Ethiopia’s debt distress slows

Ethiopia’s external debt distress crashes by five percentages in the concluded fiscal year to stand at USD 27.9 billion. Negative new flow has been stated as one of the resultants of debt stock reduction. The inflow has shrunk for the second consecutive year, despite government’s commitment to service its debt.
As the annual public sector debt bulletin of the Debt Management Directorate at the Finance Ministry indicates, the 2021/22 fiscal year saw the country experiencing its lowest ever external disbursement in the sectors latest history.
Compared to the total service in the year, the inflow was only proportionate to a half.
According to the bulletin, the total external debt for the public sector as of June 30, 2022 was USD 27.9 billion, down from USD 29.5 billion as of June 30, 2021.
The decrease in external total public sector debt is approximately USD 1.59 billion, or a decline of more than 5 percent, “one of the main causes of this decrease in the stock of debt that can be explained by USD exchange rate variation, which is as a result of a relatively stronger USD against other foreign currencies during June 2022 compared to June 2021, which resulted in a reduction in the debt stock in terms of USD, which is about USD 1.03 billion, roughly about 65 percent of the reduction.”
“A negative net flow of USD 551.9 million as a result of total principal payments of USD 1.64 billion and disbursements made during the period of USD 1.08 billion, where principal payment is greater than new disbursements made during the period, was another factor causing the debt stock to decrease this year,” the annual bulletin stated.
Meanwhile, the total amount of external public sector debt service (principal plus interest and fees) paid over the course of one year that started July 1, 2021 was USD 2.13 billion (USD 1.64 billion in principal and USD 491.1 million in interest).
“The net resource transfer, calculated as disbursement (inflow) minus principal payments minus interest payments, was USD 1.04 billion,” it explained.
Regarding service, the central government is responsible for paying USD 566.85 million, which includes USD 224.14 million interest payment, of the entire public sector’s external debt service, while state owned enterprises (SOEs) are responsible for paying USD 1.56 billion of it.
The total external public sector debt disbursement over the past twelve months that ended June 30, 2022 has continued on its reduction for the second consecutive year.
The entire external public debt disbursement was USD 1.4 billion, and USD 3.1 billion in the 2020/21 and 2019/20 fiscal years respectively.
From the USD 1.08 billion disbursement for the year, approximately 73 percent went to central government projects from various creditors, the majority of which came from IDA, and the remaining 27 percent went to SOEs; primarily to Ethiopian Airlines.
“The overall amount of foreign financing disbursed over the last one year was lesser in comparison to the previous 4 years. The fact that SOEs haven’t taken out a loan in the previous three years and are disbursing for their older projects less and less as they get closer to completion with the amount of money disbursed to them dropping, is one of the factors contributing to the decline in disbursement,” the annual debt analysis document explained.
Experts have also stated that the external pressure at the central government in relation to the conflict at the northern Ethiopia is part of the reduction. Partners’ particularly western states and their affiliate organizations have put a hold on their disbursement on the aim of pressurizing the government.
Despite government facing a massive push in addition to hurdles in hard currency shortage affecting its activity, it has been highly committed to settle payments on external debt without default. In total, it paid USD 2.13 billion as service that include interest fees.
Regarding fresh loan commitment, in the year, only three loan agreements totaling USD 290.74 million have been signed with partners, with most of that amount being borrowed by Ethiopian Airlines (USD 279.52 million), for the purchase of aircrafts, and the remaining USD 11.22 million by the central government.
It can be recalled that based on the November 2020 G20 communique on Common Framework (CF) a discussion was underway with different development partners, “the creditor committee for Ethiopia’s CF application was established, but it has not moved forward as expected, thus the country has not benefited from this initiative, which might potentially raise the country’s debt distress rating to moderate risk from high risk.”
The creditor committee, co-chaired by China and France, for Ethiopia was formed on September 16, 2021, in application of “CF for Debt Treatments beyond the DSSI” endorsed by the G20 and the Paris Club in November 2020.
On its statement this week, the committee has expressed that it will move forward with the discussion which is welcomed by the Ethiopian government on strategies of managing its debt vulnerabilities in the long term which is also beneficial to its IMF support programme.
It can be recalled that the IMF board approved a three-year arrangement for Ethiopia under the Extended Credit Facility (ECF) and the Extended Fund Facility (EFF) in December 2019 with the ECF expiring in September 2021 and the EFF expiring in December 2022, while the two facilities only disbursed USD 309 million from the total approved USD 2.9 billion loan.
In total as of June 30, 2022, the country public sector debt that include domestic debt stood at USD 57.34 billion from USD 56.4 billion on June 30, 2021.
As of June 30, 2022, total nominal public sector debt in percent of GDP was about 50.3 percent out of which nominal external debt in percent of GDP was around 24.5 percent.
“Present value of external debt in percent of GDP was around 17.5 percent and present value of total public sector debt in percent of GDP is 43.3 percent both are way below the threshold for Low Income Countries Debt sustainability thresholds which are 40 percent for external debt and 55 percent for total public sector debt,” the MoF debt analysis document stated.
The total amount of external debt accounted for roughly 48.7 percent of total public sector debt by the end of June 2022.
The central government is in charge of 68.1 percent of the nation’s total external debt, while SOEs with and without government guarantees are in charge of 21.9 and 10.0 percent, respectively.
The total Domestic debt in USD terms was USD 29.43 billion, up from USD 26.91 billion.
The stock of treasury bills (TBills) as of June 30, 2022, was 317.7 billion, a rise of 163 percent over the balance as of June 30, 2021. Net issuance of TBills with varied maturities was approximately 196.7 billion during the previous year.
The majority of the rise from June 2021 to June 2022 was due to relatively higher issuances of 364-day Tbills, followed by 182 days, compared to the previous year.
Participation from the government commercial bank and private owned commercial banks on the TBills market has shown improvement, while the average yield for TBills of 28 Days,91Days,182 Days and 364 Days has increased compared to last year same period.
Since the commencement of treasury bills under the new initiative, the direct advance has sharply shrunk to 3.4 percent of the total domestic debt in the 2019/20 fiscal year from about 25 percent of the preceding year.
However, the budget deficit that occurred in relation to the northern conflict has resulted in a 7.1 percent increase in the 2020/21 fiscal year.
The 2021/22 fiscal year also saw a climb to 10.4 percent share of the direct advance from the total domestic debt which is still very low compared to the years prior to the reform period.
In connection to the conflict, the government expenditure for humanitarian and reconstruction works has been increased in the past two budget years.

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