http://af.reuters.com/article/currenciesNews/idAFFit977895
Financials | Mon Oct 24, 2016 | 10:53am EDT
Fitch: Social Unrest Adds to Ethiopian Macroeconomic Risk
Mon Oct 24, 2016 2:53pm GMT
(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 www.fitchratings.com, or <a href="https://
soundcloud.com/fitchratings/ethiopia-tc-replay ">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: peter.fitzpatrick_at_fitchratings.com.
The above article originally appeared as a post on the Fitch Wire
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Received on Mon Oct 24 2016 - 13:46:44 EDT