Ethiopia’s government is stepping up diplomatic efforts to restructure its debt as budgetary constraints continue to impede economic recovery efforts. As the G20 debt restructuring scheme is delayed, officials from Ethiopia proceeded to France and China, the co-chairs of Ethiopia’s creditors committee, to make last-ditch attempts.
Even after the Ethiopian government signed the Pretoria peace accord, ending the two-year war in the country’s north, the G20 debt restructuring program that Ethiopia requested in early 2021 remained stalled for four months.
Despite being asked to advise the creditors committee and present a new program for Ethiopia, the International Monetary Fund (IMF) did not conduct any debt sustainability assessments (DSAs).
High-ranking government officials have traveled on missions to negotiate with the committee’s co-chairs in person.
Over the week, an Ethiopian delegation led by Finance Minister Ahmed Shide visited Beijing. Among those in the delegation were recently appointed NBE Governor Mamo Mihretu, State Minister of Finance, Eyob Tekalign (PhD), and Ethiopian Investment Commission Commissioner, Lelise Neme (EIC).
Ahmed agreed to form a joint working group to pursue investment and economic cooperation for the next five years, as evidenced by the signing of a Memorandum of Understanding (MoU).
After meeting with Yi Gang, director of the People’s Bank of China, on February 22, 2023, Mamo tweeted, “There is a great potential for enhanced relations between our two central banks.”
China holds three-quarters of Ethiopia’s USD 27 billion external debt, and Beijing has been reluctant to share details about the terms of these loans. According to reports, this has made it difficult for the IMF and western creditors to decide on restructuring Ethiopia’s debt.
But sources say that during the visit of the delegate, China agreed to restructure Ethiopia’s debt through alternative means. These strategies range from swapping debts through various mechanisms to increasing shipments of raw materials to China and awarding other projects to Chinese investors.
China’s Assistant Minister of Commerce Li Fei affirmed during the recent visit that Ethiopia will be included in China’s tariff-free preferential trade scheme beginning on March 1, 2023. The scheme covers 98 percent of taxable goods and services, on par with the stalled African Growth and Opportunity Act (AGOA).
Two weeks have passed since Prime Minister Abiy Ahmed (PhD) unexpectedly visited France to meet with President Emanuel Macron before the latest visit of the delegation to Beijing. Abiy has talked about normalization with Europe in addition to lobbying France, which, along with China, chairs Ethiopia’s creditors’ committee.
The Ethiopian government is desperate for funding to begin rebuilding the country’s war-torn northern region, but Europe appears set on a more cautious re-engagement.
Currently, experts at the United Nations Development Program (UNDP) in Ethiopia are currently crafting Ethiopia’s debt restructuring analysis.
Should this scenario play out, Ethiopia’s debt, including the one billion Eurobond due in 2024, will be forgiven or the maturity date will be extended. Ethiopia may also receive relief from its annual debt service, which is expected to reach USD four billion in the near future.
On February 23, 2022, Reuters reported that Eurobond holders have already contacted Ethiopia about possible restructuring. If this succeeds, the debt maturity date might be postponed to 2029 or 2020, with Ethiopia projected to service $200 million in debt in the final years of the maturing period.
“Unless the overall political environment improves, there is no way the debt restructuring scheme will resume,” an official close to the matter said.
