On 6 November 2015, Standard & Poor’s Ratings Services affirmed its ‘B/B’ long- and short-term foreign and local currency sovereign credit ratings on the Federal Democratic Republic of Ethiopia, with a stable outlook.
It noted that Ethiopia’s GDP growth is well above global and even continent averages, but that the current account deficit has weakened as imports related to capital projects are increasing faster than exports. There are also liabilities such as the high-level of state-owned entities’ debt (17 per cent0 and the sharp increase in external debt over the course of the last year.
The ratings are also constrained by Ethiopia’s low GDP per capita and a lack of monetary policy flexibility.
On the political front, the Ethiopian People’s Revolutionary Democratic Front (EPRDF) coalition won the May 2015 elections by a landslide, gaining all the parliamentary seats, meaning Prime Minister Desalegn has a second-term. S&P notes that this will lead to the second phase of the Growth and Transformation Plan (GTP).
The agriculture sector is at risk because of a severe drought this year, putting some pressure on the GDP. However on an expenditure basis, public-sector infrastructure investments in transport and power sectors are one of the main drivers of GDP growth. Railways lines and manufacturing projects have attracted foreign direct investment, but S&P estimates that Ethiopia’s GDP per capita will remain low, at about $760, in 2015.
“We project current account deficits will stay around 10 per cent of GDP over the next three years, despite some growth in nontraditional exports, such as sugar and electricity. The growth in traditional exports—coffee and, to a lesser extent, gold–is likely to be limited by low international commodity prices,” S&P said, adding that import growth may moderate as some import-heavy infrastructure projects are completed.
“Although we expect headline fiscal deficits of about 2.8 per cent of GDP over 2015-2018, our measure of change in general government debt averages 4.3 per cent of GDP per year over the same period. This takes into account borrowing incurred by the government that may not necessarily be reflected in the headline fiscal deficits, such as off-budget items,” S&P said.
