Fitch Ratings has upgraded Ethiopia's Long-Term Local-Currency Issuer Default Rating (LTLC IDR) to 'CCC+' from 'CCC-', citing easing financing pressures, improved macroeconomic stability, and increased confidence that local-currency obligations will not be part of the ongoing debt restructuring. This positive development comes as the government implements key reforms and secures renewed concessional external financing. The ratings agency has taken note of the introduction of a market-based exchange rate and the introduction of an interest-rate based monetary policy regime, saying the measures aim to reduce financial repression and contain inflation. Also a factor is the decreased reliance on domestic financing owing to expected disbursements from the World Bank and the International Monetary Fund’s (IMF) new four-year Extended Credit Facility Arrangement with an immediate disbursement of one billion dollar from a total 3.4 billion dollar funding. Ethiopia is also phasing out non-market-based financing of fiscal deficits, with NBE conducting market-based auctions of treasury bills. While Fitch notes that Ethiopia remains in default on its foreign-currency debt obligations, it has made progress on its external debt restructuring under the Common Framework. Negotiations are ongoing, and the government is expected to reach an agreement with the official creditor committee by the end of 2024. Fitch concludes that overall Ethiopia's economic outlook is improving, with easing financing pressures and a renewed commitment to reform. However, challenges remain, including the ongoing debt restructuring and potential rollover risks as borrowing costs rise.
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