Ecuador’s debt rating will be reviewed again by Fitch Ratings, after the results of the Yasuní public consultation, in which the majority of Ecuadorians supported the departure of oil from block 43 – ITT (Ishpingo, Tambococha, Tiputini) underground, which would mean – according to the risk assessment agency – that the new government will have to “face” the effects of not having the resources generated by these fields and do not foresee “significant progress” in terms of reforms, since the election will result in “another fragmented National Assembly”.
A few days before the August 20 election, the Ministry of Economy reported that Fitch Ratings had downgraded the country’s rating from B- to CCC+ due to the political uncertainty surrounding Ecuador in the context of pending elections stemming from the death crucifixion applied by President Guillermo Lasso.
“The Ministry of Energy is concerned about the legal aspect” of the Yasuní consultation because in Orellana “it was decided to continue the exploitation of the field”
According to the data of the National Electoral Council (HNS), which has 97.84 percent of the examined acts, 58.97 percent of citizens supported the thesis of not continuing oil extraction, while 41.03 percent voted for the continuation.
The risk assessment agency pointed out that the presidential candidate who wins the second round, scheduled for October 15, “will have to deal with the impact of stopping oil extraction in the fields.”
As for the results of the legislative elections, Fitch indicated that he does not foresee “significant progress on reforms amid a fragmented National Assembly during the remaining 18 months of the presidency, in line with our views when we downgraded Ecuador.” to ‘CCC+’ from ‘B’ in August”.
According to Fitch, this could significantly weaken sovereign credit metrics: resulting in a negative impact on real GDP growth, fiscal accounts and external liquidity.
In this context, he pointed out that the recently published forecasts do not include the impact of the suspension of oil extraction in block 43, for which he said: “We will review our forecasts in the coming weeks”.
Orellana province, home to the block extracting oil from Yasuní, voted not to leave it underground
Fitch said political uncertainty and social unrest weighed on the investment outlook. “We have seen real GDP growth slow to 1.4% this year, well below the average of 2.1% over the past fifteen years,” he said.
He noted that according to fiscal projections in the review, “the deficit would grow to 3.2% of GDP this year and 3.4% in 2025 due to slower growth, lower oil revenues and higher spending on interest, wages and social security transfers.” .
For former Deputy Minister of Foreign Trade José Orellana, “what Fitch is saying is, ‘I see problems in your current situation and I see that Yasuní is making your situation worse,'” thereby giving signals about the situation in Ecuador.
Orellana believes that from now on in the presidential pairs “we should have people who are knowledgeable about what the most important ministries are doing” and he cited the economy, agriculture, etc. as an example in terms of actions to deal with the El Niño phenomenon and other situations in the country.
According to the former official, the new assessment that Fitch will carry out will not take country risk into account, as it has been oscillating in a downward trend for the past two weeks.
Country risk fell to 1750 points after the election and the confirmation that there will be a second round of elections in Ecuador. The measurement by investment bank JP Morgan represents a 3% drop compared to the 1,814 points registered last week and also implies a level similar to that before President Guillermo Lasso declared the death crucifixion on May 17. At the beginning of August, this indicator exceeded the limit of 2000 points. Currently, on August 22, it is 1,756 points, according to data from the Central Bank.
“In terms of Fitch’s performance, I don’t think country risk is evident, because the market reacts faster than risk assessment agencies,” he said.
For Orellana, what the risk assessment agency is now thinking about “is what will be the ability of the country to pay when the biggest obligations come, starting in 2026, when the complicated part comes.”
Questions and answers Elections 2023
Source: Eluniverso
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