The International Credit Agency, Fitch Ratings this week announced that it has downgraded Ethiopia’s Long Term Foreign-Currency Issuer Default Rating (IDR) to -CCC from CCC.
Fitch doesn’t typically assign outlooks to sovereigns with a rating of CCC or below, but technically downgrades typically lead countries to the risk of debt defaults.
In a statement, the Credit Agency said the downgrade of Ethiopia’s Long Term Foreign Currency IDR reflects the lack of identified external financing necessary to meet substantial external financing gaps, along with a material decline in Ethiopia’s external liquidity.
Despite the downgrade, Fitch said the November 2022 Pretoria peace agreement between the Ethiopian government and the Tigray People’s Liberation Front (TPLF) is expected to improve the medium term macro and fiscal outlooks, the expected easing of global supply chain constraints, which will help to ease inflationary and external pressures, and the improvement of public debt metrics.
In October, Ethiopia’s State Minister of Finance, Eyob Tekalign Tolina acknowledged the northern Ethiopia war has been partly responsible for delays in restructuring Ethiopia’s debt.
East Africa’s largest economy requested a debt restructuring under the Group of 20 Nations Common Framework process early last year, but progress has been slowed by the outbreak of the northern Ethiopia war in November 2020.
Ethiopia’s economy has in the last few years been battered by a combination of several factors. These include COVID-19 outbreak, northern Ethiopia war, insecurities in other parts of Ethiopia, widespread corruption, western sanctions and extravagant government spending.
