Ethiopia’s favourable growth outlook, low debt burden support B1 Stable rating – Moody’s

Moody’s Investors Service has given reasons that support Ethiopia’s B1 Stable rating.

In a report issued in London last week, August 5, 2016 and copied to ghanabusinessnews.com, the rating agency says Ethiopia’s government rating pegged at B1 Stable, is supported by the East African country’s favourable growth outlook, low debt burden and low government liquidity risk.

It however, noted that there are constraints on the rating; and they include Ethiopia’s relatively small economy which remains vulnerable to weather cycles, low per-capita income and weak institutional strength.

“The country also has a mixed monetary policy track record, with a history of high inflation,” it added.

Moody’s indicated its credit-positive aspects for Ethiopia which include the country’s relatively small and adequately capitalized banking sector and low government liquidity risk, given stable and substantial inflows of grants and concessional lending, noting that upward pressure on the rating could develop if business conditions improve, leading to more foreign direct investment and boosting economic diversification.

However, Moody’s pointed out among other factors that downward pressure would stem from an acceleration of external debt accumulation that does not support growth or difficulties in securing concessional external financing, which would put downward pressure on already low international reserves. Major delays or interruptions to key infrastructure projects would also be negative.

The activities of state-owned enterprises involved in large infrastructure and power generating projects imply potentially sizable contingent liabilities for the country’s public finances, it said.

By Emmanuel K. Dogbevi
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