Ethiopia economic growth faces political and commodity price risks

fantastic stories | Aug. 04, 2017

International Credit ratings group, Moody’s, have given a positive outlook to the Ethiopian economy but warns that the gains are at risk of three major components.

The three risk factors according to a recent report by the group were: vulnerability to political risk, weather cycles and commodity price volatility. The report, ‘Government of Ethiopia – B1 Stable, Annual Credit Analysis,’ was published on August 1, 2017.

“Ethiopia’s economy has grown rapidly over the last decade and we expect GDP growth of around 8% over the next few years, which will bolster its fiscal position,” said Aurelien Mali, Vice President — Senior Credit Officer and co-author of the report.

“While the authorities’ efforts to diversify the economy support creditworthiness, Ethiopia also faces a number of credit challenges, including vulnerability to political risk and weather cycles and price volatility for coffee and gold.”

Moody’s, however, lauded Addis Ababa for fiscal strength which they put down to low debt burden, favourable debt structure and affordable interest payments.

Other factors it added, included government’s low revenue ratios, sizable potential contingent liabilities from the state owned enterprises, and a high proportion of foreign-currency debt within the government’s borrowing portfolio.

Ethiopia belongs to the Horn of Africa region which is dogged by terrorism from al-Qaeda-linked Al Shabaab in next door Somalia. Sudan and South Sudan all have internal crisis that affects them to an extent.

Ethiopia has its own border tensions with neighbouring Eritrea but more disturbing is internal security issues rising from anti-government protests in parts of the country. A state of emergency was imposed in 2016 October to quell the protests.

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