Moody’s will review Ecuador’s ‘junk bond’ rating

Ecuadornews:

An examination to the management of the Minister of Economy and Finance, Richard Martinez. Next month, the Ecuadorian economy will be evaluated by the risk rating agency Moody’s, one of the three most important in the world.

Every two years, the entity must make a decision on the rating of the debt and in November that term is already met for Ecuador, Moody’s Deputy Chairman Renzo Merino confirmed to newspaper EXPRESO from New York.

The risk rating measures the possibilities of a country to deal with its debt reflecting its ability to pay, its risk of bankruptcy or of falling into insolvency. The note impacts the interest rate when it comes to getting debt.

Currently, Moody’s rating for Ecuador is B3, which in the markets is considered as ‘junk bonds’. That note can lower, raise, maintain or only change the perspective, which is currently stable, explained Merino.

What is the factor that currently concerns Moody’s? Merino maintains that the government’s liquidity risk disturbs them. There are still unknowns about 2019 and the following years in which there are bond maturities, that is to say, strong payments on the 1,000 million dollars to settle those credits.

Proforma 2019 will be a determining factor for Moody’s, especially how it will obtain financing to cover the fiscal gap.

For Santiago Mosquera, a professor at the USFQ Business School, Moodys will not raise the rating of the Ecuadorian debt this time.

“Although the policies implemented go in the right direction, the amounts, the figures do not show that substantial improvement on the side of income and the reduction in spending,” says Mosquera.

In that same sense, the analyst, who worked for the risk rating agency Fitch, believes that there is no reason for the note to be downloaded to Ecuador. If the rating is downgraded to Ecuador, it would correspond to triple C, which indicates a probable default or debt default.

The professor is optimistic and believes that Moody’s, while not raising the note, will improve the outlook due to the progress that has been made in reducing the fiscal deficit.

In August, the rating agency Fitch downgraded the note of the Ecuadorian agency from B with a negative outlook to B- with a stable outlook.

Martinez last week said in the Assembly that work is being done on the monetization of public assets and the optimization of public companies to obtain more resources for the fiscal fund. While last Friday, at an event in Daule, he pointed out that work is being done on the Law of Productive Development to encourage investment in the country.

Waiting for results of Article IV

For Merino, although a possible agreement between Ecuador and the International Monetary Fund (IMF) is still uncertain, this could begin to work after the results of the consultation of Article IV, the annual study prepared by the agency to its partner countries and that was carried out in July to Ecuador. The Ministry of Economy and Finance reported that the report is in the process of analysis and approval by the IMF. Newspaper EXPRESO knew that it could be disclosed between November and December. (I)

Source: https://www.expreso.ec/economia/economia-finanzas-creditos-moodys-ecuador-DX2437577