Loans have escalated this year. The International Monetary Fund (IMF) estimated a growth of 7.4pc of GDP in 2015; yet, at the end 2015, their debt was estimated at 29pc of GDP against a general government debt of 27.3pc of GDP. The same upward trend is expected to continue for at least the next two years.
Yes, the government of the country admits the trend, though usually they do not endorse the IMF’s numbers.
“The loan money is spent wisely, on selected sectors and enterprises that generate the returns plus,” said Getachew Reda, government communication affairs minister.
The Fund and other agencies don’t agree with the boorish stance of the government on the pile up of debts to public enterprises, such as the Ethiopian Electric Corporation, ethio telecom, the MeTEC and the Ethiopian Railway Corporation (ERC). This is a view also shared by those in the domestic financial industry. Data too, shows a marked increase over the years, growing from 20.5pc of the GDP in 2012/13 to 50pc in 2014/15.
While some flicker warning lights to the state borrowing, the Ethiopian government’s stand was echoed in the Economic Development in Africa report, 2016 – Debt Dynamics and Development Finance in Africa – published on July 21, 2016, by the United Nations Conference on Trade and Development (UNCTAD).
“Though state-owned enterprises (SOEs) in Ethiopia continue to borrow heavily to finance their multi-dimensional development investments, the nation is one of the 10 African countries with low debt distress as of November 2015,” according to the report.
It is against this background that the country declared a 274 billion Br budget, targeting to source only 28pc from aid and loans, while setting a daunting goal of 13pc internally sourced funds.
This came after a scary budget performance, where over six billion birr was misappropriated in 2014/15. A new financial bill, proposing individual liability for maladministration, was introduced to curb this rampant trend.
Different development partners committed over two billion dollars during the year; the highest amount of commitment comes from the World Bank, 75 pc. And more than 30pc = of the loan was committed to improving basic services in education, health, agriculture, water supply, sanitation and rural wereda roads.
Series of Events
Ethiopia and the World Bank signed a 5.1-million-dollar and 600-million-dollar loan agreement. The aim of the latter is to enhance equitable access to basic services in education, health, agriculture, water supply, sanitation and rural wereda roads. The smaller loan agreement is for the additional financing of the Tana & Beles Integrated Water Resource Development Project.
Ethiopia and the African Development Bank signed a loan agreement for 158 million Br, which will help the nation to finance its membership subscription fee to join African Trade Insurance.
The Ministry of Finance and Economic Cooperation announced that the country has earned over eight billion birr from development partners in the form of loans and grants during the first quarter of the 2015/16 fiscal year alone – 97 pc higher than the same period last year.
The Africa Development Bank loaned Ethiopia close to seven billion birr for the provision of basic services and water and sanitation programmes, which takes the bank group’s cumulative net commitment to over four billion dollars.
The Ministry of Finance and Economic Cooperation signed a financing agreement with the World Bank for 33 million dollars. The loan will be used for the implementation of public financial management programs. The same month, the Ministry disclosed that the country’s total outstanding debt had reached 36 billion dollars. Meanwhile, the country’s public debt as a percentage of GDP stood at 55pc.
Budget approval and proportions
The Financial Bill proposes a individual liability for maladministration reform in the financial administration. This comes four years after the new budget system became operational.
In the same year, the country approved a 274 billion Br annual budget, a bill proposing the financial punishment and demotion of the heads of public institutions that fail to follow financial administration laws was tabled in Parliament, on June 14, 2016. The new proposal includes provisions for penalties to be exacted on heads of public institutions associated with serious gaps between their budget allocation and audited expenditure. It further prescribes that heads who fail to ensure the timely submission of plans and financial reports to the Auditor General’s Office and neglect to check that they are done in line with the law, shall receive a 5,000 to 10,000Br administrative penalty.
Ethiopia’s loan secured from the World Bank reached a record high of 1.8 billion dollar after the signing of 829-million-dollar agreement between the two entities. The loan aims to modernise the urban transport system, expand electricity, improve access to basic social services and finance small enterprises throughout the nation.
The World Bank and Ethiopia signed a 100-million-dollar loan agreement to support the country’s Productive Safety Net programmes. This initiative will reach 4.5 million beneficiaries across the country. After PSNP IV was approved in 2014, more than 2.6 billion dollars has been secured in the form of a loan from the Bank.
The African Development Bank has approved a 104-million-dollar loan, which will be extended to Ethiopia’s project to get power to small businesses and industries in the Tigray and Afar regions. The money will go directly towards the implementation of the Mekelle Dallol and Semera-Afdera power transmission supply projects for industrial development and access scale up projects.
Agence France de Development signed two loan agreements worth of 91 million dollars. Among the two, the Addis Abeba Bus Rapid Transit Project received an additional 35 million Euros. The project has already received 56 million dollars of finance from the African Development Bank to commence construction. The bank also gave a loan of 40 million Euros, which aims to build a new national load dispatch centre, which will enable the country to control the whole electric network under the second Growth and Transformation Plan.
The Ethiopian Ministry of Public Enterprise made a deal with Japan Tobacco International’s (JTI) worth 510 million dollars. This was to buy a 40pc stake in the National Tobacco Enterprise (NTE). JTI’s offer was two times higher than the next highest offer of 230 million dollars made by British American Tobacco. JTI is a producer of well-known brands like Winston, Camel, Benson & Hedges and others.
The World Bank and the Global Fund to Fight AIDS, TB and Malaria committed to invest 24 billion dollars in Africa over the next three to five years, which will help countries to implement their health reforms.
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