The road to slavery

It’s no exaggeration to say that December 11, 2023, is a historic day for the Ethiopian economy. For the first time in its history, Ethiopia missed its debt interest payment of US$33 million coupon on its one-billion-dollar Eurobond, becoming the third African nation to default within a span of three years.

Virtually all the experts  economists, political leaders, priests and preachers have unequivocally urged the government to honor its US$33 million interest payment on schedule, without any hesitation.

People’s sentiment: At most – at most – instead of purchasing 15-20 missiles why not consider allocating a portion of that budget toward debt repayment?

Why such insistence?

Because defaulting on the Eurobond would severely damage Ethiopia’s credibility within the international capital market. Doesn’t the minister of Finance know that… what about the National Bank Governor?

Shouldn’t these ministers know that bondholders will prioritize maximizing to the fullest their returns before any potential debt rescheduling takes place? Regrettably, our economy and finance officials stand as the architects of Ethiopia’s current misery. Their actions have not only devastated the country’s economy but also tarnished its reputation, making it exceedingly difficult to secure future loans. We are now living in a bankrupt country,

What happens next?

International debt acquisition will become unattainable for us in the global markets.

A severe depreciation of the currency could lead to aggressive inflation, possibly reaching around 100%.

Many national assets (telecom, airline, power etc) may have to be leased to those lenders.

Local businesses will face cash flow constraints, necessitating cash-based raw material imports, impacting business cycles and reducing activity.

To cover expenses, the government might resort to increased taxation, imposing heavier financial burdens on the populace.

Fear of profit repatriation constraints might prompt multinational corporations to exit their operations in Ethiopia.

Significant layoffs and job cuts will result.

As prices soar and incomes decline, social discontentment is expected to markedly rise.

Country will go for debt restructuring on the terms of lenders.

Government will have less funds for welfare programs meaning the poor will suffer the most.

In a nutshell. Things are going to get messy!

The post The road to slavery appeared first on Capital Newspaper.

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