by William Davison, April 11, 2015
In a debut rating in May, Standard & Poor’s and Fitch assigned Ethiopia B, while Moody’s gave it B1. The B rating from Fitch indicates “that material default risk is present, but a limited margin of safety remains,” according to its website.
Ethiopia made its first sovereign-debt offering in December, selling $1 billion of 10-year Eurobonds with a coupon of 6.625 percent to European and American investors. The government said proceeds would be spent on infrastructure projects.
The economy grew quicker than that of any other African nation, at an average of 10.9 percent, over the past decade, boosted by spending on infrastructure, International Monetary Fund data show.
Public debt will probably increase to 27.1 percent of gross domestic product from 26 percent last year, which is largely on concessional terms and so at “moderate” risk of sustainability in the short- to medium-term, Fitch said.
State-owned-enterprises owed 22 percent of output at the end of June compared to 12.1 percent in 2010, with entities like the Railways Corp. and Sugar Corp. increasinglyborrowing abroad on non-concessional terms, according to the company.
“The authorities expect this debt to be repaid from commercial receipts, but Fitch views this as a rising contingent liability for the government for which data availability remains limited,” it said.
Over the course of a 5-year growth plan that ends this year, the state has borrowed heavily at home and abroad for ongoing projects like Africa’s largest power plant and a Chinese-built railway along the main trade route to Djibouti.
The current-account deficit is expected to be 7.6 percent this year amid “limited” signs of diversifying exports and sluggish foreign direct investment, Fitch said. The IMF said in October it expected last year’s current account deficit to be 7.1 percent. Foreign-currency reserves will probably remain tight and external debt continues to increase in the “coming years,” Fitch said.