Two weeks after Members of Parliament requested the Budget and Finance Affairs Standing Committee to assess the nation’s debt repayment capacity, the Standing Committee told of the Houses of People’s Representative (HPR) on Tuesday that the loan Ethiopia plans to secure from Chinese banks would not burden the country’s and that Ethiopia has the capacity to repay the loans.
Now three loan agreements have been approved and will finance two road construction projects in Addis Ababa and upgrade the capital’s electric grid system.
One of the three projects is a 230-million-dollar advanced electric grid system installation project, which was designed to upgrade and modernize Addis Ababa’s electric service provision.
The parliament also ratified two other loan agreements to finance two road construction sites in the capital Addis Ababa, which will cost 102 million and 50 million dollars, respectively.
The loan was signed in July 2016 between the Ministry of Finance and Economic Cooperation of Ethiopia and the Chinese Export-Import Bank. This loan agreement imposes two percent interest per annum and 0.25 percent management fee and another 0.25 percent commitment fee. The agreement obliges the government to fully reimburse the loan within a total of 20 years including the seven years grace period.
The other loan, which was in question, was the loan that was signed between the Government of Ethiopia and the Chinese EXIM Bank in October 2016. The loan which is worth USD 102.7 million aimed at financing the Kality Ring Road Interchange and a 50-meter-wide road towards Tulu Dimtu Roundabout and the one from Kality Ring Road to Bulbula up to Kilinto Roundabout.
After the report, the House approved the bill with overwhelming votes.
The interest rate discrepancy between the two aforementioned loan agreements clearly exhibited how the Chinese government has become conservative in its lending to Ethiopia.
The Chinese EXIM Bank has been financing Ethiopia’s infrastructure projects, from railways to roads and power generation plants to transmission lines.
For instance, the bank has availed USD five billion only for the railway projects the country recently realized.