Ethiopia takes 'crucial step' in debt restructuring plan

Ethiopia has welcomed what it terms a crucial step in its efforts towards debt restructuring under the G20 Common Framework.

In a statement on Wednesday, the Finance ministry said Wednesday that it was pleased with the commitment shown by the Creditors’ Committee in the country’s bid “to provide debt treatment tailored to the needs of the economy, as a foundational step towards ensuring macro-economic stability”.

The committee held its first meeting on September 16.

"We are particularly grateful for the work done so far by the co-chairs of the committee, France, and China for their tireless effort to form the committee and the opportunity extended to Ethiopia to attend the virtual meeting and present its request,” the Ethiopian ministry said.

State Finance Minister Eyob Tekalign Tolina told journalists that the meeting was "successful" and that the next one will take place in the coming weeks.

"How the private sector components will be treated is something that the committee will work on in the coming weeks," Eyob said.

Virus, Tigray conflict

Besides the Covid-19 pandemic, the bloody civil war in Ethiopia’s northern Tigray region is crippling the economy of Africa's second most populous nation.

The debt treatment decision comes as the horn of Africa's nation's resources continue to get stretched, especially as the spreads to other regions.

Last July, Addis Ababa admitted it had lost some $2.3 billion in infrastructure damage in Tigray, where Ethiopian forces had been pursuing the Tigray People’s Liberation Front (TPLF), once a ruling party but now considered a terrorist group.

The ministry said the restructuring of debt will allow Ethiopia go create stable economic fundamentals.

"This action will provide liquidity relief from the economic challenges imposed by the Covid-19 pandemic and help establish the fiscal space needed to meet the country's development and social spending needs, while lowering the risk of debt distress by reprofiling debt service,” it said, reiterating its commitment to work with creditors to finalise details of the debt treatment plan.

"The steadfast commitment Ethiopia to implement our Homegrown Economic Reform Plan is resulting in a resilient economy with a stable growth path,” the ministry said.

"Our achievements include prudent and proactive macroeconomic management, a sustainable public debt management system, an improved business environment for greater private sector participation, enhanced performance of public enterprises, improved export performance, as well as increased revenues and measured expenditures.”

IMF backing

The ministry further said it recognises the important support of the International Monetary Fund (IMF) to Ethiopia’s reform process under the Extended Credit Facility (ECF)/ Extended Fund Facility (EFF) programme.

The IMF’s continued engagement in Ethiopia will be critical as the programme supports Ethiopia’s economic recovery after Covid-19-related shocks while safeguarding delivery of resources to vulnerable groups. 

"The technical assistance by the IMF, supporting fiscal, monetary, and financial sector policy reforms, has also been highly beneficial in strengthening the performance of our economy,” the Finance ministry said.

Despite the technical expiry of the ECF component of the programme, the EFF will continue to be active. We have requested a new ECF arrangement that will give us access to concessional Poverty Reduction and Growth Trust (PRGT) resources, replacing the expired component,” it added.

"We look forward to discussing modalities of IMF engagement going forward and appreciate the continued support by our international partners for the implementation of our Homegrown Economic Reform Programme."

The amount of debt to be restructured will be revealed at the Creditors’ Committee next meeting.