Fitch Ratings has upgraded Ethiopia’s credit rating, citing easing financing pressures coupled with improved macroeconomic stability.
- •The nation’s score was upgraded to ‘CCC+’ from ‘CCC-‘, alongside DRC, Pakistan, Zambia, Gabon and Ghana, all still below the investment grade.
- •The rating’s agency cited Ethiopia’s ‘easing financial pressures and enhanced macroeconomic stability’ for raising its Long-Term Local-Currency (LTLC) Issuer Default Rating.
- •Addis Ababa’s Long-Term Foreign-Currency Rating remains at ‘Restricted Default.’
“The upgrade of Ethiopia’s LTLC IDR to ‘CCC+’ from ‘CCC-‘ reflects easing financing pressures, improved macroeconomic stability, and increased confidence that local-currency obligations will not be included in the ongoing debt restructuring. Renewed concessional external financing has significantly reduced net domestic financing requirement,” Fitch Ratings said in a statement.
“Ethiopia remains in default on its foreign-currency debt obligations since suspending payments on its single outstanding USD1 billion Eurobond in December 2023,” the rating agency added.
In July, the National Bank of Ethiopia (NBE) introduced market-based determination of the exchange rate resulting in over 50% depreciation of the official rate, closing the gap with the parallel market exchange rate. The NBE also eased a number of foreign-exchange (FX) restrictions, introduced an interest-rate based monetary policy regime, and began conducting regular open market operations to enhance monetary policy transmission.
Ethiopia’s reliance on domestic financing has been scaled down significantly with the IMF approving a 4-year Extended Credit Facility Arrangement totalling US$3.4 billion in July, subsequently disbursing US$1 billion. Ethiopia expects an additional US$3.75 billion from the World Bank, collectively reducing the country’s reliance on domestic funding. The country’s official reserves are expected to increase to US$ 2.9 billion in FY25 partly owing to rising multilateral disbursements. The foreign reserves are currently below the US$1 billion mark.
“We estimate net domestic borrowing to decline to 0.5% of GDP in the fiscal year ending in June 2025 and 1.3% in FY26, from 2.1% in FY23 and 1.7% in FY24,” Fitch noted in the statement, “Once Ethiopia reaches an agreement with private creditors on the restructuring of its foreign-currency debt and completes the restructuring process, Fitch will assign a LTFC IDR based on a forward-looking analysis of the sovereign’s willingness and capacity to honour its prevailing FC debt obligations.”
