Ethiopia’s vaunted economic success may falter

Subject

Ethiopia's economic outlook

Significance

The IMF in January raised its assessment of Ethiopia’s risk of external debt distress from ‘moderate’ to ‘high’ after exports failed to take off as anticipated, and foreign currency reserves fell further below prudential levels. This could tarnish the image of the country’s economic miracle, symbolised by its sustained rapid economic growth and ability to attract comparatively high levels of foreign direct investment (FDI) into non-resource sectors. Operationally, the downgrade reduces the scope for further commercial borrowing and could dampen momentum by curtailing public investments over the medium term without official policy support.

Impacts

• Ethiopia's scheduled WTO accession in November could be derailed by slow progress in liberalising the economy.
• Ethiopia’s hitherto resilient sovereign ratings may come under pressure in the wake of the debt reclassification.
• With per capita GDP at 707 dollars and growth slowing, the country may struggle to reach lower middle-income status by 2025.