The share of public sector domestic debt continues to be at its lowest as the outstanding volume of debt shows sharp jump in the past few years after successful replacement of other instruments at the beginning of the economic reform period.
According to the quarterly debt bulletin issued by Ministry of Finance (MoF), in the first quarter of the fiscal year the country settled a positive foreign debt service against the disbursement.
The quarterly Public Sector Debt Statistical Bulletin developed by Debt Management Directorate of MoF, highlighted that the net issuance of direct advance (DA) for the first quarter of the 2022/23 fiscal year was 60 billion birr which cumulates the total outstanding DA that is taken from the National Bank of Ethiopia to 219.5 billion birr as of September 30, 2022 up from 159.5 billion birr of June 30, 2022.
In the first quarter of the past fiscal year, the government borrowed 30 billion birr from the central bank which resulted in the first quarter figures to go twice as high.
A new boundary has been crossed, one that has not been seen in recent years as the DA passed the 200 billion birr line. Since the reformist government come to power, one of the major moves undertaken was the reform of government expenditure and its source of finance.
For instance, in the middle of the 2019/20 budget year the treasury bills (Tbills) propelled the market which attracted more buyers providing an opportunity for the government to use the finance stemming from Tbills as opposed NBE’s DA.
Last year despite the money obtained from Tbills being huge, the government was forced to take more DA to fill the demand in finance for rehabilitation and support that arose from the conflict in the northern part of the country.
In spite of the DA growing swiftly over the years, in the past few years its share fromthe total public sector domestic debt has been lower particularly when compared with the experience before 2019.
In the past, the share of DA was about a quarter from the total domestic debt but it has reduced in the past few years since the government replaced it by other instruments including Tbills.
However the DA has expanded to 13.8 percent of the total public sector domestic debt at the end of September from 10.4 percent in the end of the past fiscal year and 7.1 percent in the 2020/21 fiscal year.
In the past years however, the central government has been strongly controlling itself from taking finance from the central bank and has shifted to the finance amassed from alternative instruments like treasury bills but pushing factors like reconstruction and aid has forced it to take the DA.
Experts argued that one of the reasons for the expansion of the DA was the lowest flows of external loans and the expansion of the budget deficit.
During his Budget Speech in June, Ahmed Shide, Minister of Finance (MoF), told parliament that from the proposed 786.6 billion birr budget for the 2022/23 budget year, the gap was 231.4 billion birr or over 29 percent of the proposed budget which was to be covered by domestic and external sources.
The Finance Minister said that the budget deficit was 3.4 percent of the GDP, “The budget deficit has shown some increment in contrast to the preceding periods. The gap has widened due to the need for coverage in crucial areas in the budget year.”
According to Ahmed the major portion, 224.5 billion birr of the budget deficit will be covered by local sources whereas the remaining 6.9 billion birr will be sourced from foreign creditors.
The total domestic debt as of September 30, 2022, was 1.59 trillion birr (USD 30.2 billion), up from 1.53 trillion (USD 29.4 billion) as of June 30, 2022. Forty two percent of the total public domestic debt is notably held by state owned enterprises, with the remainder falling to the central government.
The total public sector debt (domestic plus external) stood at USD 57.1 billion as of September 30, 2022, down from USD 57.3 billion of June 30, 2022.
According to the Finance Ministry’s document the nominal public sector debt (domestic and external) as a percentage of GDP as of September 30, 2022, was approximately 50.1 percent, with nominal external debt making up about 23.6 percent of that percentage.
The present value of external debt as a percentage of GDP was around 17 percent, while the present value of total public sector debt as a percentage of GDP was around 43.6 percent.
“Both of these figures are significantly below the low-income country debt sustainability thresholds of 40 percent for external debt and 55 percent for total public sector debt for the medium debt carrying capacity countries,” it said.
By the reporting period, domestic debt made the majority (52.9 percent) of the public sector’s total debt, with approximately 47.1 percent coming from external debt.
As of September 30, 2022, the public sector’s total external debt was USD 26.89 billion, down from USD 27.9 billion as of June 30. Between the two periods, there was a sharp decline in the total amount of external debt.
