Addis Abeba – Ethiopia has introduced a new proposal aimed at expediting the renegotiation of its external debt under the G20’s Common Framework.
This proposal outlines a procedure to conclude the ongoing debt restructuring process within six months of its approval by the IMF’s Board of Directors.
Eyob Tekaligne, Ethiopia’s State Minister for Finance, announced this new proposal during the Global Sovereign Debt Roundtable on 25 October, 2024.
The roundtable was co-led by Kristalina Georgieva, Managing Director of the IMF, Ajay Banga, President of the World Bank, and Fernando Haddad, the current Finance Minister of Brazil and Chair of the Group-20.
Eyob is a member of the high-level Ethiopian delegation, led by Finance Minister Ahmed Shide, currently in Washington, D.C., for the 2024 World Bank and IMF Annual Meetings, which began on 22 October, 2024.
In his remarks at the roundtable, Eyob emphasized the importance of establishing automatic interim debt suspension arrangements for countries making “good faith efforts” to address their debt challenges.
Finance Minister Ahmed Shide reaffirmed Ethiopia’s stance during bilateral discussions held yesterday with U.S. Assistant Secretary of State for African Affairs Ambassador Molly Phee and Assistant Secretary for International Affairs at the U.S. Treasury, Brent Neiman.
Following a briefing to the U.S. officials on Ethiopia’s current economic and political situation, Minister Ahmed emphasized the essential support required from development partners to help Ethiopia conclude its debt treatment negotiations under the G20 Common Framework.
A macroeconomist who spoke with Addis Standard on the condition of anonymity contended that the delays in debt restructuring negotiations have obstructed Ethiopia’s access to financing from multilateral agencies and bilateral creditors.
The economist further observed that these delays have impaired the country’s capacity to benefit from the G20 framework, which has the potential to enhance its debt distress rating from “high risk” to “moderate risk.”
By the end of 2020, Ethiopia had reached a critical juncture as its total public debt surged to a staggering $55 billion. This substantial debt burden constituted approximately 59% of the nation’s gross domestic product (GDP).
A significant portion of this debt, amounting to $28.8 billion, or 52%, was sourced from external creditors.
In response to this challenging situation, Ethiopian officials have been actively working to negotiate and restructure this substantial debt burden.
In early 2021, Ethiopia formally requested debt restructuring under the G20 framework.
Despite the establishment of a creditors’ committee to review Ethiopia’s application, progress has been slower than anticipated, largely due to the two-year war in Tigray. Although the Pretoria Peace Agreement of November 2022 facilitated negotiations with the IMF, no concrete agreement has yet been reached.
The most recent Public Sector Debt Statistical Bulletin, released by the Ministry of Finance, indicates that total public sector debt—comprising both domestic and external liabilities—reached $65.8 billion as of 31 March, 2024. During the same period, the external debt alone amounted to $28.9 billion.
The IMF, the World Bank, and Paris Club countries together account for 75% of Ethiopia’s total external debt.
During the ongoing negotiations, Ethiopia also submitted a request to borrow slightly over $10 billion from the IMF and the World Bank. In response, the Bretton Woods institutions indicated their willingness to extend financial assistance, contingent upon “certain conditions.”
Significant progress was achieved two months ago when Central Bank Governor Mamo Mihretu announced in an online video that Ethiopia would receive $10.7 billion in external financing from the IMF, World Bank, and other creditors as part of a comprehensive reform package.
Last week, the IMF Board completed the first review under the Extended Credit Facility (ECF) for Ethiopia, enabling the country to draw approximately $340.7 million. This credit forms part of a broader $3.4 billion support package from development partners and creditors, approved by the IMF Board in July 2024.
In August 2024, the World Bank’s Board of Executive Directors approved a $1 billion grant and a $500 million concessional loan from the International Development Association (IDA) to support the second phase of Ethiopia’s Homegrown Economic Reforms, initiated by the government in July 2023.
While Ethiopia has made strides in securing much-needed foreign currency from the IMF and the World Bank, discussions regarding sovereign debt restructuring are still lingering.
Globally, there is increasing debate on how to establish effective mechanisms to ensure swift and orderly debt restructuring for countries in financial distress, helping them return to a sustainable growth trajectory.
“What has happened is that there are ad-hoc mechanisms put in place when the problem comes, [but] there is no permanent institution or system that is there all the time dealing with debt restructuring,” remarked Rebeca Grynspan, Secretary-General of the United Nations Conference on Trade and Development (UNCTAD) last month on the sidelines of the U.N. General Assembly in New York.
The Common Framework, a Group of 20 initiative launched in 2020 to streamline debt restructurings, has faced criticism from both creditors and borrowers. Its adoption has been limited, with only four countries—Chad, Ethiopia, Ghana, and Zambia—seeking debt relief under this framework.
Grynspan expressed concerns about the lengthy process involved in reaching debt restructuring agreements, citing the cases of Zambia and Ghana as examples.
She emphasized the increasing frequency of systemic shocks that can plunge developing countries into debt distress, highlighting the urgent need for a more efficient and timely debt restructuring mechanism.
Ethiopian authorities have also voiced frustration with the existing global financial architecture, emphasizing the need for a permanent mechanism for sovereign debt restructuring.
Against the backdrop of the 16th BRICS Summit in Kazan, Russia, Ethiopian Prime Minister Abiy Ahmed delivered a pointed critique of the global financial system, stating that “economic growth in developing countries is often challenged by unfair global financial systems.”
In his address at the three-day summit, which commenced on Wednesday, 22 October, 2024, Prime Minister Abiy emphasized that “the imbalances in our global economic framework are driving rising inequality, inflation, and unemployment, making collective efforts more urgent than ever.”
He called on BRICS to expedite the processing of membership applications to the New Development Bank, noting that this “will serve to enhance alternative financing, particularly for infrastructure projects that are crucial to our development.”
The Prime Minister’s remarks followed closely after the Ethiopian delegation, participating in the 2024 World Bank and IMF Annual Meetings, articulated the nation’s stance on critical reform proposals designed to enhance the Bretton Woods system’s adaptability to contemporary global challenges within a rapidly evolving environment.
During these discussions, Finance Minister Ahmed underscored the need to establish innovative, quickly deployable financial safety net mechanisms, which he deemed essential “to address the shortage of affordable liquidity” that countries face in times of crisis.
He further highlighted the necessity of expanding the financial capacity of multilateral development banks to provide low-interest, long-term financing to developing economies, enabling access to critical resources without incurring unsustainable debt levels.
Finance Minister Ahmed also called for “reforming the IMF’s quota, representation, and governance structures” to ensure that emerging markets and developing countries obtain sufficient financing and have a decision-making influence proportional to their economic contributions.
In a recent interview with CGTN, Mamo Mihretu, Governor of the National Bank of Ethiopia (NBE), also reiterated Ethiopia’s appeal for a multilateral system reflective of contemporary global realities, ensuring enhanced representation for African nations.
“Disparities in representation and voting rights within institutions such as the UN and the IMF are key factors behind Ethiopia’s push for reform,” the governor noted. AS
