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Moody's changes Ecuador's outlook to negative

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Moody's changes Ecuador's outlook to negative

Moody's on Dec. 12 revised the outlook on Ecuador to negative from stable, warning that a planned gradual fiscal adjustment is likely to be insufficient to ease liquidity access and reassure investors.

The agency affirmed the nation's long-term issuer and senior unsecured ratings at B3.

Under the government's "gradualist approach toward macroeconomic adjustment," it aims to trim the budget deficit to 3.2% of GDP in 2019, from 4.0% in 2018 and 5.9% in 2017. But with growth expected to be weak and little progress having been made on trimming costs such as wages and transfers, Moody's said Ecuador will increasingly struggle to cut its deficit without also cutting spending.

Improving investor sentiment is vital for Ecuador to be able to fund itself in the external debt markets, Moody's added, noting that refinancing needs will start to rise in 2020. The country is working toward an increased role for private investment and exports in its overall economic profile, but this transition is likely to take years, the agency said.

A downgrade could take place if Ecuador does not gain more access to market funding and cannot raise money from other sources, which would weigh on its ability to repay external obligations and maintain external reserves.