Ethiopia looks to debt relief as pandemic continues to bite

5 Feb 21

Covid-19 has led Ethiopia seeking relief on its large public debts as it tries to make fiscal space to deal with the crisis.



Rural Ethiopia. Image © iStock

The east African country, long seen as one of the most promising economies on the continent but struggling during the pandemic, is “preparing for upcoming discussions” with its creditors, the finance ministry said.

“The objective is to weather the impact of the Covid-19 crisis and create additional fiscal space to mitigate the impacts of the pandemic,” the statement said.

Ethiopia has been undertaking a programme with the IMF since 2019, with the aim of lowering its risk of debt distress from ‘high’ to ‘moderate’ by the end of 2022.

“To achieve this objective, the ministry will utilise all mechanisms at its disposal, including the common framework,” the ministry said, referring to a G20 debt relief initiative adopted in November last year.

“Ethiopia has already been very active in undertaking proactive liability management exercised in the past few years, and intends to keep managing its public and quasi-public debt portfolio in the most prudent way.”

The G20 common framework is open to 73 of the least developed countries, and binds all public creditors to participate, with potential treatments including reductions to debt servicing costs or even complete relief on some debts “in the most difficult cases”.

Debtor countries are also required to seek changes to their private debts “at least as favourable” as those agreed with public lenders, but this has not yet been tested.

The Ethiopian ministry said possible debt treatment “will address the debt vulnerabilities of the country, while preserving long-term access to international financial markets, thus unlocking growth potential”.

IMF spokesman Gerry Rice said Ethiopia’s debt is being pushed to “new heights” because of the pandemic.

“[Covid-19] is adding to countries’ spending needs as they seek to mitigate this health and economic crisis, and revenues are falling due to lower growth and trade, and together this is raising the debt burden,” he said.

“Like a number of other African countries, Ethiopia is struggling with a high debt burden that has been exacerbated by the crisis.”

He said the IMF is helping Ethiopia update its public debt sustainability assessment, but creditor negotiations are a matter for the government.

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