By Muluken Yewondwossen
In an effort to alleviate Ethiopia’s debt burden, the Chinese leader has instructed to expedite debt restructuring negotiations with Ethiopian government entities. This directive comes after the leaders of China and Ethiopia decided to postpone Ethiopia’s debt service payment for the budget year during their meeting at the BRICS Summit in South Africa. This payment accounts for approximately two-thirds of Ethiopia’s total payment for the year.
During a side event at the Belt and Road Forum in Beijing, Chinese President Xi Jinping and Prime Minister Abiy Ahmed discussed the national debt load and the development cooperation between their nations. According to Ahmed Shide, the Minister of Finance, several agreements were reached to accelerate collaboration between China and Ethiopia. In addition to their existing comprehensive strategic alliance, the leaders have decided to broaden their cooperation to include security cooperation. Minister Shide also noted that President Jinping responded positively to efforts aimed at reducing the debt burden, instructing Chinese financial institutions to finalize negotiations with the Ministry of Finance for debt relief and restructuring. Furthermore, the Chinese leader authorized the continuation of project financing using Chinese funding.
Given its significant debt burden, Ethiopia primarily seeks relief and rescheduling from its bilateral partners. In February 2021, Ethiopia submitted an application for the G20 Common Framework (CF) to pursue debt restructuring. As the first country to make such a request under the G20 communiqué from November 2020, which included new lenders like China, India, and Gulf nations in addition to the established Paris Club lenders, Ethiopia is awaiting a resolution.
Additionally, Ethiopia has sought funding from the International Monetary Fund (IMF) to support its economic growth. Julie Kozack, the Director of the IMF’s Department of Communication, acknowledged Ethiopia’s challenges, including the impact of the pandemic, internal conflicts, prolonged droughts, and the repercussions of the Russia-Ukraine war. Kozack stated that the IMF had received a request for financial assistance to address these challenges, which encompass food insecurity, humanitarian needs, post-conflict reconstruction, high inflation, foreign exchange shortages, and imported goods scarcity.
Reports indicate that Ethiopia has requested around USD 2 billion in funding from the IMF to support its Home Grown Economic Reform II. The IMF has expressed its reliance on Ethiopia’s allies and financiers to provide the necessary backing and guarantees for the release of the requested funds. Consequently, Ethiopia is under urgent pressure to restructure its debt and secure further IMF funding.
The delay in addressing Ethiopia’s request can be attributed to factors such as the violence in northern Ethiopia, pressure from Western partners, and a lack of interest from other lenders who were monitoring the circumstances of Western partners. Currently, a creditors committee led by China and France is overseeing the finalization of Ethiopia’s debt restructuring request.
According to Minister Ahmed, Ethiopia stands to benefit significantly from China’s ongoing efforts to restructure its debt with Chinese lenders. Approximately one-third of Ethiopia’s foreign debt, which amounts to around USD 28 billion, is owed to China. The most recent debt report from the Ministry of Finance reveals that the majority of Ethiopia’s debt service payments have been made to Chinese lenders. In the 2022/23 budget year, nearly USD 300 million was paid to Chinese lenders, while payments to private creditors with or without government guarantees are not included in this figure.
The debt service payment to private creditors in the budget year amounted to USD 768.2 million, which includes suppliers and commercial banks. Within this sum, USD 154 million was allocated for commissions and interest. Despite Ethiopian Airlines receiving substantial credit from Western commercial banks, analysts assert that the Chinese lenders hold a significant portion of this amount. Ethiopia has borrowed substantial sums from Chinese financial institutions, particularly the Exim Bank, on a non-concessional basis, particularly in the latter half of the millennium. The primary creditors of commercial loans include the China Development Bank, Industrial and Commercial Bank of China, and the non-concessional division of the Exim Bank of China.
