The Ministry of Finance (MoF) reports that the nominal GDP of Ethiopia exceeded USD 200 billion at the conclusion of the past budgetary year. For the first time in four years, the influx of foreign resources has had favorable results.

According to MoF, Ethiopia’s GDP has grown by 6% during the last three years. As a consequence, the nominal GDP reached USD 207 billion in June 2024, surpassing USD 200 billion.

The GDP of the nation was estimated to have been around USD 163 billion in the previous year.

The government was negotiating debt relief throughout the fiscal year when it was getting ready to execute a historic and significant macroeconomic reform, which included a floating exchange rate regime.

The administration had informed that the negotiations with significant bilateral creditors were proceeding well at the time of the new reform’s July introduction.

According to the MoF’s most recent assessment of the nation’s debt, the Official Creditor Committee (OCC) members’ debt service standstill agreement offers significant short-term assistance.

It added that projections account for the re-profiling of debt payments amounting to USD 2.5 billion owed to all official bilateral creditors in 2023 and 2024. “However, due to increased debt service obligations in the fiscal years 2026/27 and 2027/28, the net standstill amount will total USD 1.4 billion.”

Debt treatment under the Common Framework of the G20 is estimated at USD 3.5 billion, bringing the total debt relief to USD 4.9 billion.

According to MoF’s debt bulletin, foreign public sector debt disbursements between July 1, 2023, and June 30, 2024, were USD 1.38 billion, with IDA, as usual, accounting for the majority of this amount.

The nation paid USD 1.25 billion in debt service during that time, making the net resource transfer for the year USD 123.75 million.

Though the sum is quite small compared to four years ago, the positive inflow for the year is the first since the 2019/20 budget year.

Recall that China and the Paris Club countries decided to postpone debt payments for the budget year in question.

Financial institutions, including insurers at the Development Bank of Ethiopia (DBE), acquired bonds totaling 39.2 billion birr throughout the year.

The National Bank of Ethiopia (NBE) mandated that insurance and Ethiopian reinsurance companies invest in DBE bonds at least 15% of their net income, per Directive No. SIB/54/2021, which went into effect on September 1, 2021.

Similarly, commercial banks were required to invest in DBE bonds at least 1% of all outstanding loans and advances annually, per Directive SBB/81/2021.Similar to this, as of June 30, 2024, the amount mandated by Directive No. MFDA/TRBO/001/2022, which requires all commercial banks to acquire a five-year treasury bond at 20% of their new loan disbursement, has increased by 145%, or 55.7 billion birr. It was 38.3 million birr as of June 2023 and reached almost 94 billion birr in June 2024.

As of June 30, 2024, the total amount owed for Direct Advance climbed to 242 billion birr, from 130 billion birr as of June 2023, according to the MoF report.

It has risen by 86%, exceeding the government’s August 2023 objective of no more than a third above the previous year’s level.

On June 30, 2024, the total public sector debt, including domestic debt, increased to USD 68.1 billion, a jump of 7.5 percent, of which 42.3 percent was external debt, over the reporting period.

This is because there was a 12 percent increase in domestic debt and a 1.9 percent increase in external debt, which totaled USD 28.8 billion.

As of June 30, 2024, domestic and external public sector debt accounted for around 32.9% of nominal GDP, with external debt comprising over 13.9%, according to the MoF’s bulletin.

Ethiopia’s foreign debt would rise to 28.3 percent of GDP in the 2024/25 budget year and then decrease to 26.6 percent in the following budget year, according to the International Monetary Fund’s (IMF) most recent analysis.

The IMF and the World Bank are among the many partners providing the nation with enormous sums of resources in the 2024/25 budget year. These organizations are backing the macroeconomic reform that was formally unveiled on July 29.

The recently established Ethiopian Deposit Insurance Fund (EDIF) discloses that it will fulfill its minimum fund mobilization objective in ten years. So far, approximately one percent of all insured-based deposits in financial institutions have been accumulated by the Fund. It said that in the near future, the Fund will increase the extent of its coverage.

The Operation Directorate Director of EDIF, Merga Wakweya, states that five percent of the entire deposit amount is the appropriate money to which financial institutions should contribute.

He informed Capital that as the deposit mobilization of financial institutions is increasing annually, their contribution to EDIF will likewise rise concurrently.

“In order to achieve the insured deposit amount criteria at financial institutions, they must fulfill five percent of the deposited mobilization to contribute to EDIF,” he said, adding that, based on a random prediction examined by the Fund, this need will be met in 10 years.

He continued, saying that by the conclusion of the 2023/24 fiscal year, 0.89 percent of the insured-based deposit had been raised from financial institutions, mostly banks.

As of right now, the Fund will cover 100,000 birr, according to the operation director, but “in principle, we believe that the amount will be revised every time, which is international practice.”

He made a suggestion that the maximum coverage amount will be changed in three years, depending on how financial firms mobilize premiums.

According to data from the EDIF, which was established in March 2023 to protect the stability, security, and soundness of the nation’s financial system, 97% of depositors at financial institutions had assets below 100,000 birr.

The majority of the public will be served by the coverage amount, according to EDIF CEO Desalegn Ambaw.

The Fund has raised approximately 6.5 billion birr in premiums throughout the budgetary year, with 31 banks, including the state-owned Commercial Bank of Ethiopia (CBE), contributing 99 percent of the total.

According to Desalegn, CBE contributed 49.2 percent, while private banks provided the remaining amount.

In accordance with EDIF article 19’s establishment and operation regulation no. 482/2021, the Fund shall invest the resources in government securities, securities guaranteed by the government, or any other investment mode that the Fund approves.

The CEO states that the resources that were mobilized were invested in Treasury bills (T-bills) and in the interest-free banking investment, Mudarabah at CBE.

“We have invested over half a billion birr at Mudarabah and bought 5.94 billion birr worth of T-bills in the year,” the CEO said.

During the given period, EDIF generated 185 million birr from its investment.

The sole alternative available to EDIF at this time is to invest its resources in T-bills; “in the future, we might invest in other security instruments, but the major focus will be short-term maturity periods,” Merga stated.

With 86 members as of right now, EDIF targets to raise 7.3 billion birr in premiums from banks and microfinance institutions for the current fiscal year.

Every financial institution that signed a membership contract in accordance with the regulations must pay an annual premium to the Fund equal to 0.3% of their average deposits.

In the last three months of the 2022/23 fiscal year, which is the period that the Fund started operation, EDIF had raised 1.6 billion birr.

The Fund covers current or demand/checking accounts, savings accounts, time deposits, joint accounts, trust accounts, which include fintechs, foreign currency deposits (translated to local currency), voluntary savings accounts, and compulsory savings accounts.