After the protests, Ethiopia faced with huge Ethiopian Macroeconomic risks



(The following statement was released by the rating agency) LONDON, October 24 (Fitch) The escalation in social unrest in Ethiopia increases the risks of spillovers to the economy and so potentially to the country’s sovereign credit profile, although our base case is that protests will not escalate this far, Fitch Ratings says. Earlier this month the government imposed a six-month state of emergency after violence erupted at a religious festival, fuelling anti-government protests that began late last year and accelerated over the summer. They were sparked by proposed changes to regional borders but also reflect deeper tensions over constraints on political freedoms and high youth unemployment. The protests have the capacity to trigger wider political instability, given Ethiopia’s underlying political, social and ethnic tensions. Recent government proposals to create a more representative electoral system appear to acknowledge this. Weak governance indicators have long been factored into Ethiopia’s ‘B’/Stable sovereign rating. But so far the protests have been largely spontaneous and, while challenging the EPRDF’s authority, have not developed into a co-ordinated opposition movement with specific aims. The government’s control of the police and army means that the unrest does not appear to be an immediate threat to the regime. Under our base case assumption, therefore, the key near-term risk from the social unrest is via macroeconomic channels. In particular, lower FDI would present risks to growth and the external position. Falling donor support and less ability to implement large infrastructure projects are other potential transmission channels, although donors’ focus on poverty reduction, migration and regional security provide incentives to maintain financial support. Potential damage to the tourism sector is another risk, although the sector is small. Ethiopia’s economy has proved resilient to recent shocks such as the severe drought (thanks partly to a well-managed policy response) and we predict growth to recover to 8% next year, after dipping to 6.5% this year. However, growth is constrained by a structural shortage of foreign exchange and a narrow export base. The government’s ambitious investment strategy should support growth, but a persistent savings-investment gap and reliance on external debt to finance the current account deficit could further weaken external finances if FDI fell due to social unrest or rising political risk. Fitch’s sovereign analysts held a teleconference on Ethiopia on 21 October, which discussed the country’s macroeconomic performance and outlook, public and external finances, and the recent social unrest and the government’s policy response. A replay is available at, or <a href=”https:// “>Click here to view report. Contact: Amelie Roux Director Sovereigns +33 1 44 29 92 82 Fitch France S.A.S. 60 rue de Monceau Paris 75008 Ed Parker Managing Director Sovereigns +44 203 530 1176 Mark Brown Senior analyst Fitch Wire +44 203 530 1588 Media Relations: Peter Fitzpatrick, London, Tel: +44 20 3530 1103, Email: The above article originally appeared as a post on the Fitch Wire credit market commentary page. The original article can be accessed at All opinions expressed are those of Fitch Ratings.