Thursday, May 23, 2024
BusinessHouse awakens to country’s debt stress

House awakens to country’s debt stress

Ethiopian authorities are finally feeling the pressure of the mounting external debt stock, whose risk rating has been downgraded from “Moderately stressed” to “Highly stressed,” recently. 

Accordingly, the World Bank has shifted its lending policy towards Ethiopia from the previous regular concessional loan modality to a new blended one that involves a market value interest rate commercial loan. 

In addition, the International Development Association (IDA), a lending arm of the World Bank Group, has placed a ceiling on Ethiopia’s non-concessional borrowing capacity in line with the recently downgraded external debt risk rating.  

According to the information The Reporter has obtained from the Bank’s website, Ethiopia no longer has access to borrowing in excess of USD 400 million non-concessional loan facility, effective from March 2018. 

Accordingly, two loan agreements entered into by Ethiopia and the Bank, as per the new lending approach, were tabled before the House of Peoples Representatives (HPR) on Thursday. However, MPs were triggered to voice their concern on the feasibility of the loan agreements as well as on the country’s excessive foreign debt build up. 

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The new loans that Ethiopia has secured from the bank will be used for two separate projects; electrification and infrastructure development. The loans aggregately amount to USD 702 million. Of which the USD 325 million has been obtained from IDA’s scale up credit facility, which levies market value interest on the borrower. 

During the Thursday’s session, MPs were bold in voicing their concerns and seeking for explanations about the feasibility of paying a market value interest to the loans secured from IDA. The MPs also raised their deep concerns on the country’s excessive foreign debt build up. 

“We should start asking the government about the effectiveness of the loan-financed projects,” Ambassador Mesfin Chirnet, an MP representing SNNP, argued. “We might think that we are doing the right thing as an MP, the truth however is different. We might be shouldering a heavy debt burden to the next generation,” Mesfin warned the House to be vigilant on the government’s loan as well as effectiveness of the projects. 

The MPs finally endorsed the new loans, however, reached at a consensus to arrange another session to dwell on the country’s external debt crisis with the relevant government body.

In related news, another government body also revealed a similar concern on the nation’s external debt buildup while presenting the evaluation report of the implementation of the second Growth and Transformation Plan (GTP II), rearlier this week. The Ethiopian Planning Commission has boldly stated its worries regarding the surging foreign debt level of Ethiopia. According to the Commission, the government has started paying its foreign debt obligations in the most challenging situation of poor export performance and chronic foreign currency shortage. According to the report, the government has started paying an average of USD 1.2 billion in the last two years. It has also paid USD 686 million during the last six months of this fiscal year. According to the latest document, Ethiopia’s external debt stock as of January 2018 has reached a whopping USD 24.7 billion; however, the amount has excluded the loan guarantees the government provided to its State Owned Enterprises; like Ethiopian Airlines, Ethio Telecom and others. 

In a similar intervention, authorities at the Ethiopian Ministry of Finance and Economic Cooperation have joined their hands with the Budget and Finance Affairs Standing Committee of the Parliament to strictly follow up effective implementation of projects financed by external loans. 

As of this week, the ministry has submitted a list of 87 government offices to the standing committee, citing the institutions failures in properly managing the projects as well as effectiveness of the loans in achieving the development objectives. 

In addition, the Budget and Finance Affairs Standing Committee of the House has started intervening to follow up progresses of loan financed projects. So far, the Standing Committee has visited 37 loan financed projects; of which some were found to be not even started while the required loan was secured long ago; others were also found stagnated. 

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