Ethiopia is set to benefit from $4.9bn in debt repayment relief as it advances its debt restructuring efforts, State Finance Minister Eyob Tekalign announced on Friday. This significant financial reprieve comes as the East African nation secures a new financing programme from the IMF, reinvigorating its long-delayed debt overhaul.
Eyob detailed the upcoming steps in the restructuring process, stating, ‘We will sign and finalize agreements with each creditor country over the next few months,’ in an interview with Reuters. Ethiopia’s external debt was reported at $28.38bn as of March, according to the finance ministry.
Prime Minister Abiy Ahmed, in a televised address on Thursday, highlighted the economic reforms, including the expected $200 million savings from restructuring the country’s $1bn Eurobond. Eyob explained that this saving would be achieved through a ‘nominal reduction’ in the bond’s value as part of the debt rework.
Abiy also defended the recent switch to a market-determined foreign exchange rate, aiming to bridge the gap between the official and black market rates, which he clarified was not a devaluation of the birr. The central bank allowed the birr to float freely on Monday, a key condition for obtaining IMF support and progressing with debt restructuring.
Since the policy change, the birr has depreciated by 31.5 percent against the dollar, now trading at 83.94 per dollar, according to the Commercial Bank of Ethiopia. This depreciation has sparked concerns among economic analysts about potential inflation spikes. Abiy addressed these concerns, stating, ‘Saying Ethiopia has devalued its currency is wrong. There were two markets with significant discrepancies, and unifying them was necessary to mitigate risks.’
While the liberalisation of foreign exchange trading facilitated Ethiopia’s IMF deal and funding from other creditors, including the World Bank, there are concerns about the policy’s inflationary impact on low-income households. In response, local governments have cracked down on shops raising prices, with the federal ministry of trade closing over 700 shops for ‘unjustified price hikes and hoarding’ since the new exchange rate policy took effect.
The Ethiopian government and its creditors believe that these economic reforms will empower the private sector to play a more substantial role in the economy, ultimately fostering long-term growth.
