Fitch Ratings downgraded Ethiopia's long-term foreign currency issuer default rating from 'B' to ' CCC'. It attributed the downgrade to the government's announcement that it is planning to use the Group of 20 "Common Framework for Debt Treatments beyond the Debt Service Suspension Initiative" (G20 CF), which raises the risk of a sovereign default. It expected Ethiopia's engagement with the G20 CF to cover official bilateral debt, and that the reprofiling of the latter will have a detrimental impact on overall debt sustainability. However, it pointed out that the terms of the G20 CF framework raise the risk that private sector creditors will also be negatively affected. It added that the debt's re-profiling will not involve debt write-offs or cancellation, and that it will include a combination of lowering coupon rates and extending grace periods and maturities. It considered that any change of terms for private-sector creditors, including the lowering of coupon rates or the extension of maturities, will consist of a sovereign default. Further, the agency indicated that Ethiopia's external finances are the main factor behind the authorities' decision to use the G20 CF. It said that persistent current account deficits, low foreign currency reserves and rising external debt repayments constitute risks to the sustainability of the external debt. It forecast Ethiopia's external financing requirements to average more than $5bn annually in the next two years, while it projected foreign currency reserves at about $3bn, or two months of current external payments in the covered period. It expected the current account deficit at about 4% of GDP in the fiscal year that ends in June 2021, and noted that narrower deficits have not eased the pressure on foreign currency reserves.
Source: Fitch Ratings