness to service debt and limited transparency and disclosure of public finances information, adds Fitch. “Ecuador’s limited sources of recurrent and reliable financing as well as the high dependence of external and fiscal accounts on oil prices will continue to weigh on the sovereign’s capacity to service its outstanding debt commitments,” says Erich Arispe, director in Fitch’s sovereign group. Fitch adds that Ecuador’s growth prospects remain low for regional standards. The report adds that while enhanced willingness or strengthened capacity to service outstanding debt could improve Ecuador’s credit rating, deterioration in fiscal and external accounts or further unwillingness to service outstanding debt could lead to a ratings downgrade.