Ecuador Rating Cut by Fitch After Killing as Presidential Election Nears

Ecuador had its credit score slashed Wednesday by Fitch Ratings, which cited heightened financing risks for the Latin American nation rocked last week by the assassination of a candidate for president.

(Bloomberg) — Ecuador had its credit score slashed Wednesday by Fitch Ratings, which cited heightened financing risks for the Latin American nation rocked last week by the assassination of a candidate for president.

The credit assessor lowered its rating by one step to CCC+, seven notches below investment grade and on par with Mozambique and El Salvador. The downgrade comes as voters prepare to go to the polls Sunday to choose a president, congress and decide on a referendum that could hinder oil extraction and exploration. 

The snap election, called after President Guillermo Lasso dissolved congress, has seen a string of political killings, including last week’s assassination of Fernando Villavicencio, a leading candidate. The winner will serve out the remainder of Lasso’s term, meaning another vote will be held in early 2025. 

“Fitch does not anticipate significant reform progress to address Ecuador’s fiscal and financing challenges in the remaining 18-month presidential term,” analysts Saul Del Real and Richard Francis wrote in a statement. “This will continue to hinder the sovereign’s market access and ability to secure an IMF successor program.” 

Rival drug cartels have turned Ecuador from a relatively peaceful corner of South America into one of the most violent places in the world, marred by car bombs, contract killings and prison massacres. 

The political uncertainty and its history of repeat defaults have caused Ecuador debt to sink more than 22%, making it the worst performer in emerging markets this year, according to a Bloomberg index. The bonds pared losses last week as investors expect Villavicencio’s killing to shift voter focus to security concerns and therefore weaken the odds of a leftist presidential rival. 

Its fiscal position has started to weaken after significant improvement since the nation reached a deal with the International Monetary Fund in 2020, according to Fitch. The agency sees the deficit widening to 3.4% of gross domestic product by 2025 as revenues adjust to slower growth, lower oil revenues, and the impact of Lasso’s tax cuts. Meantime, expenses will jump with higher interest on debt and social demands. 

Moody’s Investors Service rates Ecuador as Caa3, two levels lower than Fitch. S&P Global Ratings assigns it a B- rating, a notch higher than Fitch. Both have a stable outlook for the country. 

(Updates with details throughout)

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