Moody’s has assigned a provisional (P)B1 rating to Ethiopia’s upcoming dollar-denominated bond offering, while Standard and Poor’s (S&P) has assigned it a ‘B’ rating.
The bond, Ethiopia’s first issuance in international markets, will fund Government capital expenditures, including development of the sugar and energy industries and general budgetary expenses, S&P said.
Moody’s rating of the bond is aligned with the country’s long-term issuer rating of B1, assigned for Ethiopia’s favorable long-term growth prospects and the near-term fiscal outlook.
“While Ethiopia’s per capita GDP income is rising quickly and growth prospects remain favorable thanks to government investments toward the development of infrastructure, its economy remains small, with low per capita income and substantial reliance on the volatile agricultural sector. The latter represents almost half of gross value added and is susceptible to poor harvest outcomes due to extended periods of drought,” Moody’s said.
Assets in Ethiopia are highly concentrated in state-owned banks, with three public banks accounting for 73 per cent of total assets—the Commercial Bank of Ethiopia dominated the sector in 2013 with 63 per cent of total assets, Moody’s reports. However the banks are well-capitalized and the Government has low liquidity risk at present.
“The weakness of Ethiopia’s institutions remains a challenge, with a mixed monetary policy track-record as the country struggles to contain volatile and elevated inflation rates, averaging 16.7% per annum over the past decade. On a positive note, the government’s five-year plans show policy continuity and the administration shows a track-record of fulfilling or even outperforming the plans’ targets,” Moody’s added.
Another key risk to Ethiopia’s economic forecasts remains its geopolitical position, as it is landlocked and surrounded by more volatile countries that could threaten its stability.
Both ratings services said that they will review the rating following the bond’s issuance.
[CPIFinancial]