Gov’t slashes domestic borrowing down to 6%
During the first half of the current Ethiopian fiscal year, Ethiopia has secured USD 2.9 billion birr in the form of new loans and credits from its foreign development partners, the Ministry of Finance announced this week.
According to the reports, out of the overall 2.9 billion, USD 1.2 billion was secured in the form of new commitments, while the remaining USD 1.66 billion was disbursed in the stated period. The new commitments are projected to be released between three to 1o years, The Reporter has learnt.
Briefing reporters on Wednesday, Haji Ibsa, public relations director with the ministry, said that during the concluded half year, Ethiopia has secured a total of USD 1.68 billion from bilateral and multilateral sources in the form of credits and grants. Accordingly, USD 0.9 billion was secured from multilateral sources while the balance was covered by nation’s bilateral development partners. Out of 0.9 billion, USD 0.56 billion was channeled in the form of credit and the remaining USD 0.34 billion being provided as grant. The likes of the World Bank Group, the IMF, the UN, the EU, and the African Development Bank represent multilateral sources of financing.
From bilateral sources, the government has received a disbursement of USD 0.77 billion; and out of that, USD 0.325 billion was the share of credits. All in all, the government has an outstanding external debt of USD 29 billion, which it poured to its mammoth public projects and budget deficit.
Following the commercial debt re-profiling agreement which China that brought substantial amount of the credits into concessional status, the government of Ethiopia has secured an additional grace period of 5 to 10 years as the terms of the loan reschedulement; on top of that an extension 10 to 20 years was granted on the repayment of the principal amounts. One of these restructured loans involved the USD 4.5 billion Addis Ababa- Djibouti Railway Project.
According to Haji, those undertakings have contributed to the slowing down of the prevailing high debt sustainability risks to a moderate range. For that, the historic USD 2.9 billion loan that the IMF recently pledged to provide in support of the Homegrown Economic Reform Program essentially brought down the highly exposed debt status of the country. However, since 2018, the World Bank Group featured Ethiopia as one of the countries with a risk of high debt distress status.
In addition to that, the central government has considered measures such as to refrain its borrowing from domestic sources and in the first half year, the domestic borrowing declined to six percent from its previous 22 percent, Haji said.
It is to be recalled that, concluding the recent Article IV consultations of the IMF staff with officials of the government of Ethiopia, board of directors of the Fund have maintained the measures that sought monetary tightening, supplemented by expenditure restriction by state owned enterprises (SOEs).
The IMF directors have also requested the phasing out of central bank financing of the government and the Development Bank of Ethiopia (DBE) and strategize on how the high rate of non-performing loans could be addressed. Currently, DBE hinges on having close to 40 percent NPL. Furthermore, IMF directors have urged the government to prioritize asset quality evaluations and reviews on the Commercial Bank of Ethiopia (CBE) from which the central bank sources its bulk credits.