By Muluken Yewondwossen

Government borrows 17 billion birr from the National Bank of Ethiopia (NBE), in the first quarter of the budget year, whilst disclosing that direct advance (DA) will only be used as a last resort to fill the budgetary shortfall.

According to the Ministry of Finance’s (MoF) quarterly debt report, the government received 17 billion birr during the first three months of the 2023/2024 budget year.

When compared to a similar period of the 2022/23 budget year, which was 60 billion birr, this year’s figure is far lower.  

The 236.5 billion birr DA that were converted to long-term bonds as a result of the October 2022 occurrence included the 60 billion birr that were issued in the first quarter of the previous budget year.

In a statement released in August, the government through the NBE said that various fiscal and monetary tools are being applied to fight inflation. As noted, one of them was the reduction of DA, which is one of the contributors to runaway inflation.

According to the decision, NBE would only lend up to one-third of what it did the previous year and drastically cut its DA to the government in this fiscal year.

“Agreements have been reached with the MoF to utilize this facility as a last resort in the event that the market is unable to generate enough Treasury bills (T bills) and Treasury bonds, which were imposed on all commercial banks, including the state-owned Commercial Bank of Ethiopia, a year ago, to collect 20 percent of each loan disbursement,” NBE cited in August

The government has authorized 801.6 billion birr in expenditures for the 2023/24 budget year, which is about the same as the year prior.

The government now intends to collect 479.5 billion birr in taxes during the budget year, accounting for 59.8 percent of the authorized budget.

With a net share of 2.1 percent of the GDP, the deficit of the declared over 801 billion birr budget is 281.05 billion birr and from the authorized budget, the deficit accounted for 35 percent.

According to the MoF’s budget statement, loans for projects, domestic loans, and loans to protect essential services would be used to close the deficit.

Of the authorized budget, the percentage of domestic loans is 30.2 percent, while the share of the remaining two loans was 4.8 percent.

According to MoF, the size of the domestic loan will be 242 billion birr and will mostly consist of DA, T-bills, and Treasury bonds.

Including the 60 billion birr that was taken in the first quarter of the 2022/23 budget year and converted into long term bond in the past budget year, the direct advance amount was 190 billion birr.

According to the MoF report, as of September 30, 2023, the total outstanding debt of DA had grown from 130 billion as of June 30, 2023, to 147,000 million. The Ministry’s annual debt bulletin from the previous year indicated that the outstanding debt was 120 billion birr, while the most recent report shows a 10 billion birr increase.

In compliance with Directive No. MFDA/TRBO/001/2022, which requires commercial banks to buy a five-year treasury bond at 20% of their new loan disbursement, a new domestic debt instrument was introduced on November 1st, 2022. As of September 2023, the total amount of this debt instrument was approximately 48.4 billion birr.

It was 38.2 billion birr as of June 30, having grown by 10.2 billion birr during the first quarter of the current fiscal year. On September 30, 2023, there were 371.8 billion outstanding T-bills, up from 341.9 billion birr on June 30, 2023, a rise of 8.75 percent.

As of September 30, 2023, there was 1.9 trillion birr in total domestic debt, 2.23 percent more than there was 1.9 trillion birr on June 30, 2023.

As of September 30, 2023, the public sector’s total external debt was USD 27.73 billion, down from USD 28 billion as of June 30, 2023.

The MoF stated in its report citing, “The main reason is a relatively lower disbursement in the quarter compared to principal payments, another factor is that a stronger USD against other currencies leads to lower external debt in terms of USD.”

This 1.23 percent shrinkage between the two periods can be partially explained by exchange rate variation. IDA accounted for the majority of the USD 151.74 million in foreign public sector debt payments made between July 1, 2023, and September 30, 2023.

According to the report, there has been a decrease in the disbursement of external financing in the last two years. One reason for this decline in the total disbursement of external debt is that state-owned public enterprises, apart from Ethiopian Airlines, have not received a new loan in the last four years. The report explicitly said that low payments from Chinese creditors also play a role.

The principle, interest, and fees associated with paying off the foreign public sector debt came to USD 306.96 million over the reporting period.

The external debt’s present value (PV) as a percentage of GDP was around 13.1 percent, but the entire public sector debt’s PV was approximately 34.9 percent.

At September 30, 2023, 56.11 percent of the entire debt of the public sector was made up of domestic debt, and 43.89 percent was made up of external debt.