The particular analysis of how to address the accumulated debt of certain state-owned enterprises (SOEs) has raised concerns at the Office of the Federal Auditor General (OFAG).
The Auditor General of OFAG, Meseret Damte, appeared before parliament earlier this week to present the audit findings for the 2022/23 budget year.
Based on the performance audit evaluation at Public Enterprises Holding and Administration (PEHA), she stated that there are gaps in the process of transferring SOEs’ debt to the government, which led to the establishment of the Liability Asset Management Corporation (LAMC) to manage the debt of selected enterprises.
She mentioned that before the debt was transferred to the government, there were no assessment documents available at PEHA or the SOEs.
Meseret provided more details in her report, stating, “The assessment presented by the Ministry of Finance (MoF) to the auditing team does not indicate the source of the debt, the reasons for the inability to repay, and the benefits that would be gained if the debt is absorbed by the government.”
She further stated that it does not fully reflect the amount owed by the SOEs.
“The identification of the benefits resulting from the transfer of debt to the government is also lacking,” she stated.
According to the audit report, the Ethiopian Railway Corporation (ERC) and five SOEs under PEHA failed to repay their 50.8 billion birr debt, which was due at the end of the previous fiscal year.
Due to ERC’s failure to repay its foreign financiers the 1.8 billion birr debt in the previous budget year, “its debt has reached 126 percent of its total assets.” (LAMC was established in 2021 to oversee the consolidation and servicing of a portion of the debts of SOEs in an attempt to address macroeconomic instability in the economy. LAMC has taken on and managed the debts of a few heavily indebted public enterprises. After a comprehensive evaluation of the debts of its SOEs, the MoF stated that when LAMC was established three years ago, seven SOEs were found to be at high risk of financial distress.
These SOEs include Ethiopian Electric Power, Ethiopian Electric Utility, Ethiopian Railway Corporation, Ethio-Engineering Group (formerly METEC), Chemical Industry Corporation, Construction Works Corporation, and Sugar Corporation. Together, these SOEs hold nearly 780 billion birr in domestic and international debt as of three years ago when LAMC was formed.
It stated that after considering various options, LAMC was selected as the most effective way to address the high debt distress of the SOEs. LAMC was established as a commercial entity with an authorized capital of 570 billion birr, which will be funded by privatization proceeds and SOEs’ dividends.
Depending on the SOE, the government has decided to transfer between 20 to 100 percent of the SOEs’ debt to LAMC, with clear terms of engagement between LAMC and the SOEs to avoid moral hazard.
The audit findings of OFAG have exposed various shortcomings in government offices and enterprises, although there have been improvements compared to previous years.
