JidbaaleAs of June 2024, Ethiopia’s public debt has reached $68.86 billion, as reported in the Ministry of Finance’s latest Public Sector Debt Portfolio Analysis No. 25. This statistic represents 32.9% of the nation’s GDP, reflecting a reduction from 57.2% in 2019, demonstrating success in controlling debt levels. However, the research underlines persisting issues that deserve careful attention as Ethiopia balances its economic aspirations with budgetary sustainability.
Changes in Debt Structure
The nature of Ethiopia’s debt has altered dramatically during the previous five years. Domestic debt has expanded by 51.9%, driven by the government’s growing dependence on Treasury bills, long-term bonds, and loans from the National Bank of Ethiopia. As a consequence, domestic debt now amounts to 57.7% of the total, up from 47.7% in 2019/20.
In contrast, foreign debt growth has moderated, with a current total of $28.89 billion, suggesting a purposeful tilt toward concessional borrowing. Multilateral creditors, such as the World Bank and IMF, currently control 54% of Ethiopia’s foreign debt stock, supplying money on advantageous terms. Meanwhile, borrowing from bilateral sources, notably non-concessional loans from Chinese policy banks, has dropped due to Ethiopia’s “zero non-concessional borrowing” policy for state-owned companies (SOEs).
Rising Debt Service Costs
The expense of repaying Ethiopia’s debt remains a substantial burden. Total debt service payments for 2023/24 amounted to $2.2 billion, with foreign debt service making up $1.27 billion of this total. The foreign debt service-to-export ratio is at 11.3%, above the 10% criterion for low-income nations. This violation indicates the strain on Ethiopia’s foreign currency reserves, exacerbated by underperformance in the export sector.
Currency uncertainties further aggravate Ethiopia’s budgetary problems. Approximately 45.8% of foreign debt is denominated in U.S. dollars, subjecting the economy to swings in exchange rates. A higher dollar raises payback costs, especially for SOEs depending on variable-rate loans.
Strategic Investments and Delays
Ethiopia’s borrowing has mostly concentrated on infrastructure development, notably in transport and energy. Projects such as roadways, trains, and power-producing facilities attempt to encourage economic development and increase trade connections. However, delays in project implementation have slowed development. As of June 2024, undisbursed loan sums totaled $7.38 billion, demonstrating inefficiencies in project completion and administrative issues.
Policy Measures and External Support
The government has taken many efforts to alleviate debt concerns. These include reducing non-concessional borrowing, re-profiling existing loans to prolong maturities, and leveraging public-private partnerships (PPPs) to finance infrastructure projects without adding to public debt. Additionally, Ethiopia is actively participating with the G20’s Common Framework for Debt Treatment to restructure foreign commitments.
Ethiopia’s reform initiatives are backed by foreign development partners. The IMF has committed $3.4 billion to assist the country’s medium-term program, while the World Bank has provided $3.75 billion in budgetary support. These funds attempt to overcome a $10.7 billion financial deficit forecast for 2024/25 to 2027/28.
Outlook: Balancing Growth and Fiscal Discipline
Ethiopia’s decrease in its debt-to-GDP ratio is a noteworthy accomplishment, but the path ahead is loaded with problems. Expanding the export base, enhancing project execution, and strengthening debt management techniques will be crucial for sustaining budgetary sustainability.
The Ministry of Finance’s research highlights the necessity of matching borrowing plans with larger economic aims. With careful planning and continuous foreign help, Ethiopia has the capacity to utilize its debt for development while preserving budgetary discipline. However, without addressing structural weaknesses, such as poor export income and currency issues, the progress accomplished might face reverses.
