Government slashes guaranteeing loans for public enterprises

The growth rate of government guaranteed loan has significantly shrunk after the Ministry of Finance and Economic Cooperation (MoFEC) places a new scheme and preconditions on providing guarantee for loans particularly from overseas.
A couple of years ago the country external debt has grown to moderate level alarming the government to see options to run pubic projects in other options including public private partnership than the usual trend.
One of the new measures that the government takes is to suspend commercial or non-concessional loan and stick on concessional loan, which has better grace period and low interest rate.
Haji Ibsa, Public Relation head of MoFEC said that the usual trend to provide guarantee for a loan for public projects has been reframed as of this budget year.
He said that this is applied after the country’s debt move to moderate level. He said that all public enterprises except Ethiopian Airlines and Ethio Telecom need a guarantee from the government. However the two enterprises does have access to loan without government guarantee.
The new directive applied two years ago reframed the rate of providing guarantee for public project, according to Haji. “We have to learn from the experience of sugar and other projects that are delayed for a longer period,” he said.
MoFEC’s Public Sector Debt Statistical Bulletin issued in December 2017 indicated that the country outstanding external debt has reached USD 24.22 billion as of the third month of the current budget year.
From the stated amount the debt secured via government guarantee is over USD 7.11 billion, while the growth trend has significantly reduced compared with the preceding period.
In the 2016/17 fiscal year the country/government guarantee ratio stood at USD 6.94 billion. From the last year amount the current year rate as of the end of the third month of the fiscal year only grew by USD 169 million.
The government guarantee loan compared with 2015/16 to 2016/17 the latest one is very limited. In the 2015/16 fiscal year the government guarantee debt stood at USD 6.09 billion from USD 4.88 billion in 2014/15.
At the end of 2014 the country has been enjoying the euro bond market for the first time by accessing USD 1 billion. The USD 1 billion 10-year bonds will be priced to yield 6.625 percent, at the lower end of the 6.625 to 6.75 percent price guidance. The finance secured from the bond has been targeted to develop the public projects like industry parks and sugar projects that would have quick hard currency return, while most of the projects did not come to completion as expected.
For instance the Hawassa Industry Park which was completed with little delay has enabled to attract some prominent garment and textile industries but its operation is not as per the expectation. On the other hand the many sugar projects across the country are delayed.
For the budget year the government allocated 16.97 billion birr for settlement of loan. So far in the past nine months 11.85 billion birr was paid and the balance 5.3 billion birr will be settled in the coming months of the budget year.