“One of the main reasons for the decline is the variation was the exchange rate of the US dollar against other currencies, i.e. a stronger dollar caused a rippling decrease in the stock of external debt in terms of USD,which is down by about USD 1billion or 3.7 percent from June 30, 2022,” the MoF bulletin stated.
As of the stated period, the stock of external debt has decreased by approximately USD 2.6 billion, or about 9 percent, compared to June 30, 2021.
Another reason why the debt stock fell this quarter was a negative net flow of USD 250.95 million because of total principal payments of USD 441.08 million and disbursements made during the period of USD 190.12 million, where principal payment was greater than new disbursements made during the period.
Disbursement (inflow) minus principal payments minus interest payments yielded a net resource transfer of negative USD 383.36 million. In the reporting period, the country serviced USD 573.5 million that includes principal, interest and commission.
Ethiopia has managed the highest ever debt service in the past fiscal year compared with the previous three years.
As of September 2022 the country outstanding external debt has dropped by 8.8 percent compared with the fiscal year that closed in June 2021.
At June 2021, the country’s outstanding external debt stood close to USD 29.5 billion which thinned out to about USD 26.9 billion on September 30, 2022.
Ethiopia tactfully services debt despite financial stretches
Trade Ministry steps in to regulate stiff cement market
Ministry of Trade and Regional Integration (MoTRI) announces that it will regulate cement factory gate prices every six months until demand and supply levels.
In a press conference held on Thursday December 22, 2022 Teshale Belhu, State Minister of the Ministry of Trade and Regional Integration (MoTRI), said that the Cement Marketing and Distribution Directive 908/2014 which allows the government to regulate the cement market has been revoked out with a new regulation emplaced.
“The former directive was approved to cope with illegal trading and to fill the gap on demand and supply. However, instead of stabilizing the market it has aggravated the problem, increasing illegal traders in the process,” explained the State Minister.
In the former directive the government has been trying to regulate the price of cement through measures such as setting fixed prices, limiting the volumes that individuals can buy and asking producers to cut distributors out of the supply chain.
In the former regulation, factories were supposed to sell to distributors which were selected by regional and city administrations. Through this, mega government projects and bid developers were said to have got priority in cement consumption.
The price of one quintal of cement was not more than 700 birr but now that narrative has shifted to over 2000 birr in the black market.
“Government will decrease its interaction in the cement market,” stated Teshale highlighting that the Ministry will monitor distributors to ensure that the transaction is completed in a valid way with receipts. However, the ministry will not set market price points.
To be effective as of December 22, 2022, the ministry has issued a new factory gate price. The price revision which is said to have been distributed to the factories has brought the price of one quintal of cement from 750 birr to 795 birr and looks to stay the same for the coming six month, according to the State Minister.
In the past two years, shortage of cement hit the market hard as factories production went down. Meanwhile, the government disclosed that it has taken several measures regarding cement distribution and its high price points. However things on ground seem different. It has been well noted that factories are working under production for reasons that stem from security, shortage of raw material as well as foreign currency.
According to the ministry, through there are about 11 cement factories, only three were properly in production mode. In the 2020/21 (2013 Ethiopian fiscal year) the total cement production in the country was 6.1 million quintals which dropped to 4.1 million quintals in 2021/22. The country’s production capacity is around 12Mt/yr.
Quite recently, even retailers in the city, contractors and builders shed light on heavy concerns to access cement even at twice its rate.
Contractors who are involved in different sized projects alarmed that they are engaged on building the backbone of the economy yet they face the hurdle of accessing cement.
In light of the cement despair, cement top guns, Dangote Cement disclosed that its sales from the Mugher plant rose by 1.8% year-on-year to 1.7Mt in the first nine months of 2022 and that the unit was running at full capacity in the third quarter. It reckoned that it held a 42% market share during this period, out of a total market of around 4.2Mt. Previously, it said that the total market for the whole year was 7Mt in 2021.
Peace agreements spur investors to set base in industrial parks
Following the peace agreement between the government and the TPLF group to stop the conflict in the northern part, about 20 local and foreign companies have signed agreements with the Industrial Parks Development Corporation (IPDC) to invest in the industrial parks.
