This report does not constitute a rating action.
Daniel Noboa won reelection earlier this month as president of Ecuador, where external financing needs and liquidity pressures are rising. Both factor into our 'B-' sovereign credit rating and negative outlook.
The government had reduced its external debt amortizations over the past three years through external debt restructurings and debt-for-nature swaps. But external financing needs will climb: repayments to the IMF will increase this year, and the bond issued in the last debt restructuring will begin to pay amortizations in January 2026.
Domestic debt amortization payments (around $2.6 billion per year) add to Ecuador's challenges, but the government has been successful at rolling the payments over with help from the public social security institute.
What's Happening
Incumbent Daniel Noboa won a four-year term as Ecuador's president after defeating opposition candidate Luisa Gonzalez 56%-44% in the second round of voting, held April 13.
The legislative elections held in February led to a divided National Assembly, with Noboa's party winning 66 of the 151 seats and the opposition party winning 67 seats.
Why It Matters
The election results should enable Noboa to build a working majority in the National Assembly, which should allow for the passage of reforms, continued negotiations with the IMF, and even changes to the constitution. His party's increased representation in the Assembly should enable him to better negotiate with other parties and independent lawmakers to reach the required majorities. Noboa’s previously constructive relationship with the Assembly--prompted by the deteriorating security conditions in Ecuador early in his tenure--had become strained as the elections approached.
Noboa will have to face Ecuador’s persistent macroeconomic weaknesses, which global financial uncertainty, slow economic growth, and weaker oil prices are compounding. On top of that, the country continues to deal with security conflicts, climate-related shocks to its electricity sector, and the requirement that it make progress on fiscal consolidation targets so that it remains in line with its IMF program.
Our 'B-' long-term ratings on Ecuador are based on its long-standing institutional weaknesses--including the debt restructurings in 2008 and 2020--which have been exacerbated by episodes of heightened social tension that have weakened investor confidence.
The sovereign will face substantial external debt amortization starting in January 2026, amid uncertainty about its capacity to tap the global markets while investor sentiment is weak globally. External debt amortization will become more challenging once principal payments begin on Ecuador's 2030 bond, which was issued as part of the debt restructuring in 2020. Delays in reducing the fiscal deficit and in improving investor confidence could make it more difficult for the government to fill its financing gap.
On the domestic side, we expect that the government will be able to roll over its short-term debt (Letras del Tesoro [LETES]). However, the social security institute's weak liquidity, the accumulation of arrears to decentralized entities, and the depletion of government deposits all highlight the rising liquidity pressures.
What Comes Next
In our view, Ecuador's debt payments this year will be manageable, given the planned fiscal consolidation and its commitment to the IMF program. Planned disbursements from multilateral lending institutions and the IMF for this year total around $5 billion. This, coupled with the rollover of the domestic obligations held by the country's social security system, should be sufficient to cover 2025 financing needs.
That said, our negative outlook reflects risks associated with the more prominent financing requirements in 2026, as international bond principal payments increase amid uncertainty about voluntary market access to rollover payments. Market confidence improved after Noboa’s reelection, but the global uncertainty is another issue on top of Ecuador’s track record on debt restructuring, and it weighs on Ecuador's bond spreads.
While we don’t expect another external debt restructuring in the short term, we would analyze any potential debt restructuring on a case-by-case basis. Under our criteria, we could consider a debt restructuring to be a distressed debt exchange and tantamount to default.
Related Research
- Ecuador 'B-' Ratings Affirmed On Debt-For-Nature Swap; Outlook Remains Negative, Dec. 9, 2024
- Ecuador, Aug. 12, 2024
- Debt-For-Nature Swaps Are Gaining Traction Among Lower-Rated Sovereigns, Feb. 27, 2024
- Ecuador Outlook Revised To Negative On Increasing Liquidity Strains; 'B-' Long-Term Ratings Affirmed, Jan. 11, 2024
- Complex Political Dynamics Continue To Weigh On Ecuador's Creditworthiness, May 17, 2023
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