Ethiopia Country Risk

Ethiopia (ETH)

Ethiopia’s overall country risk rating remains high, with political violence still very high. Externally tensions with the Somali government remain high, given Ethiopia previously signed an MOU with Somaliland to lease a port and build a military facility on the Red Sea. Tension with Egypt has also escalated in recent months over cooperation between Egypt and Somalia and Egypt’s concerns that their water supplies will be impacted by the construction of the Grand Ethiopian Renaissance Dam. Turkey is trying to de-escalate the situation, but without success so far. Internal instability also persists in the Amhara region, with reports of renewed violence in early November.  Separately, drought in Tigray earlier this year continues to risk the fragile peace in the North. This all means the political interference and supply chain disruption measures are high. On the economic front, the key news is the USD3.4bln IMF 4-year agreement that has been followed by structural reforms and GDP growth is set to accelerate to 6.5% in 2025.  However, the ongoing large currency depreciation also makes it more difficult to control inflation, projected to be 23.9% by the IMF in 2025. Official lending commitments can help slow the currency decline, but inflation differentials will put pressure on the currency multi-year.  Given the still difficult debt backdrop, the sovereign non-payment risk has remained at medium high.