In most developing countries, biophysical data are scarce, which hinders evidence-based watershed planning and management. To use the scarce data for resource development applications, special techniques are required. Thus, the primary goal of this study was to estimate sediment yield and identify erosion hotspot areas of the Andasa watershed with limited sediment concentration records. The hydrological simulation used meteorological, hydrological, suspended sediment concentration, 12.5 m Digital Elevation Model (DEM), 250 m resolution African Soil Information Service (AfSIS) soil, and 30 m resolution land-cover data. Using the limited sediment concentration data, a sediment rating curve was developed to estimate the sediment yield from discharge. The physical-based Soil and Water Assessment Tool (SWAT) model was employed to simulate streamflow and sediment yield in a monthly time step. The result shows that SWAT predicted streamflow with a coefficient of determination (R2) of 0.88 and 0.81, Nash–Sutcliffe Efficiency (NSE) of 0.88 and 0.80, and percent of bias (PBIAS) of 6.4 and 9.9 during calibration and validation periods, respectively. Similarly, during calibration and validation, the model predicted the sediment yield with R2 of 0.79 and 0.71, NSE of 0.72 and 0.66, and PBIAS of 2.7 and −8.6, respectively. According to the calibrated model result in the period 1992–2020, the mean annual sediment yield of the watershed was estimated as 17.9 t ha−1yr−1. Spatially, around 22% of the Andassa watershed was severely eroded, and more than half of the watershed (55%) was moderately eroded. The remaining 23% of the watershed was free of erosion risk. Therefore, the findings suggests that applying the sediment rating curve equation, in conjunction with hydrological and sediment modeling, can be used to estimate sediment yield and identify erosion hotspot areas in data-scarce regions of the Upper Blue Nile Basin in particular, and the Ethiopian highlands in general with similar environmental settings.