Rising interest obligations tighten fiscal space as the country faces mounting financial pressures.

Debt payments overtake security spending

Ecuador will enter 2026 with a financial burden that reshapes its national priorities: the country will spend more on servicing debt interest than on safeguarding its population. According to the budget proposal sent to the National Assembly at the end of October, interest payments are projected to reach $4.47 billion—an amount that now outpaces the $4.24 billion planned for the entire security apparatus.

This marks an unmistakable shift in the country’s fiscal landscape. A decade ago, Ecuador spent less than half that amount on interest, and even during economic shocks, the figure rarely deviated upward with such force. Now interest payments stand as the third-largest expense in the national budget, representing 13% of all projected spending.

A decade of steady increases

The numbers paint a clear trend: Ecuador’s interest costs have been climbing almost uninterruptedly for ten years. In 2016, the bill stood at $1.931 billion—just 48% of what the country must now pay in 2026.

The exception came in 2020–2021, during the external debt restructuring carried out under the Lenín Moreno administration. That process granted Ecuador a six-year principal grace period on newly issued bonds and temporarily lowered interest rates, offering a brief relief during the pandemic.

But the grace window closes in 2026, and the country must begin amortizing the 2030 bonds issued during that swap. Those amortizations alone total $809 million next year, representing 20% of the outstanding amount. At the same time, interest rates built into the restructuring agreements continue to step upward. Bonds maturing in 2030 rise from 6% in 2024 to 6.9% in 2026, while 2040 bonds increase from 2.5% to 5%.

Pressure spreads across other budget categories

Even as interest expenses climb, other parts of the state budget continue to expand. Social transfers—funds for social security institutions and cash assistance programs—will grow to $6.252 billion, an increase of more than $200 million over 2025.

These transfers include contributions to IESS, ISSFA, and Isspol, as well as programs such as the Human Development Bonus and early-childhood support payments.

Meanwhile, public sector wage spending—which remains the largest single budget item—will see a modest contraction. The government forecasts $10.791 billion for salaries in 2026, down slightly following the layoffs of 5,000 public employees earlier in 2025. The adjustment marginally reduces payroll pressures but does little to offset the surge in debt-related obligations.

Why the cost of borrowing has exploded

Economic analysts warn that Ecuador’s interest problem is neither sudden nor accidental. The country has taken on larger volumes of debt in recent years, and global borrowing conditions have tightened sharply since 2022.

Between 2023 and mid-2024, the U.S. Federal Reserve and several other central banks hiked rates in response to inflation, generating ripple effects in international credit markets. Countries with weaker credit profiles—like Ecuador—faced steep cost increases as international lenders demanded higher returns.

Ecuador’s own political environment added to the pressure. The country risk index, a measure closely watched by global investors, jumped in 2022 amid protests, governance tensions, and legislative turmoil.

“The higher the country risk, the more expensive it is to borrow abroad,” analysts repeatedly warn—and Ecuador’s numbers confirm it.

Multilateral and domestic debt also add strain

Ecuador’s debt obligations extend far beyond bonds. Loans from multilateral institutions have grown steadily since 2019, with the IMF and IDB now among the country’s largest creditors. Ecuador currently ranks as the fourth-largest debtor to the IMF worldwide.

Interest payments to these organizations, as well as to domestic lenders, have ballooned. The average interest rate on internal debt climbed from 6.6% in 2024 to 7.08% in 2025.

From January through October of 2025, Ecuador spent $3.381 billion on interest across all debt sources. The largest share—$1.182 billion—went toward domestic debt, much of it concentrated in bonds held by the Ecuadorian Social Security Institute via Biess. Private banks and insurers hold additional portions.

Payments to multilateral lenders followed, totaling $861 million in just the first ten months of the year.

A tightening outlook for 2026

The combination of rising rates, expiring grace periods, and heavier borrowing has left the government with little fiscal maneuvering room for the year ahead. Interest obligations are set not only to outpace security spending but also to exert pressure on all categories of public expenditure.

As Ecuador enters 2026, it faces a daunting reality: more of its budget is dedicated to paying for past borrowing than ever before. With new amortizations coming due and interest rates locked into upward steps, the financial strain may continue to shape national priorities in ways that extend well beyond a single fiscal year.