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BusinessStrong dollar help Ethiopia reduce external debt, report

Strong dollar help Ethiopia reduce external debt, report

It is declined by almost one billion dollars

The appreciation of the dollar against major baskets of foreign currencies, including the euro and pound, helped Ethiopia reduce its external debt, according to the Ministry of Finance. The value of the USD skyrocketed in April 2022, reaching its greatest levels in the past two decades, as rival currencies, such as the yen and the euro, got weaker.

The Ministry, in its latest debt statistical bulletin released yesterday, said “a stronger dollar causes a decrease in the stock of external debt in terms of USD. It is down by about one billion dollars or 3.7 percent from June 30, 2022.”

Ever since Prime Minister Abiy Ahmed (PhD) came to power, he has retained the policy adopted during the administration of Hailemariam Desalegn, who decided to avoid commercial loans with high interest rates just a year before his resignation.

Ethiopia’s external debt in 2018 was USD 27 billion. Last year, it reached a new high of USD 29.4 billion. It declined to USD 26.8 billion as of September 2022, according to the latest debt statistics bulletin.

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The central government oversees 68.3 percent of the nation’s total external debt, while SOEs with and without government guarantees are in charge of 21.9 and 9.8 percent, respectively.

During a meeting of G7 finance ministers, Ahmed Shide said that the government had successfully put in place strict rules on non-concessional borrowing that had not been broken since 2019.

“As a result of these reforms, SOE debt, a major contributor to Ethiopia’s debt vulnerability, had decreased by nearly half as a percentage of GDP in just four years,” he remarked.

Patrick Heinisch, an economist, thinks that the Ministry of Finance’s claim that the strong dollar helped bring down the country’s external debt isn’t very clear.

“This is indeed a little bit confusing. The only explanation that I have is that Ethiopia keeps all its forex reserves in USD but has to make some debt service payments in other currencies, mostly in Euro, but also in British pounds, Chinese yuan, and other currencies. That is why a stronger dollar reduces the value of debt service payments to these creditors,” he remarked.

The Finance Ministry, in the debt bulletin, slams the creditor committee for delaying Ethiopia’s debt restriction application.

“It has not moved forward as expected, thus the country has not benefited from this initiative, which might potentially raise the country’s debt distress rating to moderate risk from high risk,” the Ministry stated.

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