Fitch Ratings has upgraded Ethiopia’s Long-Term Local-Currency (LTLC) Issuer Default Rating from ‘CCC-’ to ‘CCC+’, signaling an improvement in the country’s financial outlook. This change reflects Ethiopia’s easing financing pressures and a more stable macroeconomic environment, Fitch noted in its latest rating announcement.
The upgrade follows Ethiopia’s strides in financial reform, particularly after the National Bank of Ethiopia (NBE) introduced a market-based exchange rate in July 2024, causing a significant depreciation in the official exchange rate. This adjustment has aligned the official and parallel market rates, helping to increase foreign exchange access for businesses and stimulating export growth.
In a further boost to economic stability, the International Monetary Fund (IMF) approved a four-year Extended Credit Facility for Ethiopia, with an initial $1 billion disbursement from a total of $3.4 billion. The World Bank also pledged $3.75 billion, with both funding packages expected to reduce reliance on domestic borrowing.
Fitch reported that Ethiopia’s fiscal deficit has narrowed to 2% of GDP for fiscal year 2024, with the government implementing a range of reforms to curb inflation and enhance fiscal responsibility. Measures include NBE’s adoption of a 15% policy rate and the transition to market-driven Treasury bill auctions to handle domestic financing needs.
Despite these positive developments, Ethiopia remains in default on its foreign-currency debt, including an outstanding $1 billion Eurobond. However, the country has made headway in debt restructuring under the Common Framework, securing an interim standstill agreement with key creditors, including China, for 2023-2024. This temporary arrangement provides $1.3 billion in relief, with formal debt restructuring negotiations expected to conclude by the end of 2024.
Fitch projects that Ethiopia’s official international reserves, currently around $1 billion, will increase to $4.5 billion by 2026, enhancing the nation’s financial resilience. This forecast depends on Ethiopia’s continued progress in reform and debt restructuring efforts, as well as the effectiveness of its new financial strategies in stabilizing the economy and fostering growth.
