By our staff reporter

Ethiopia’s public debt of gross domestic product (GDP) share shrinks by a fifth in the previous budget year to stand at 40.8 percent. As reports show, the external debt share for GDP has continued to dwindle while the country’s debt distress remains on its high risk.

For the past about three years, the country has not been taking significant amount of external debt due to public enterprises and had refrained from taking fresh loans leading to a reduction of inflows for central government.

Despite the slow inflow and foreign currency shortage in the country, the government has continued on its commitment to repay the debt that it receiving in the past.

According to the Ministry of Finance (MoF) debt analysis for the 2022/23 budget year the closed June 30 the total public sector debt including the external increased by 9.8 percent to reach almost USD 63 billion from USD 57.4 billion a year ago.

But the nominal public sector debt, which combined domestic and external, was about 40.8 percent of GDP from 50.3 percent a year ago. The nominal external debt accounting for nearly 18.2 percent share of the stated percentage while the balance of over 22 percent went to domestic debt.

In the 2020 and 2021 budget years, the external debt GDP debt ratio share was higher than domestic debt up until the 2021/22 year where it left the position for domestic debts.    

Even though the country public debt shows slight increment the aggregate public sector external debt rose by almost nil.

For the year, the external debt stood at USD 28 billion from USD 27.9 billion a year ago, “One explanation for this minor increase is the variation in the value of the US dollar in reference to other currencies besides contributing to the limited rise is lesser disbursement during the period.”

In the year the repayment was higher than the disbursement similar to the 2021/22 budget year.

For the reported period external public sector debt disbursements totaled USD 1.47 billion, with IDA accounting for the lion’s share.

“In the last three years, less external finance has been disbursed than in the prior two years. One factor contributing to the decrease in total external debt disbursement is that, with the exception of Ethiopian Airlines, state owned enterprises (SOEs) have not obtained a new loan in the last four years, and they are disbursing less and less for their older projects as they near completion and the amount of money disbursed to them decreases,” MoF’s report explained.

Regarding repaying the external public sector debt, an amount of USD 1.7 billion was paid and of that USD 1.35 billion was principal.

Subtracting the disbursement (inflow) from principal and interest payments resulted in a net resource transfer of USD -293.52 million. The net resource transfer was negative because the entire debt service payment was greater than the disbursement for the period.

Even though the entire external Ethiopian loan disbursement was lower than the experience three years ago it showed improvement compared with the past two years particularly from the 2021/22 budget year which was USD 1.08 billion.

The present value of entire public sector debt as a proportion of GDP was approximately 35.4 percent, while external debt as a percentage of GDP was approximately 13 percent.

“Both figures are substantially below the lowincome country debt sustainability requirements of 40 percent for external debt and 55 percent for total public sector debt for nations with medium debt carrying capacity,” the report read.

From the 40.8 percent nominal public sector debt of the GDP the external debt GDP share throughout the last four years have registered a massive decline. For instance in the 2019/20 budget year was 26.8 percent that was 27.1 percent a year later but it was below the domestic share to stand at 24.5 percent in the budget year that ended  June 2022 and for the year closed June 30, 2023 it further dropped to 18.2 percentages.

As experts express, the country is in a high debt distress due to its foreign currency earning being very poor. However, if countries mainly on the G20 would give a relief under Common Framework (CF) there is a chance to get back on moderate risk level as it was before 2017. 

As its previous reports, MoF mentioned that a discussion with various development partners is underway in response to the November 2020 G20 communique on the CF, “The creditor committee, which is chaired by France and China, for Ethiopia’s CF application was established, but it has not moved forward as expected, so the country has not benefited from this initiative.”

Early 2021 when the country expressed its interest to get debt restructure through CF, despite being a frontrunner some other African countries like Chad, who applied later, have got a green light from creditors for the relief.

As the government and SOEs are slow downing accessing the external credit from private sector creditors its debt share is also reducing in the past few years. Similarly the reduction of bilateral credit from Ethiopian partners mainly from western countries has also shrunken.

The report indicated that from the total over USD 28 billion outstanding funds, the private creditors share for GDP was 3.4 percent at the end of the past budget year that was 6.1 and 4.6 percent in June 2020 and 2022 respectively.   

The bilateral credit share for GDP as of June 30, 2023 also stood at five percent that was 7.9 and seven percent in the year that closed in 2020 and 2022 respectively.

The multilateral credit that is usually at the top has also dropped to 9.9 percent of the GDP share for the reported year from 12.9 percent in 2022.