There is a growing anxiety at the top tier of the Administration of the PM …

There is a growing anxiety at the top tier of the Administration of Prime Minister Hailemariam Desalegn over the build-up of debts to foreign creditors, largely to China, gossip revealed. The macroeconomic team – less mettlesome than its predecessor – appears to be complacent in the face of mounting concerns about debt sustainability, claims gossip.

The source of this complacency is partly attributed to a report by the International Monetary Fund (IMF) released last year putting the nation’s debt distress to a “moderate” class from low, while Ethiopia’s Eurobond issued in 2014 was oversubscribed by 2.8 times, boosting morale. Never mind that it is not new and peculiar to Ethiopia; Kenya’s was oversubscribed 4.2 times and Rwanda’s 8.8 times at just about the same time.

The one billion dollars earned from issuing the bond has a 6.6pc yield and gets mature in 10 years, temporary relief from servicing it in the immediate future. Add to this the one billion dollar non-interest time deposit the Saudis made to Ethiopia’s account two or three years ago, gossip claims.

But, a large part of Ethiopia’s external debt is owed to China. Privately, and in internal deliberations, the stock of Ethiopia’s foreign debt has reached a point where it can no longer be ignored, gossip says.

The statistics coming out from the IMF and other multilateral sources cannot be cause for comfort to the individuals entrusted to manage the macroeconomy and assigned to advise the Prime Minister.

No less than one-third of the 54.2pc to gross domestic product (GDP) government public debt and other loans it provided a guarantee for in 2016 was related to external lending. It is almost double the amount it was in 2012.

Gossip finds it little surprising if the members of the macroeconomic team – Teklewold Atnafu, central bank governor; Abraham Tekeste (PhD), minister of Finance & Economic Cooperation (MoFEC); Yinager Dessie, commissioner of National Planning; and Mekonnen Manyazewal, chief economic advisor – get nervous looking at the historical trend of the stock of the external debt against the nation’s gross national income (GNI), which had a record high of over 150pc in the early 1990s. Coming out of a 30-year civil war and many things remaining fluid, the peak could be understandable then. Nonetheless, the ratio saw a constant decline for a decade since 1995, only to resurge beginning 2008. It reached over 30pc last year, hitting a record high ceiling of 23 billion dollars, up from 14 billion in 2011.

Hailemariam and his men are still adamant about the situation often arguing that much of these loans are not commercial but concessional and directed at public infrastructures meant to enhance growth and boost competitiveness. Gossip sees that the single largest creditor is China (with 17 billion dollars), followed by India, Turkey and the World Bank.

The trouble for the wider economy and much of the private sector will no doubt come next year, gossip foresees. Much of the debt stock in the form of Chinese loans will mature soon, putting pressure on the nation’s budget to service no less than 1.2 billion dollars next year, eight percent of the budget Abraham proposed for the coming fiscal year and double the amount the federal government allocated in 2016/17, gossip disclosed.

The initial hope was that the country would succeed in its target for revenues from exportable goods and services, a key component in the IMF’s external debt sustainability test. To the frustrations of Hailemariam, his administration has failed over the years even to reach the three billion dollar mark of export earnings, a far cry from the 12 billion dollars projected to be made under the second edition of a roadmap for the nation’s growth and transformation.

Such is a state that will leave the administration few options but to tighten its purse next year, according to gossip. The days of state largess or official extravaganza will soon be over, so will expensive and expansive public projects and procurements be massively slashed, and the biggest source of business to the private sector dry up, claims gossip.

Tough days are indeed ahead, gossip foresees.

Published on Jul 16,2017 [ Vol 18 ,No 899]



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