Ethiopia Still Awaits Debt Restructuring
Two years and almost no progress. At the beginning of 2021, Ethiopia had asked to participate in the common debt restructuring framework, this body set up by the G20 to bring China and the major creditor states of the Paris Club together. But as the country was plunged into a bloody conflict between the authorities and the rebels in the Tigray region, negotiations got bogged down.
The peace agreement signed in November 2022 has revived hopes of a breakthrough in the talks. In addition to debt relief, Addis Ababa is asking for assistance from the International Monetary Fund (IMF) to finance post-war needs, which the government estimates at 20 billion dollars (18.4 billion euros). But the two requests are stalled, each of the parties returning the responsibility to move forward first.
“Any agreement on a new program between the IMF and Ethiopia would require clear commitments from development partners and funding guarantees from creditors under the G20 framework”, indicated on May 11 the financial body. For its part, the Paris Club says it is waiting for an agreement between Ethiopia and the IMF before deciding.
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Addis Ababa, whose external debt peaks at 27.4 billion dollars (27.1% of GDP), is now classified at high risk of over-indebtedness. The overvalued exchange rate, weak exports and rising debt service make Africa’s second most populous country particularly vulnerable.
A deadline in 2024
Formerly nicknamed “the African lion”, Ethiopia borrowed heavily from China in the 2010s to finance its mega infrastructure projects, such as the Great Renaissance Dam, the railway line to Djibouti, or the Addis Ababa tram. It has also risked itself on the financial markets, raising a billion dollars in eurobonds in 2014, a loan whose maturity, at the end of 2024, is getting dangerously close.
In 2018, China had already granted a deferral of payment (from ten to thirty years) of part of its loans and would again be willing to restructure certain Ethiopian debts outside the common framework of the G20. According to Alex Demissie, economist at the China Africa Advisory Group, the Chinese export insurance and credit company Sinosure could renegotiate the terms of around four billion dollars in Ethiopian loans.
But within the common framework, of which he chairs the creditors’ committee alongside Paris, Beijing drags out discussions, demanding a sharing of losses with multilateral players. “We hope that multilateral financial organizations play an active role in providing debt relief to developing countries”, assured the Minister of Foreign Affairs, Qin Gang, in March. Because if China holds 77% of the stock of Ethiopian bilateral debt, it represents “only” 23% of the total external debt, according to figures from 2021, against more than half for multilateral creditors.