Protests and highway blocks have forced the state-owned oil company and private producers to cut output sharply. The government has called a state of emergency and has declared force majeure for certain oil export contracts. According to Morgan C. Harting, senior director-sovereigns, Fitch Ratings, 'if oil production is not restored quickly and near-term public and external financing needs are not secured, the credit implications for the sovereign will be negative.'
Fitch currently maintains a 'B-' rating with a Stable Outlook on Ecuador's long-term foreign currency debt.
Harting added that 'because Ecuador's public and external liquidity is very low, even short interruptions in production could generate payment irregularities.
Among the 20 sovereigns that Fitch rates in the 'B' category and below, Ecuador's international liquidity is the lowest: international reserves and bank external assets cover just 53% of short-term debt and next year's estimated debt service requirements.'
Refinancing risk for the government is also higher than its peers because the government has limited access to markets to cover its estimated US$3 billion in debt service next year. Depending on how protracted the oil shutdown is, export and government revenue shortfalls could add further to public and external financing needs.