Moody’s Ratings has upgraded Ecuador’s long-term foreign-currency issuer rating to Caa1 from Caa3 and maintained a stable outlook, the rating agency said on Monday.
The upgrade reflects what Moody’s described as a significant reduction in credit risks stemming from enduring policy adjustments. Central to the agency’s assessment is a program with the International Monetary Fund that Moody’s says has bolstered fiscal discipline, improved investor sentiment and provided Ecuador with alternative sources of funding.
Moody’s highlighted tangible improvements in Ecuador’s fiscal performance under the IMF adjustment program. The central government deficit remained below 4% of GDP for the second straight year in 2025, narrowing to 2.3% of GDP in 2025 from 2.8% in 2024. Moody’s projects the deficit will fall further to roughly 1.8% of GDP in 2026.
The IMF-supported financing package has played a clear role in the agency’s view. Ecuador’s four-year Extended Fund Facility totals $5 billion, equivalent to about 3.8% of GDP, and the program has helped reinforce fiscal credibility and alleviate funding pressures. Of the committed amount, $3.3 billion has already been disbursed.
Those disbursements have coincided with a build-up of official deposits. Moody’s noted that non-financial public sector deposits at the central bank reached $5.8 billion, or 4.5% of GDP, as of October 2025—levels the agency described as record highs for the government.
Market signals also underpinned the rating action. Sovereign spreads tightened materially, falling to below 470 basis points in January 2026 from above 1,300 basis points in April 2025, which Moody’s interpreted as evidence that Ecuador had regained access to market funding.
The stable outlook, the agency said, balances potential upside and downside scenarios. Continued fiscal consolidation and the implementation of reforms that support growth could further strengthen government liquidity. At the same time, Ecuador remains vulnerable to reversals in investor sentiment and faces a challenging bond amortization schedule beginning in 2026.
In the same rating move, Moody’s raised the foreign-currency country ceiling to B3 from Caa2 and kept a one-notch gap between the sovereign rating and the ceiling.
Moody’s set out clear pathways that could affect the rating direction. A sustained record of prudent fiscal management and ongoing growth-enhancing reforms could pave the way for an upgrade. Conversely, a material widening of the fiscal deficit or a deterioration in funding conditions could prompt a downgrade.
Moody’s also provided contextual macro data: Ecuador’s GDP per capita was $16,012 in 2024, real GDP contracted by 2% in 2024, and inflation stood at 0.5%. The agency noted that the country has experienced at least one default event since 1983.
Summary
Moody’s upgraded Ecuador to Caa1 from Caa3 with a stable outlook, attributing the move to lower credit risks from policy reforms and an IMF program that improved fiscal balances, increased central bank deposits and narrowed sovereign spreads. The rating action includes a lift in the foreign-currency country ceiling to B3, while Moody’s cautions that funding risks and a heavy bond amortization profile from 2026 pose downside risks.
Key points
- Moody’s raised Ecuador’s long-term foreign-currency issuer rating to Caa1 from Caa3 and kept a stable outlook.
- Improved fiscal metrics under an IMF Extended Fund Facility - a $5 billion, four-year program with $3.3 billion disbursed - contributed to the upgrade; non-financial public sector deposits at the central bank reached $5.8 billion as of October 2025.
- Sovereign spreads tightened substantially to under 470 basis points in January 2026 from over 1,300 basis points in April 2025, indicating restored market access.
Sectors impacted
- Government debt and sovereign bond markets - changes in credit perception directly affect borrowing costs and investor demand.
- Banking and public finance - central bank deposits and financing conditions influence liquidity and balance-sheet positions.
- Sovereign investors and international creditors - perceptions of sovereign risk shape portfolio allocations and access to international funding.
Risks and uncertainties
- Investor sentiment - a reversal in market confidence could raise funding costs and strain market access, affecting sovereign bond markets and public financing.
- Fiscal deterioration - a material widening of the fiscal deficit would threaten the strengthened fiscal position and could trigger a downgrade, with implications for government borrowing and public-sector liquidity.
- Bond amortization schedule from 2026 - a challenging payment calendar could pressure funding needs and refinancing conditions, affecting both sovereign debt markets and financial sector stability.