ETHIOPIA: Ratings affirmed on strong growth prospects

ADDIS ABABA (Capital Markets in Africa) – Moody’s Investors Service affirmed Ethiopia’s long-term issuer rating and senior unsecured rating at ‘B1’ with a ‘stable’ outlook. It said that the ratings are supported by the country’s very strong growth potential, and expectations of narrow fiscal deficits and low public debt levels. In contrast, it noted that the ratings are constrained by contingent liabilities from state-owned enterprises (SOEs), structural shortages of US dollars and elevated political risks.

The agency expected Ethiopia’s real GDP growth to exceed 8% annually in coming years, mainly due to strong foreign direct investment, which increased by 27.6% to $4.1bn in the fiscal year that ended in July 2017, as well as to large infrastructure investments and expanding access to credit. It expected the fiscal deficit at about 3% of GDP in coming years and for the government debt level to remain below 30% of GDP. However, it indicated that the public debt, which includes the debt of SOEs, reached 59% of GDP as of June 2017. It added that about 50% of the SOEs’ debt is raised from foreign investors, which exposes SOEs to external vulnerability risks.

It anticipated the public sector’s external debt service to average $1.4bn, or 1.8% of GDP annually between FY2017/18 and FY2020/21. In addition, it indicated that the private sector is constrained by foreign currency shortages, as reflected by the widening spread between the official and parallel exchange rates from 10% to about 20%, despite the 15% depreciation of the official exchange rate. It cautioned that a rise in social and political risks could significantly affect investments and access to external financing.