Fitch downgrades Ethiopia to ‘CCC’

Ethiopia's economy has faced a setback as Fitch Ratings recently downgraded its credit rating to ‘CCC’ from ‘B’. The downgrade comes in light of the government's decision to participate in the G20 Debt Suspension program, a move that raises concerns about the risk of a default event. Toby Iles from Fitch Ratings explained that the specific driver behind the downgrade is the requirement for the involvement of private creditors, such as Eurobond holders, under the G20 common framework. While Ethiopia has historically been a fast-growing economy with positive growth outlook, its external finances pose a significant weakness. Challenges in the trade sector have led to foreign exchange shortages and low foreign reserves, highlighting the need for sustainable economic reforms. Despite being one of the fastest-growing economies in East Africa, Ethiopia has struggled to attract foreign investors due to structural challenges in the business environment and limited sectoral access for international investors. Infrastructure development and regulatory reforms in sectors like banking and telecommunications are crucial to boosting investor confidence. Political risks also remain a concern for investors evaluating opportunities in Ethiopia. The decision to join the G20 Debt Suspension program on a voluntary basis reflects Ethiopia's commitment to debt restructuring, aligning with IMF program benchmarks. While the involvement of private sector creditors may pose challenges, Ethiopia's reliance on external private finance is relatively low compared to other countries, suggesting a potential manageable impact. The government's strategic focus on resolving bilateral debts and exploring debt restructuring mechanisms signals a proactive approach to financial sustainability. As Ethiopia navigates through economic challenges, continued reforms and strategic partnerships will be key to fostering investor trust and driving sustainable growth in the long term.