The government has nearly reached its maximum amount in the first half of the budget year, despite passing a decision stating that it will only borrow from the central bank as a last option and not increase by more than a third over the previous year.
The National Bank of Ethiopia (NBE), the country’s central bank, said in August of last year that it would drastically cut Direct Advances (DA) to the government in the current fiscal year and restrict such lending to only one-third of the levels from the previous year.
“Understandings are also to be reached with the Ministry of Finance (MoF) to utilize this facility only in the event that the market is unable to raise enough Treasury Bills and Treasury Bonds,” the statement stated.
The Ministry of Finance (MoF) announced in its most recent debt bulletin, which reviews the first half of the 2023–2024 fiscal year, that it has obtained a DA of 37 billion birr, increasing the total to 167 billion birr as of December 31, 2023, from 130 billion birr on June 30, 2023.
The NBE statement estimated that the increased DA for the budget year would be around 40 billion birr.
In addition to other tools, the primary objective of the DA decrease is to rein in runaway inflation, while the central bank recently announced that the monetary policies it put in place in August are beginning to bear fruit.
Nonetheless, throughout the given time, resources were supplied by the Treasury bond, which was established in late 2022, and the T-bills.
The total amount of outstanding T-Bills rose from 341.9 billion birr on June 30 to 372.2 billion birr on December 31, 2023, an 8.88 percent rise, according to an MoF report.
In compliance with NBE Directive No. MFDA/TRBO/001/2022, which requires all commercial banks to buy a five-year Treasury bond at 20 percent of their new loan disbursement, a new domestic debt instrument known as the Treasury bond was introduced.
As of December 31st, its value had increased to 65.6 billion birr from approximately 38.2 billion birr. This indicates that during the first half of the fiscal year, banks bought bonds from NBE valued at around 27.4 billion birr.
Nonetheless, NBE mandated banks to increase their new loan disbursement by no more than 14% of the previous fiscal year in its August 11, 2023 decision.
As of December 31, 2023, the total amount of domestic and external public sector debt was around 39.4 percent of nominal GDP, with external debt making up nearly 17.5 percent of that amount.
The debt sustainability criteria for low-income nations, which are 40 percent for foreign debt and 55 percent for total public sector debt for a nation with medium debt-bearing capacity, are greatly exceeded by both percentages.
However, Ethiopia continues to struggle with the issue of debt sustainability because of export-related criteria.
When it came to the entire debt of the public sector as of December 31, 2023, external debt made up 44.34 percent and domestic debt, 55.66 percent.
The overall public sector debt, including external debt, increased by 1.63 percent to USD 64.3 billion as of December 31, 2023, from the end of June.
The nation’s external debt currently stands at USD 28.5 billion, up more than one percent from the conclusion of the previous fiscal year.
Ethiopia and major lenders at the G20 are now debating the Common Framework (CF) for debt restructuring.
The MoF stated that even though the Official Creditor Committee for Ethiopia’s CF application was formed, it has not advanced as anticipated, “meaning that the nation has not profited from this endeavor, which has the ability to shift Ethiopia’s debt distress rating from high risk to moderate risk.”
