Ethiopia Gains Positive Rating Action Amid Africa’s Economic Optimism

Ethiopia secured a positive rating action from Moody’s in the second half of 2024 (2024H2), marking a shift in investor sentiment following its debt restructuring deal with international bondholders. This was revealed in a report published on February 11 by the African Peer Review Mechanism (APRM), titled Africa Sovereign Credit Rating Outlook – 2024 Year-End Review.

The report highlights that Africa experienced more rating upgrades and improved outlooks than downgrades and negative assessments, signaling growing confidence in the continent’s economic prospects. S&P Global Ratings led rating activities, with Ethiopia, alongside Ghana, receiving recognition for financial reforms. However, Ethiopia’s long-term foreign currency rating remains in ‘selective default,’ underscoring ongoing economic challenges.

The report further notes that discussions and efforts to strengthen Africa’s financial markets gained momentum in 2024H2, driven by the rising debt burden in developing countries. A key milestone in these efforts is the establishment of the African Credit Rating Agency (AfCRA), championed by the African Union (AU) and set to launch in the second half of 2025. “The agency will be one of the key financial institutions in Africa that would bring a balance to the continent’s position in the global financial architecture,” the report stated.

Additionally, the issuance of Eurobonds by African nations saw a notable increase in 2024. Unlike in 2023, when no Sub-Saharan African country issued a sovereign bond, 2024 saw nine countries raise a total of USD13.45 billion—USD5.7 billion in 2024H1 and USD7.75 billion in 2024H2. However, the coupon rates on these issuances have nearly doubled compared to similar bonds issued five to ten years ago, reflecting the higher cost of borrowing in the current economic climate.

The report also highlights that rating upgrades in 2024H2 were not necessarily driven by significant improvements in economic fundamentals but rather by increased confidence from rating agencies in African governments’ ability to meet large fiscal financing needs and maintain a stronger external position. This suggests that while positive rating actions indicate growing investor optimism, economic vulnerabilities remain.