S&P lowers Ethiopia ratings citing heightened political instability

S&P Global has downgraded Ethiopia's credit rating from B+ to CCC+ due to heightened political instability and delays in restructuring the country's sovereign debt, impacting the government's access to external finance. Ravi Bhatia, Lead Analyst at S&P Global, discussed the recent rating change in an interview with CNBC Africa. According to Bhatia, the concern primarily lies in the potential restructuring of Ethiopia's euro bonds, which could negatively impact investors. The government is undergoing a debt restructuring process with a creditor committee formed to address bilateral and commercial debt obligations. Bhatia emphasized that any restructuring of commercial debt could lead to further downgrades, closely monitoring the situation as discussions unfold. Despite Ethiopia's efforts to revive its economy through measures like currency devaluation and privatization, challenges persist. The country has experienced significant growth over the past decade, outpacing other fast-growing low-income economies. However, external shocks like the COVID-19 pandemic and conflicts in the Tigray region have disrupted supply chains and exports, affecting economic stability. Ethiopia's high level of debt, particularly to state-owned enterprises, has also posed challenges, with some projects facing complications. Political instability remains a key concern for Ethiopia's economic growth. While the country has largely contained instability to the Northern Tigray region, potential disruptions to export routes through Djibouti could impact overall economic recovery. The investor landscape in Ethiopia has seen shifts in response to recent developments. While there was previous interest in Ethiopian bonds and sectors like telecommunications and textiles, concerns over potential debt restructuring have raised caution among investors. Foreign direct investment (FDI) has flowed into Ethiopia, with notable ventures like the recent telecom license sale and investments in sectors like textiles and exports driving economic growth. However, uncertainties surrounding debt restructuring and political stability have introduced new challenges for the investment environment. Despite facing obstacles, Ethiopia's economy continues to show resilience, with sectors like Ethiopian Airlines and export industries contributing to growth. Moving forward, the country will need to address political instability and debt issues to regain investor confidence and sustain economic progress.