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Fitch Ratings has downgraded Ethiopia even further into junk status over concerns of a default, the agency said.
Ethiopia was downgraded to 'CC' from 'CCC-', saying this reflects its view that the decline in external liquidity and significant external financing gaps have increased the likelihood of a default by the Horn of Africa country.
In the absence of a debt solution that would reduce Ethiopia's external debt servicing burden and facilitate external financing, the country's already strained external liquidity will continue to worsen, Fitch said.
The ratings agency estimates sovereign external principal and interest payments at $1.0 billion in the fiscal year ending 7 July 2024 (FY24) and $2.0 billion in FY25, with a $1 billion Eurobond maturing in December 2024.
The non-sovereign public sector also faces about $1 billion in debt service obligations annually, it said.
Official international reserves fell to $1.0 billion in FY23, less than one month of current external payments, Fitch said.
However, Fitch said it expects the next $33 million Eurobond coupon due in December to be paid.
A peace agreement signed on November 2 last year ended the civil war in Ethiopia and paved the way for the International Monetary Fund negotiations on a financing programme.
However, the IMF mission in October 2023 reported progress on reform discussions but did not reach a staff-level agreement, Fitch said.
Ethiopia is also reported to have initiated negotiations with bilateral creditors including China on debt relief, but details are not publicly available, Fitch said.
A bilateral liquidity relief would be insufficient to address the large financing gaps and improve debt sustainability in the medium term in the absence of renewed financing from international financial institutions, it said.
"Prolonged delays in securing financing from the IMF and other multilaterals will lead to a further deterioration in external liquidity," the agency said in its report.
(Editing by Seban Scaria seban.scaria@lseg.com )
