This archive report was first published on 24 September 2019.
On September 24, 2019, Moody's Investors Service made a significant announcement regarding Ethiopia's economic outlook. The agency affirmed the country's B1 long-term issuer and unsecured ratings but changed the outlook from stable to negative.
The decision to change the outlook was based on the increasing fiscal and external risks faced by the government. Specifically, Moody's pointed to the decline in government revenue as a percentage of GDP, which fell to 13.1% in fiscal 2018 from 16% in fiscal 2016. This decline was attributed to the decrease in revenue from import tariffs and challenges in revenue administration.
Moody's also highlighted the country's susceptibility to commodity price shocks, particularly in its main exports of coffee and gold. The agency predicts that Ethiopia's external debt will rise to above 220% of export receipts in 2020 and may increase in the near to medium term.
Despite these challenges, Moody's noted that Ethiopia still exhibits various credit strengths that support its B1 rating. The agency expects the country's economy to grow at a rate of between 7-8% over the next few years, driven by high-profile infrastructure projects such as highways and hydro-electric dams. These projects have created employment opportunities and increased foreign exchange capacity.
Moody's is also optimistic about the continued flow of Foreign Direct Investments into the country. In fact, Ethiopia recently issued its first-ever sovereign bond with a 6.25% interest rate, which will be used to fund various projects across the country.
