Moody's Investors Service ("Moody's") has placed the Government of Ethiopia's B2 long-term issuer and senior unsecured ratings on review for downgrade.
The decision to place Ethiopia's ratings on review for downgrade reflects Moody's conclusion that the government's commitment, as part of its entry into the G20 Common Framework, to sign a Memorandum of Understanding (MoU) that requires it to engage with private creditors raises the risk those creditors will incur losses. It is increasingly clear that, in contrast to the approach taken last year under the Debt Service Suspension Initiative (DSSI), official sector lenders are intent on upholding the principle of comparable treatment of official and private sector lenders. While that principle may not be enforced in all cases, the decision on whether to do so will ultimately rest with official sector lenders. The review period will allow Moody's to assess whether, in this case, the risks of private sector involvement in providing debt relief have risen to a point no longer commensurate with the current rating level.
The long-term local currency (LC) and foreign currency (FC) ceilings remain unchanged at Ba3 and B2, respectively. Country ceilings indicate the highest rating level that would generally be assigned to the financially strongest issuers domiciled in a country, including the strongest structured finance transactions whose cash flows are generated predominantly from domestic assets or residents. The LC country ceiling, two notches above the sovereign rating, reflects Moody's assessment of non-diversifiable risks taking into account the extensive footprint of government in the economy, with very limited private sector activity, a very large state-owned enterprise sector, and government ownership of the majority of the banking system, as well as a weak, albeit improving, institutional framework. The FC country ceiling is a two-notch gap to the LC country ceiling, reflecting Moody's assessment of elevated transfer & convertibility (T&C) risks, given a relatively closed capital account and very constrained access to foreign exchange.
