Ecuador is grappling with its most severe drought in over six decades, which has led to widespread forest fires, nationwide power outages, and significant disruptions to daily life. The crisis has forced President Daniel Noboa to cut short his trip to New York, where he was scheduled to deliver a speech at the United Nations General Assembly, to address the escalating situation at home.
While the fires have been mostly contained, ongoing brownouts continue to affect the nation as water levels in reservoirs remain critically low. These power shortages have raised concerns among bond investors, with Ecuadorian debt showing the second-worst performance among emerging markets over the past week, declining by 3.25%.
The crisis poses a potential threat to Noboa’s political future, as his popularity may suffer if the situation is not quickly resolved. According to AllianceBernstein senior economist Katrina Butt, there are growing concerns that prolonged blackouts could erode Noboa’s approval ratings and weaken his chances of re-election in February 2025.
Despite the challenges, some analysts remain optimistic about Noboa’s prospects. Carlos de Sousa, an emerging market debt portfolio manager at Vontobel Asset Management, believes Noboa still has a strong chance of securing a second term, though his popularity may dip in the short term.
Ecuador has shown resilience, delivering a 75% return on debt this year, far surpassing the average for emerging markets. Investors are also awaiting the implementation of a debt-for-nature swap, which is expected to ease Ecuador’s debt burden. However, the upcoming election, along with efforts to resolve the current crisis, will play a crucial role in shaping investor sentiment moving forward.
