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During a press conference recently Haji Ibsa, Public Relations Director of the Ministry of Finance and Economic Cooperation (MoFEC), said that the national debt at the end of the last fiscal year was close to 51 billion birr. This includes debt from multilateral and bilateral foreign sources. The actual commitment was 98.8 billion birr from both sources.
He said there needs to be a focus on detailed studies to tackle unnecessary expenses and accomplish projects on time.
Currently, he said, many projects are behind schedule and are costing too much money. He further noted that a detailed study on projects must be done before they start.
He mentioned the fertilizer factory at Yayu that has not been completed even though it started about five years ago and pointed to a project managed by the Metal and Engineering Corporation which is supposed to be finished in two years according to the corporation’s revised study, but in fact the Chinese consultancy firm, COMPLANT said it would take them five years. His detailed answers to the questions as the press conference are presented as an interview below:
Question: Looking at the commercial loans, the government wants to freeze them, what is the update on that?
Haji: There are two types of loans; commercial loans and concessional loans. For the latter one, if over 35 percent of it is provided as a grant that is called a concessional loan. If the grant amount of money is below 35 percent, then it is called a commercial loan. There are several other differences between the two.
If it is a concessional loan, the amount of time you have to pay it back is a long time. For example, the World Bank gives up to 38 years of maturity time and the interest rate, for service charge only 0.75. Of this almost 56 percent is grant money so what you actually pay is a little over 40 percent of the loan and that is paid over a long period of time.
To get this loan there are five criteria and one of those Ethiopia sees as a problem is the net present value of external debt to export where our capacity is very small. The government has, starting from the first Growth and Transformation Plan, our export revenue has not been balanced with the net present value of export so the country used to have a low debt rate but now we have gone up to moderate debt rate. When we entered the moderate rate, for example, a country can get a loan of up to 56 percent of its GDP, ours is well below that; it’s around 23 percent.
The net present value of external debt to export, it has been something we have failed at as a country and as a government, and that is why it has been given special attention, that is one of the reasons that there has been an intensive expansion of industry parks. These parks put out export products as well as absorbing the many university graduates we have into the workforce. Looking at Hawassa Industrial Park, it has taken over 60 thousand youth into its workforce. When all of the industrial parks become operational, they will have a significant amount of job opportunities while solving the low capacity export.
There are also works done to double up the amount of items we currently export as well, increase their quality as well as competitiveness and increase its acceptance globally.
When we look at the net present value of debt to revenue, we see a positive trend. When it comes to short debt service to export, it is also something we failed at so that is why the government has decided to stop commercial loans. Until when has the commercial loan stopped, as soon as we are able to solve our export deficit, after all the industry parks go operational plus as we don’t just want to stay at moderate rate, we want to be at the low rate if not maintain the rate we have now.
Question: Since the government has stated that it wants to stop commercial loans, the government wants to drive forward the public private partnership, in which sectors does the government want to focus?
Haji: Looking at PPP, in this area there have been several proclamations, they are the first for the country. The first draft has been tabled for the parliament; it might be ratified in 2010. This is not something only the government will work with, it will be both the private sector and government that will work together, it encourages the private sector, it is to facilitate and increase the role of the private sector in the economy.
When the proclamation is ratified, unless the current export situation the country changes, we will continue with concessional loan. But like I said, with the industry parks operational and with that if we are to solve the export challenges, after some discussions, we could go to commercial loans.
Question: You stated that there is some progress on IFMIS, but recently the general prosecutor has stated that payment has been made to different companies while work has not been done and the whole thing has not been working, how do you explain this?
Haji: With regards to IFMIS, the project and what Ethiopians need to know is that, the issue of the arrested people on claims of corruption, it is not because of the whole project. The project is actually responsible for putting us on second place as a country with the strongest financial systems in Africa. But there were issues and gaps when it came to certain aspects of it such as the bidding process. The system on its own in due time revealed misconduct.
Looking at the project in general, it is one that works, it is not faulty and it will further strengthen the financial system in the country and one that will expose misconduct immediately and it is a very useful project. That is what I am saying.
The measures that have been taken at our ministry are not something that is new. Since the government started the deep reform activities, it has taken different measures on different institutions and that is how we have to look at it. It is part of the deep reform.
We need to see separately the project and the faults that have been seen in some aspect of the project. The project as a whole is extremely important. When the project is at a level of being implemented nationwide, it will decrease corruption and misconduct. There are 11 modules in the form of software it shows every detail on items that are being procured and bought; how much it costs, when it was bought, how much of it was bought and you wouldn’t have trouble to find the depreciation date on items.
It will control waste and it will take the country one step up in the line of developed countries. That is why it is very important to see the project and the individuals that are at fault as two different things; the system is better than what we had. Probably because it hasn’t progressed at the rate expected, that might be a down side but we expected it to be implemented at 70 to 80 percent at federal level and that will go down to all the regions, down to every worded and so on.
Question: The prosecutor has stated that the project has not been successful, isn’t what you are saying in contrary to that?
Haji: The prosecutor is not commenting on the whole project, it is talking about the different processes within the project such as the bidding and procurement processes that it has labeled as poor. That is how I have understood it. There were gaps in some processes where legal procedure was not followed, but the project is one that is still very important.