Election uncertainty and Yasuní oil reserves affect Ecuador’s credit outlook

As indicated by the country’s Ministry of Economy and Finance, the upcoming election uncertainty regarding the Yasuní National Park’s oil reserves and the future economic policy influence Ecuador’s credit rating.

Recent reports from credit rating agencies Fitch and Standard & Poor’s highlight the country’s political uncertainty due to upcoming elections as a notable risk.

Ecuadorians will soon vote for a new leader to complete the term of the conservative President Guillermo Lasso (2021-2025).

Previously, Lasso dissolved the majority-opposition Parliament amidst a potential impeachment process.

He invoked a constitutional provision for extraordinary elections, cutting short his term. The next president will lead until May 24, 2025.

A national referendum will also be held, prohibiting oil exploitation in the Amazon’s Yasuní National Park and opposing mining in the Andino Chocó.

The Ministry of Finance states that these rating agencies have praised the current government’s achievements, including fiscal deficit reduction, public debt sustainability, and dollarization reinforcement backed by the Central Bank of Ecuador’s reserves.

They also noted effective inflation control and a current account surplus.

The ministry’s statement emphasized the government’s fiscal strategy and social relief efforts have positively impacted Ecuador and bolstered international trust.

However, both Fitch and Standard & Poor recognize that political volatility creates negative international perceptions, particularly concerning the next government’s economic handling and potential oil extraction complications in the ITT, which might affect state revenues.

Furthermore, the agencies anticipate potential economic repercussions of the El Niño climate phenomenon, causing flooding due to heavy rainfall.

Despite the political backdrop, Standard & Poor’s retains Ecuador’s credit rating at B-, while Fitch downgraded from B- to CCC+.

The risk premium recently surpassed 2,000 points but has since stabilized around 1,800.

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