Sunday, June 23, 2024
NewsDebt suspension heralds IMF program, “wider” debt treatment

Debt suspension heralds IMF program, “wider” debt treatment

The federal government sighs relief as external creditors approve a proposal for a two-year pause in foreign debt payments, allowing what the Paris Club says is “time-limited liquidity relief ahead of discussions on a wider debt treatment.”

The official creditor committee (OCC) under the Paris Club has agreed to suspend the service of Ethiopian government-guaranteed debt between January 2024 and December 2025, while China (who co-chairs the Club with France) has reached a separate debt suspension agreement with Ethiopian officials.

It is welcome news for an economy smothered by a chronic shortage of foreign currency, but a closer look at the terms of the agreements reveals Ethiopian officials will have their work cut out for them if they are to make the most of the suspension.

The agreement sanctions the suspension of both principal and interest payments on debts owed to OCC members (including non-Paris Club members such as South Africa, Turkey and Saudi Arabia) until the end of 2024.

Creditors are also providing a two-year grace period beginning 2025 before the suspended payments and accrued interest are due in full over a total of six installments between 2027 and 2029.

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The details of the separate agreement with China have yet to be made public.

Additionally, the Paris Club terms stipulate the OCC withholds the right to void the suspension entirely if Ethiopian authorities and the International Monetary Fund (IMF) do not reach a “Staff-Level Agreement” before the end of March 2024.

During a recent interview with The Reporter, State Minister of Finance Eyob Tekalign (PhD) alluded to an overarching debt restructuring process that supersedes the suspension.

He revealed the terms of the suspension would cease to apply once “the bigger restructuring ends.”

The federal government serviced USD 1.8 billion in foreign debt in 2020/21 and another USD 1.6 billion the following year.

Central bank Governor Mamo Mihretu told a parliamentary committee this week the federal government will “save around USD 1.5 billion that would have gone to debt servicing.”

A statement from the Paris Club released Thursday expresses its hopes that “discussions [for a wider debt treatment agreement] will gain momentum as soon as Ethiopian authorities and the IMF have agreed the parameters for an IMF programme.”

The developments come following a series of downgrades on Ethiopia’s credit rating by agencies such as Moody’s and S&P over the last couple of years.

The State Minister told The Reporter he was “not worried at all” about the downgrades.

The Paris Club is an informal group of official creditors formed in 1956. It has 22 permanent members, none of which are African although South Africa has been a prospective member since 2022.

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