Ethiopia calls for debt relief as Covid wreaks havoc

Ethiopia has asked for debt relief under a G20 program to help poor countries under the economic impact of the coronavirus, making it the second African country to do so last week.

Ethiopia has long been considered one of Africa’s most promising economies, but the strain the pandemic has placed on health systems and economies means that many developing countries are struggling to cope with the payment of their debt.

In a statement on Monday, his finance ministry said it was “preparing for upcoming talks with official creditors” as it seeks to reduce “debt vulnerabilities and reduce the impact of debt distress.”

“We haven’t even vaccinated a single individual against Covid, so we need to redirect the resources we have to that,” a senior finance ministry official told the Financial Times.

Under its state-led development model, the Ethiopian economy grew at nearly 10% per year for much of the past two decades until the arrival of Prime Minister Abiy Ahmed in 2018. He had promised radical liberal reforms, of which privatization the huge telecoms monopoly, to bring the economy to middle-income country status. But ethno-political tensions and one conflict in northern Tigray region have slowed down its plans.

Monday’s Addis Ababa statement follows an IMF statement last Wednesday that Chad also requested relief under the G20 program endorsed by the world’s largest economies. In November, Zambia became the first African country to default on his debt since the start of the pandemic.

The Ethiopian move will be a first test of the G20 debt relief initiative, which requires borrowers to reach an agreement on their debt with private creditors as well as official lenders.

Under the initiative, accepted last year by the world’s largest economies, 73 of the world’s poorest countries can request that their debts be restructured and, in the most extreme cases, canceled. This goes beyond the G20 Debt Service Suspension Initiative (DSSI), which allows the same group of countries to defer debt repayment but does not provide for any debt reduction.

The DSSI has been criticized by debt activists and others for failing to engage private sector creditors. This meant that debt relief guaranteed by official lenders could be used to pay off other debts. Several countries benefiting from DSSI stressed that they did not want relief from private creditors as this would jeopardize their access to trade credit markets.

Despite the G20 framework’s requirement to seek agreement with private sector creditors, the finance ministry official sought to minimize the impact on private sector lenders. “It would be a fair burden sharing among all of our official bilateral creditors and then, on that basis, we will consider whether we should contact private creditors, which is highly unlikely,” the official told FT. The official stressed that the adjustment would be “minor”.

Ethiopia had a total public external debt of $ 27.8 billion at the end of 2019, according to the World Bank, of which $ 8.5 billion owed to official bilateral creditors and $ 6.8 billion to commercial creditors, including $ 1 billion to bondholders. Chad has no foreign bonds outstanding, but its total debt of $ 3.5 billion includes $ 1.5 billion in commercial debt, about half of which is a loan from Glencore, the commodities trader. , and associated banks.

“Ethiopia is trying to explore options for broader debt relief,” said Kevin Daly, chief investment officer at Aberdeen Standard Investments. “This is their way of saying things are difficult, we need some extra relief. What we don’t know is how it will work in practice. There is a lack of clarity at this time. . “

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