The conversion of direct advance (DA) to long term government bonds lead to a share drop of over six folds from the total claims of the National Bank of Ethiopia (NBE) on the government.
In the past and current budget year, the government has been aggressively taking DA from the central bank to fill its budget deficit which was hard hit by lack of inflow from oversea partners.
In the first and second quarter of the budget year, the government has taken 60 billion and 40 billion birr respectively, which are very huge amounts when compared to the whole of last year that the government took from NBE as DA.
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.
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 from the total public sector domestic debt has been lower particularly when compared with the experience before 2019.
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.
According to NBE’s second quarter report for the 2022/23 budget year, financial activities of NBE gross claims on the central government reached 474 billion birr at the end of December 2022, which is about 52.2 percent higher than a year earlier.
Of this sum, government bonds accounted for 91.6 percent and direct advance 8.4 percent.
“Direct advance decreased by 64.8 percent compared to the same quarter of 2021/22 due to its conversion into government bond,” it said.
As per the policy shift, the transfer of direct advance to long term government bond in the quarter stood at 40 billion which is a declined by almost 82 percent and 65 percent when contrasted with last year similar period and the year prior to that, respectively.
At the end of the first quarter, the DA amount was 219.5 billion birr. In the first quarter, the gross claims of NBE on the central government were 417 billion birr and of the stated amount, the DA share was 52.6 percent with the balance being for government bonds.
Now the DA share on gross claims has dropped by 626 percent in contrast to the share in the first quarter of the fiscal year. Similarly, due to the conversion of the DA to bonds, the share of DA has dropped to about eight percent of the total claim.
In the first quarter of the budget year, the DA surged by 93.4 percent in comparison to a similar period of last year to reach 219.5 billion birr from 113.5 billion birr, while in the second quarter it has dropped sharply due to the amounts being transferred to a long term bond.
Similarly at the first quarter, the bond growth rate amount was negative 0.4 percent when compared to the same period of the 2021/22 fiscal year.
At the end of the first quarter the total amount of bond was 197.5 billion birr, which was 198.4 billion birr a year ago. But on the second quarter of the 2022/23 fiscal year, it has surged to 434 billion birr because of it received the DA.
Recently, the Ministry of Finance (MoF) stated that as at October 7, 2022 the total outstanding of DA which was 236.5 billion birr was converted into long term bond.
According to MoF’s first quarter debt bulletin, following the decision to convert the DA to interest bearing long term government bond it has climbed by 123 percent to stand at 428.8 billion birr from 192.2 billion birr in June 2022.
On the second quarter of the fiscal year, the bond reached 434 billion birr which is an expansion of 119.3 percent with respect to the same quarter of last year.
According to NBE’s quarterly reports, in the second quarter of the fiscal year that ended in December 2022, banks deposit at NBE has shot up 27.3 percent compared to the amount a year ago, standing at 184.5 billion birr that was 145 billion birr at the end of December 2021.
The quarterly report stated that NBE’s deposit liabilities rose 18.8 percent over last year due to monetary policy changes on the reserve requirement ratio.
