International rating agency gives Ecuador’s economy a vote of confidence following budget cuts and new loan agreements

Jan 15, 2015

Ecuador’s economy has received a vote of confidence from the international rating agency Fitch. The agency’s opinion is used as a barometer of a country’s financial health and to set interest rates for public bond offerings.

Ecuador's use of a strong U.S. dollar has put strain on the economy.

Ecuador’s use of a strong U.S. dollar has put strain on the economy.

According to Fitch, “The Ecuadorian government’s announcement of cuts to the 2015 budget and the availability of new Chinese loans signals how the government is responding to the fiscal and financing challenges of lower oil prices,” the announcement says. “We believe the response is the correct approach.”

Fitch’s announcement counters opinions in Ecuador, both internal and external, that reduced income from oil production will cause a financial crisis in the country.

“Last week’s announcements of budget cuts and the procurement of international loans are important policy steps to preserve fiscal and financing sustainability amid the sharp decline in international energy prices,” Fitch said. “If effectively implemented, the budget cuts could enable the government to maintain its 2015 deficit target of 5% of GDP, which is in line with our projections.”

Fitch also said that the Ecuadorian government had acted appropriately in imposing import tariffs and restrictions on goods from neighboring Peru and Colombia. “Officials recognize the importance of safeguarding U.S. dollar liquidity as the dollar appreciates against other currencies,” the agency said.