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The Modjo watershed has experienced significant land use/land cover (LULC) change and soil erosion. This study examines changes in surface runoff generation and soil erosion in response to the LULC dynamics. To simulate runoff and sediment yield, the geographic information system‐interfaced Soil and Water Assessment Tool (SWAT) model was used. Model sensitivity, calibration and validation analyses were carried out, and the efficiency of the model was evaluated using simulated and measured discharge data. The two scenario model simulation goodness‐of‐fit measures verified that the SWAT model performed very well during calibration and validation periods for daily and monthly time steps (Nash–Sutcliffe efficiency > 0·79 and root mean square error–observation standard deviation ratio < 0·4). Although the computed values of per cent bias fulfilled a satisfactory standard (greater than −11·8 …