On Thursday December 22, 2022, the corporation signed an agreement with three manufacturing companies with a capital of more than 11 billion birr which are involved in producing pharmaceutical products, oxygen and nitrogen production, and printing. The contractual agreements were penned by Aklilu Tadese, the CEO of IPDC and the investing companies
The manufacturing companies, which will be put into production at Jimma and Kilinto Industrial Park and Addis Industrial Village are expected to create job opportunities for more than 600 citizens.
Gumsa Trading Plc which will invest in Kilinto Industrial Park took over 10,000sq plot of land to manufacture medicine packaging materials with an investment of 200 million dollars. The company is said to supply its products to local drug manufacturers, hospitals, importers and distributors as well as institutions engaged in the health sector. When it goes into operation Gumsa Trading Plc will create permanent job opportunities for more than 140 citizens.
Suji Liana Doo Oxygen; Nitrogen Manufacturing Plc is the second company which is engaged in the production of oxygen for the consumption of health institutions and has made an agreement to lease 800 square meters of land in Jimma Industrial Park. The company agreed to invest more than 206 million birr. Additionally the corporation has also signed agreement with Impact Printing and Graphics to rent a 1150 square meter production shed in Addis Industry Village at investments of more than 40 million birr.
Currently, there are about 125 both foreign and local investors working in the parks creating job opportunities for more than 81,000 citizens generating 1 billion dollar in annual revenue in the process. The parks are mostly given to investors in the textile and garment sectors who are known in generating hard currency and jobs.
Speaking at the signing ceremony, AkliluTadese, Chief Executive Officer of the IPDC said that the peaceful resolution of the law enforcement campaign in northern Ethiopia has stimulated increase in the flow of investment in industrial parks.
Ethiopia’s truce agreement forecasted to spring Djibouti economic activities
The truce agreed between the government and TPLF is stated by the International Monetary Fund (IMF) as a potential rejuvenator of Djibouti economic activities.
The statement IMF issued early last week recommended government to offer a significant share on the way to privatizing of Djibouti Telecom.
A team from the IMF led by Brett Rayner conducted an Article IV mission to Djibouti until mid-December.
In the statement that IMF issued Rayner said that the conflict in Ethiopia had weighed heavily on Djibouti’s economy, “the conflict saw renewed fighting this year, driving a further fall in port traffic after an already weak 2020 and 2021.”
In addition, higher commodity prices and regional drought have eroded households’ purchasing power and further reduced government revenue.
Accordingly, growth is expected to slow to 2.5 percent and the trade balance is projected to worsen in 2022.
The statement added that a truce agreed in November in Ethiopia could allow for a recovery in trade, reversing recent declines in port activity and help attract new foreign investment.
Projections cite that economic growth in Djibouti will recover in 2023 with a rebound in Ethiopia, and inflation would fall in line with international trends.
Like its neighbor Ethiopia, Djibouti has also embarked on a partial privatization of the state owned Djibouti Telecom. About a year ago, the government invited interested buyers for the sale of a significant minority stake – a 40 percent sale of the sole telecom operator.
On its latest statement, IMF said that with regards to the privatization of a minority stake in Djibouti’s Telecom low interest has been realized, “the authorities should be encouraged to consider offering a larger stake, as bringing in private investment could help reduce IT prices and expand access to mobile banking.”
“Supervision should keep pace with the rapid growth of the banking system, and while the currency board arrangement has provided the country with an effective nominal anchor and helped build confidence in international transactions, the authorities will need to introduce tools to make monetary policy more flexible,” the monetary fund agency added.
Rayner said that large investments over the past decade have driven strong economic growth, but the benefits have not been widely shared, “Djibouti has invested heavily in infrastructure connecting Ethiopia to global markets, driving growth to an average of 6.2 percent over 2013– 19, before the COVID crisis.”
He said that Djibouti’s key challenge is to adjust its growth model to reduce dependence on debt-financed investments while supporting an inclusive recovery from a series of external shocks.
“The authorities have responded to the shocks with a sharp fiscal consolidation and by accumulating arrears pending the outcome of ongoing restructuring negotiations with their main creditor, but spending needs are significant and debt service is set to increase further,” he further elaborated.
IMF recommended that however, to restore debt sustainability and support inclusive growth, it is essential to focus on domestic revenue mobilization and improve oversight of public enterprises.
The authorities should also rationalize subsidies by shifting to more targeted support measures. Governance and public financial management reforms will also be needed to preserve economic stability and create jobs.
