Analysts say stronger repayment expectations contrast with ongoing political and governance risks.

A ratings shift with cautious optimism

Ecuador received a rare piece of positive financial news this week as Fitch Ratings upgraded the country’s long-term foreign-currency debt score from CCC+ to B-. The change signals a modest improvement in how the market views Ecuador’s ability to meet its obligations, even as the country continues to face political uncertainty and persistent institutional weaknesses.

Alongside the upgrade, Fitch issued an RR3 recovery rating for Ecuador’s sovereign bonds—its first such designation for the country—indicating that, in the event of a default, investors would likely recuperate a meaningful share of what they are owed. The new rating also removes Ecuador from Fitch’s temporary watch list, which the agency had maintained while revising its global methodology.

Why bondholders received a better score

Fitch’s decision rests on an assessment that Ecuador’s bonds carry somewhat lower repayment risk than its overall sovereign profile suggests. The agency noted that the country’s debt levels, while substantial, remain more moderate than those of peers with similar ratings. Public debt currently stands near 51% of GDP—roughly in line with nations that already occupy the broader B category and lower than many countries grouped with Ecuador at the CCC level.

Fiscal pressures remain heavy, but the share of government income devoted to interest payments—around 10%—is still below that of comparable economies. That cushion, Fitch said, provides a measure of breathing room that supports timely debt service.

The upgrade also reflects the agency’s new criteria for recovery analysis. Under this updated framework, bond ratings can improve even if the sovereign’s own credit rating does not. In Ecuador’s case, the RR3 score suggests a clearer path for investors to recover a significant portion of their funds should the country encounter repayment trouble. This is why the bond rating rose to B-, while the broader sovereign issuer rating remains at CCC+, signaling continued vulnerability to shocks.

Governance strains remain a central concern

Fitch’s analysis highlights the divide between Ecuador’s relative fiscal manageability and its ongoing institutional fragility. The country ranks poorly in several governance categories: rule of law remains weak, controls over corruption are limited, and citizen participation sits at only moderate levels.

Political uncertainty also weighs heavily. The agency flagged instability as a material risk factor, warning that even moderate political or economic disturbances could sharply worsen the country’s financial position. That caution is reflected in the decision to leave the sovereign issuer rating unchanged, underscoring the vulnerability that still defines Ecuador’s broader risk profile.

A setback at the ballot box rattles investors

The political picture grew more complicated following the November 16tth popular consultation, in which voters rejected all four proposals backed by the government. The measures sought to authorize foreign military bases, eliminate state financing for political parties, reduce the size of the National Assembly, and convene a new constituent body to overhaul the Constitution.

The defeat not only weakened the administration’s political capital but also pushed Ecuador’s country-risk index higher. The metric climbed from 652 points on November 14th to 708 points just two days after the vote, reflecting heightened investor unease over the government’s ability to carry out reforms and maintain policy continuity.

Despite that rise in perceived risk, Fitch’s upgrade suggests that investors may still see Ecuador’s debt as less hazardous than before—at least in terms of recoverability. The challenge for the government will be whether it can translate this modest credit improvement into broader stability while navigating a political landscape that remains as volatile as ever.