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IMF says, layoff Non-Concessional Borrowing

In its latest staff report released this week, dubbed “Article IV Consultation for 2018,” the International Monetary Fund (IMF) stated that Ethiopia has to restrain from accessing any Non Concessional Borrowings (NCB) for the upcoming fiscal year, respecting the agreed up on zero ceiling limit on its commercial borrowing portfolio.

In an effort to ease the debt distress, IMF, in agreement with the Government of Ethiopia (GoE), has suggested totally halting any non-concessional borrowing at least for the fiscal year 2019. According to the Fund, it is essential to maintain the disbursements of already committed commercial loans while keeping at bay or at least at a moderate level any further borrowing up until FY 2023, IMF recommended.

The Fund recollects the steady growing external debt level the government of Ethiopia has contracted since 2012 until 2018, amounting to 62 percent of its GDP. The 62 percentage is an aggregate of both the external and domestic public debts. The external borrowings cover close to 34 percent of this amount.

Back in 2016, the International Development Association (IDA) has advised a borrowing ceiling on the commercial loans committed to by the Ethiopian government in the form of USD 1 billion. However, a growing trend in the debt distress ratings of the country from “low” to “moderate” induced this limit to go down to USD 750 million that same year, the Fund recalled. The NCB ceiling was further lowered to USD 400 million by IDA, for both 2017 and 2018 fiscal years.

To make matters worse, for 2019 fiscal year, Ethiopia could no longer tolerate any new NCBs, the Fund warned. The decision to maintain a zero NBC level comes at a time when the government has “breached” the ceilings set for it both for fiscal years 2017 and 2018. According to the IMF, the recent NCB ceiling came into effect since the external debt distress was further exacerbated and has reached a “high” stress level.

“Following consecutive breaches of NCB ceilings for fiscal years 2017 and 2018, IDA decided that its country allocation to Ethiopia for fiscal year 2019 will be on a 50-percent grant and 50-percent credit basis. The NCB ceiling has been set at zero,” reads the report.    

Ethiopia’s debt distress situation has been aggravated by the persistently declining trend in the export sector. Furthermore, to remedy its dwindling foreign reserve, the government had increasingly turned it face to external public borrowings and funds generated from Foreign Direct Investment. Currently, Ethiopia maintains an international reserve that will only be sufficient to finance 1.6 months of imports. For a country like Ethiopia, in a low income group, the recommended optimal reserve with stabilized arrangements should cover between 5.9 to 10 months of imports.

 Commending the reform measures that the administration of Prime Minister Abiy Ahmed (PhD) is trying to implement, the Fund announced its support for the partial privatization of some of the major State-owned Enterprises (SoEs). The approach the premier took to introduce these measures suggests that an update of the overall development strategy of the country is on the horizon.

Projecting an 8.5 percent GDP growth for 2019, IMF is currently recruiting a country representative for its office in Ethiopia, which remained closed for years following the fierce relationship it had with previous administrations.

Nevertheless, it is to be remembered that the then Ministry of Finance and Economic Cooperation has announced to the public that it is no longer accessing external commercial loans in a bid to remedy the escalating debt stress level.