Fitch Ratings had rated Ethiopia’s credit and kept it at a “highly speculative” B expecting the government to meet its fiscal deficit target of 2.9 percent of gross domestic product in 2015, Bloomberg reported.
The company disclosed in its statement on April 10, 2015 that the expansion in the fiscal year which completes on July 7 will possibly fall in the nine to ten percent range, down from an average 10.2 percent in the past five years.
Standard & poor’s and Fitch assigned Ethiopia B, where Moody rates it B1 in its first rating in May. The B rating from Fitch signifies”that material default risk is present, but limited margin of safety remains,” according to its website.
Ethiopia sold its first sovereign-debt offering in December worth USD 1 billion of 10-year Eurobonds with a coupon of 6.625 percent to European and American investors. The government expressed the proceeds would be spent on infrastructure projects.
International monetary Fund data shows, the Ethiopian economy has grew faster other than any African country, a decade ago, at an average of 10.9 percent increased by expenditure on infrastructure.
Public debt may rise to 27.1 percent of gross domestic product from 26 percent the year before, mostly on concessional terms and thus at “moderate” risk of sustainability in the short-to-medium-term, Fitch told.
State-owned enterprises had a loan from 22 percent of output in June compared to 12.1 percent in 2010, such entities are like the Railways Corporation and Sugar Corporation increasingly borrowing overseas on non-concessional terms, the company reported.
“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.
Ethiopia has borrowed a great deal both at home and overseas for current projects like Africa’s largest power plant and a Chinese-built railway along the main trade route to Djibouti during the 5-year growth plan which ends this year.
Fitch indicated this year’s current account deficit is anticipated to be 7.6 percent within “limited” signals of branched out exports and slow-moving foreign direct investment. IMF said it anticipated last year’s current-account deficit to be 7.1 percent. Fitch also noted foreign currency reserves will possibly remain tight and external debt continues to increase in the “coming years”.
Source: Bloomberg
