Ethiopia’s risk of external debt distress remains moderate, although external vulnerabilities have increased. Exports underperformed relative to projections, owing to a weak external environment; and the supply shock from the drought required scaled-up food imports. Despite strong remittances and curtailed public sector imports of investment goods, the current account deficit remains high. Reflecting higher indebtedness and low exports, indicators based on debt-to-exports ratios have deteriorated and (as in the 2015 DSA) breach one standard threshold in the baseline. Key considerations in maintaining the moderate rating are: (i) the envisaged investment-based expansion in re-payment capacity financed by the external borrowing; and (ii) special factors that mitigate the risk of debt/currency distress episodes including capital controls, the large share of debt with official creditors with a significant concessional component, virtual absence of tradeable debt instruments, and limited integration in global markets. The main risks are a potential continuation of export underperformance and failure to rein in project-related imports and refrain from associated new non-concessional borrowing. Should these risks materialize, debt sustainability prospects would deteriorate materially. The projected baseline path of total public sector debt-to-GDP (external plus domestic debt) does not result in additional risks beyond those discussed for the external debt above.