ADDIS ABABA, 24 March 2021 – Ethiopia’s Prime Minister Abiy Ahmed Ali has committed to reducing the country’s debt to a manageable amount.
The pledge given Tuesday by the prime minister while responding to questions from parliamentarians is being seen as an apparent admission that the country is overburdened by its debt – estimated at about $40 billion.
“The amount of [bilateral and multilateral] debt Ethiopia owed to foreign creditors is small compared to amounts owed by other African countries,” said Abiy Ahmed.
He added: “But in terms of debt-to-GDP ratio, it is one of the highest”.
Last November, Fitch Ratings downgraded Ethiopia to CCC shortly after Addis Ababa admitted that it intended to make use of the G20 Common Framework for Debt Treatments beyond the Debt Service Suspension Initiative.
The initiative suspended debt servicing for many developing countries in an effort to allow them the fiscal space so many of them needed in order to tackle the new coronavirus pandemic and the pandemic-induced economic crisis.
The Ethiopian prime minister projects that the Horn of Africa nation can make a turnaround of its debt distress over the next three years.
Ethiopia faces numerous challenges, notably the armed conflict in its northern Tigray region, which has sapped budget resources, and it is fighting locust floods that are devastating the country’s agricultural sector.
Abiy Ahmed said his administration has worked very hard to remedy the indebtedness which, back in 2010, led to Ethiopia being added to the “list of high-debt distressed countries”.
The prime minister told lawmakers that the Home-Grown Reform Agenda launched by his administration three years ago has resulted in a ten percent reduction in the debt the country owed.
In 2018, the debt-to-GDP ratio amounted to 37.7 percent,” Abiy Ahmed told MPs, explaining that the ratio dropped in 2019 to 29.4 percent before falling further down to 26.8 percent in 2020.
“Another 10% reduction in the amount of debt in the coming three years would suffice to come out of the distressing situation,” the prime minister told parliamentarians.
Ethiopia’s GDP has expanded over the three years in question – from $4.3 billion in 2018 through $4.9 billion in 2019 to $5.7 billion in 2020.
Capital expenditure targeting, notably road construction and the health sector, has also expanded rapidly.
Investments in road constructions and healthcare have doubled since 2018 as overall capital expenditure rose from $625 million in 2018 to $850 million in 2020.