The Horn of Africa nation has a $10 billion gap — $6 billion in new investment and $4 billion of debt reduction per year — that must be bridged to achieve its reform aspirations, UNECA Executive Secretary Vera Songwe said in an emailed statement.
“If you continue to accumulate debt the way you’re doing now, you will likely fall into debt distress in the next two years,” Songwe said about Ethiopia. “A lot of the structural reforms you’ve put in place will not bring in the private sector because you will not be a creditworthy country.”
Ethiopia’s government debt climbed to 60% of gross domestic product last year, which places the country at risk of debt distress, International Monetary Fund Africa Department Director Abebe Selassie said in July. Songwe’s comments came after Prime Minister Abiy Ahmed outlined a plan to keep Ethiopia among the fastest-growing economies globally, while creating jobs for the 11 million unemployed people, about 10% of the population, and alleviating widespread poverty.
Abiy has made rapid changes to the country’s once tightly regulated political and economic space since he came to power last April, with plans to open up state-owned industries, from telecommunications to finance and power, to more foreign investment. In February, he said the government had rescheduled 60% of its loan repayments to 30 years from 10 years because it wasn’t generating enough to pay off debt that the state took to finance huge projects.
Ethiopia Says Economy Imbalanced, Needs Corrective ActionsBy Nizar Manek bloomberg.
The Ethiopian economy isn’t generating enough to pay off loans the state took to finance the Horn of Africa nation’s ambitious infrastructure and development programs, Prime Minister Abiy Ahmed said.
Government investment in projects such as Africa’s biggest hydro-electric dam, sugar projects and a series of industrial parks across the nation have yet to earn sufficient foreign currency, he told lawmakers in the capital, Addis Ababa. Ethiopia has rescheduled 60 percent of its loan repayments to 30 years from 10 years, he said.
“After the political unrest in the country, we have seen high macro-economic imbalance,” Abiy said, referring to turmoil that began about four years ago. “Our economy will face danger in the coming few years if we don’t take corrective measures on this.”
Abiy has made rapid changes to Ethiopia’s once carefully controlled political and economic space since becoming prime minister in April, with the nation’s ruling politburo announcing plans to open up state-owned industries from telecoms to sugar and power generation to foreign investors.
The World Bank stepped in last year with $1.7 billion funding to help the nation narrow its budget deficit, Abiy said, warning that stagflation may occur if no corrective measures are taken. Ethiopia’s export-import ratio stands at 1:5, he said.
The government has reduced expenditure on capital-intensive projects such as roads, which has slowed expansion rates in one of the world’s fastest-growing economies. As a result, the rate of inflation has dropped, Abiy said. It came in at 10.4 percent in December, from 13.6 percent a year earlier, according to Central Statistical Agency’s data.
Costs for the much-delayed Grand Ethiopian Renaissance Dam, initially estimated at 80 billion birr, could rise by about 60 percent as completion is now only expected in four years, Abiy said.
State-owned Ethiopian Electric Power Corp., which Abiy said would be privatized, holds more than 300 billion Birr ($10.6 billion) of debt, equal to 99 percent of its capital, meaning that should the state-owned company be sold off, the nation would get only 1 percent shareholding, Abiy said.
“If we don’t work on what we started, Ethio Telecom will be useless,” Abiy said, referring to the telecom monopoly that’s among state enterprises to be liberalized.
The European Union wants to support infrastructure between Ethiopia and Eritrea, while the World Bank is willing to fund the development of Eritrean ports, Abiy said. Spokespeople for both lenders didn’t immediately respond to emailed requests for comment.