Moody's Investors Service has changed the outlook on the Government of Ethiopia to negative from stable and affirmed the B1 long-term issuer and senior unsecured ratings.
The decision to change the outlook to negative reflects rising fiscal and external risks related to the decline in government revenue generation and rise in State-Owned Enterprise (SOE) external debt and associated service costs over recent years while reserves coverage of imports remains very thin. The government is pursuing a wide-ranging structural reform and privatization agenda aimed at transforming the economy from a state-centred and controlled economy to a market economy, arresting the deterioration in Ethiopia's fiscal metrics, and fortifying Ethiopia's foreign exchange generation capacity. However, progress on the reform agenda remains subject to significant implementation risk and will ultimately take time to reverse the deterioration in credit metrics witnessed in recent years. Moody's sees the downside risks to Ethiopia's fiscal and external positions during this extended period of change have increased.
Moody's decision to affirm the rating at B1 recognizes a combination of credit strengths including strong growth potential supported by large infrastructure projects, underpinned by foreign direct investment and donor support. Acting against these credit strengths are long-standing credit constraints which include weak government and export revenue generation capacity and thin foreign exchange reserves.
The long-term local currency bonds and bank deposits ceilings remain unchanged at Ba3. The long-term foreign currency bonds and bank deposits ceilings remain unchanged at B1 and B2, respectively.
