Moody’s Investors Service has affirmed Ethiopia’s B1 long term issuer and unsecured ratings changing the outlook from stable to negative. The decision to change the outlook was based on the negative rising of fiscal and external risks in relation to the government’s revenue generation and the increase of State-Owned Enterprise (SEO), external debt and associated service costs over the recent years.
Ethiopia’s government revenue to GDP ratio fell to 13.1% in fiscal 2018 from 16% in fiscal 2016. This was attributed to the declining revenue from import tariff and challenge in revenue administration.
Moody’s also reported that Ethiopia’s main exports coffee and gold are susceptible to commodity price shocks during a period of volatile external conditions. Moody’s predicts that Ethiopia’s external debt will rise to above 220% of export receipts in 2020 and may increase on the near to medium term. Ethiopia still exhibits various credit strengths thus supporting the B1 rating.
Furthermore, Moody’s expects Ethiopia’s economy to grow at a rate of between 7-8% over the next few years. GDP increased by 7.7% the previous year due to the high profile infrastructure projects such as highways and hydro-electrectric dams. This resulted to employment creation and future government revenues and an increase in foreign exchange capacity. Moody’s is also optimistic of continued flow of Foreign Direct Investments into the country.
Ethiopia recently issued its first-ever sovereign bond with a 6.25% interest rate. The sovereign bond is for the funding of various projects across the country.
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