Fitch Ratings upgraded Ethiopia’s credit rating, citing debt relief and improving economic conditions.
The country’s rating was upgraded to “CCC+” from “CCC-“, joining the Democratic Republic of Congo, Pakistan, Zambia, Gabon and Ghana, but it remains below the capital.
The rating agency upgraded Ethiopia’s Long-Term Local Credit (LTLC) Standard Default Rating, noting that it has “reduced financial stress and strengthened the financial sector.”
Addis Ababa’s long-term exchange rate remains at ‘Right’.
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“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.
In July, the National Bank of Ethiopia (NBE) adopted a market-based exchange rate, narrowing the gap with market exchange rates by dropping more than 50 per cent. The State Administration of Foreign Exchange also relaxed many foreign exchange restrictions, implemented an interest-based monetary policy, and began opening the economy to delays to strengthen fiscal policy.
Ethiopia’s hopes for domestic financing were dampened when the International Monetary Fund approved a four-year deferred loan totalling $3.4 billion in July, including $1 billion in future payments. Ethiopia is expecting an additional $3.75 billion in financing from the World Bank, which will collectively reduce the country’s reliance on local funds. The country’s portfolio is expected to reach $2.9 billion in FY25, in part because of increased spending. Currently, the exchange rate is below $1 billion.
“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.”
