Ethiopia’s debt distress signaled to drop from its 9 year highs

The International Monetary Fund (IMF) forecasts that Ethiopia’s external debt GDP ratio will drop further unlike the previous estimation. The debt stock is said to hit under the 20 percent of GDP mark for the first time in nine years.
A week ago, the IMF published its Regional Economic Outlook titled, “The big funding squeeze” for Sub Saharan Africa which was a revision and relook of its forecasts projected in last year’s report.
In the report, the international organization revised the economic growth of Ethiopia from its October 2022 estimation.
For instance, the latest report stated that the Ethiopian economy has grown by 6.4 percent, which increased from the October forecast of 3.8 percent. Similarly it has that forecasted the country will have a growth of 6.1 percent in 2023 unlike the October estimation of 5.3 percent.
According to the report Ethiopia’s external debt to GDP ratio has also shriveled from the previous projection to 18.2 percent for 2023. In the previous estimation IMF forecasted that the country external debt will stand at 22.4 for this year. This is said to come in light of government’s struggle on the acute foreign currency resource shortage, which nonetheless has been met with strong commitment to settle external loans on due dates.
According to the IMF forecast, the country’s foreign currency reserve is stated as 0.6 months in 2023 and it was even signaled that it may further deteriorate in the 2024 to drop to only two weeks.
This similarly has been catalyzed by the government commitment and low inflow of fresh loans which allowed the external debt stock to drop sharply in the past three years, particularly in the past two budget years.
Likewise in this budget year that started July 2022, the country is servicing huge amount of money for loans that it took in the past, while the inflow is lower compared with the outflow.
According to the estimation, the country debt servicing will sharply increase in these coming two year unless the country gets restructuring from lenders.
Recently, the Ministry of Finance disclosed that in the coming budget year that the government major priority will be in debt servicing.
The growing settlement has led the government to get debt restructures and access for fresh loans that was previously dry as part of the pressure on the government following the conflict which sprang in the northern part of Ethiopia.
At the beginning of 2021, the government declared that it would see debt re-profiling through a Common Framework that was launched by the G20 countries in late 2020. This however did not pan out as expected.
The IMF forecast indicated that the country’s external debt will stand at 15.8 percent of the GDP by 2024. If the country’s debt were to stand at per the projection it would be the first time for it to hit the less than 20 percent or one fifth of the GDP mark after the 2014/15 budget year.
About nine years ago, the country’s external debt was 18.8 percent of the GDP and that jumped to 21.9 percent in the 2015/16 and continued on its sharp increment despite the government cutting access to commercial loans starting from 2017 at a time when the country was entering the high risk of external debt distress category.
However, the country has seen a reduction in external debt to GDP ratio in the past three years from the ratio of about 30 percent.