Frontier Case Study: Ecuador’s Path to Economic Sustainability (PGIM Fixed Income)

This paper showcases PGIM Fixed Income’s investment approach to frontier markets, which includes a combination of macroeconomic fundamental analysis, insight into the political backdrop, and inferences from in-person discussions with key stakeholders.

Ecuador’s adjustment program backed by the International Monetary Fund (IMF) has the scope to address key structural shortcomings that could materially strengthen the country’s macroeconomic fundamentals, while providing enough financing to avert any credit event over the life of the program—provided that it is successfully implemented. The administration of President Lenin Moreno appears highly committed to undertake the policies agreed to with the IMF. Room for political compromises and the idiosyncratic features of Ecuador’s political system bolster the political viability of the adjustment and reform agenda. However, the program’s short-term welfare costs pose risks to governability and the program’s continuity. Successful execution of the adjustment and reform agenda could render a positive re-profiling of Ecuador’s yield structure and credit ratings. READ MORE

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