Alleviating External Debt Stress | The Reporter Ethiopia

Rooted and exacerbated by the series of political crises sweeping through the country, the headwinds beating Ethiopia’s economy are likely to wreak havoc if not dealt with promptly. This specter can be avoided by a systematic and informed approach that ensures the peaceful resolution of political disputes even as a package of comprehensive solutions is sought for the fiscal challenges besetting the economy. For a nation endowed, among other things, with vast expanses of arable land, the largest livestock population in Africa, an important surface and underground water resource, climatic conditions conducive to varied agricultural activities, numerous tourist destinations, of considerable mineral wealth, and a youthful productive force, it is a paradox and indeed a stain on his conscience to wallow in poverty and be the emblematic child of aid addiction. While a combination of factors is to blame for this sad state of affairs, the main culprits are corrupt and incompetent politicians and government bureaucracy.

The main economic problem facing Ethiopia is the external debt stress it has suffered for decades. Although it has been normal for successive Ethiopian governments to fill the budget gap through, among other things, external borrowing, the burden it imposed on the economy began to worsen following the economic downturn. world in the wake of the COVID-19 outbreak. Ethiopia is among the Sub-Saharan host countries that have since called for debt restructuring, prompting the World Bank and the International Monetary Fund (IMF) to approve in April 2020 the Service Suspension Initiative. debt (DSSI). The civil war that has been raging since November 2020 in northern Ethiopia as well as the unprecedented level of foreign exchange crisis and inflation have only increased the risk of both total debt and external debt distress. Consequently, the country had no choice but to seek debt relief under the G20 Common Framework, an agreement between the G20 and the Paris Club of countries that aims to streamline debt restructuring efforts. the debt of low-income countries eligible for the DSSI.

It is in this context that Ethiopia’s creditors’ committee, co-chaired by China and France, met this week to consider its request for debt restructuring. Although the application was filed in February 2021, progress on debt relief has been slow at best due to disagreements among committee members. The glacial pace at which the committee is proceeding does not bode well for Ethiopia given the mounting debt stress it faces. It has allocated about USD 2 billion to service external debt of over USD 28 billion in the just-ended fiscal year, which is equivalent to about half of its annual export earnings for the same period. As the IMF, World Bank and other international trade groups have warned, if the ongoing process to ease Ethiopia’s sovereign debt stress is not accelerated and concluded in a hurry, the risk of default on its debt is likely to materialize. The economic and political upheaval that recently rocked Sri Lanka, which in June 2022 failed to repay the huge amount of its external debt that had accumulated over the years, sounds like a cautionary tale for Ethiopia. .

Ethiopia’s external debt stress requires a multi-pronged solution. On the one hand, the country’s creditors must reach, in consultation with the local authorities, a rapid and orderly resolution of its over-indebtedness. This can pave the way for an outcome that protects the interests of all parties, which a default certainly does not. On the home front, the government and all other stakeholders must first put in place the necessary conditions for peace and stability to reign in Ethiopia. Along with this, it is their responsibility to formulate and implement various policy frameworks whose policy objectives are anchored in exercising fiscal discipline, establishing an effective external debt management system and improving export earnings. These measures can help alleviate the stress of external debt and thus avert the potential disaster it represents for the Ethiopian economy.

Shirlene J. Manley