April 26, 2025
Hong Kong – Fitch Ratings has upgraded Ethiopia’s Long-Term Local-Currency Issuer Default Rating (LTLC IDR) from ‘CCC-‘ to ‘CCC+’, citing easing financing pressures and improved macroeconomic stability. However, the country’s Long-Term Foreign-Currency IDR (LTFC IDR) remains at ‘RD’ (Restricted Default), reflecting its ongoing external debt restructuring efforts.
The upgrade reflects a series of sweeping reforms by the Ethiopian government and the National Bank of Ethiopia (NBE), including a move to market-based exchange rates, the phasing out of non-market-based domestic financing, and the introduction of an interest rate-based monetary policy. These measures have significantly boosted investor confidence in the country’s ability to meet its local-currency debt obligations.
Fitch highlighted the IMF’s approval of a four-year Extended Credit Facility Arrangement for Ethiopia in July 2024, providing immediate disbursement of $1 billion and a total commitment of $3.4 billion. Additional expected funding from the World Bank, totaling $3.75 billion, is anticipated to substantially ease the country’s reliance on domestic financing.
Despite these positive developments, Ethiopia remains in default on its foreign-currency obligations after suspending payments on its $1 billion Eurobond in December 2023. The government is currently negotiating the restructuring of about $15.1 billion of external debt under the G20 Common Framework, with agreements with official and commercial creditors expected later this year.
Macroeconomic indicators show signs of cautious optimism. Fitch projects Ethiopia’s fiscal deficit to rise modestly to 2.7% of GDP in the fiscal year ending June 2025 (FY25), up from 2% in FY24, driven largely by increased public spending and reforms. The country’s general government debt is forecast to peak at 39.4% of GDP in FY25, up from 29.1% the previous year, due to exchange rate depreciation and higher multilateral borrowing.
Foreign reserves, which stood precariously low at just over $1 billion in FY24, are expected to rebound to $4.5 billion by FY26, helped by increased multilateral disbursements and stronger export performance following exchange rate liberalization.
However, risks remain. Ethiopia’s ESG (Environmental, Social, and Governance) scores continue to reflect significant governance challenges, including political instability, weak rule of law, and high corruption levels, all of which weigh on the country’s overall credit profile.
Fitch emphasized that successful completion of external debt restructuring and continued macroeconomic reforms could lead to further rating upgrades. Conversely, renewed liquidity pressures or setbacks in reform implementation could result in rating downgrades.
The Country Ceiling for Ethiopia remains affirmed at ‘B-‘, reflecting the relative freedom of private sector transactions in foreign currency despite sovereign credit challenges.
