debt loopholes

Can Ethiopia restructure its debt in the midst of civil war?

By Loza Seleshie

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Posted on August 2, 2021 07:25

Ethiopia’s Prime Minister Abiy Ahmed attends the launch of a mobile phone-based financial service named Telebirr mobile money service, in Addis Ababa © Ethiopia’s Prime Minister Abiy Ahmed attends the launch of a mobile phone-based financial service named Telebirr mobile money service, in Addis Ababa, Ethiopia May 11, 2021. REUTERS/Tiksa Negeri
Ethiopia’s Prime Minister Abiy Ahmed attends the launch of a mobile phone-based financial service named Telebirr mobile money service, in Addis Ababa, Ethiopia May 11, 2021. REUTERS/Tiksa Negeri

Although Ethiopia experienced an average 9.4% growth in the last decade, it is currently looking to restructure $1bn of its sovereign debt (totalling $25bn in 2020). In January 2021, after nearly a year with Covid-19, it joined the G20 Debt Service Suspension initiative (DSSI). Given the ongoing ripple effects of the pandemic and conflict in its Tigray region, how is the country handling debt renegotiations?

Ethiopia’s debt is closely linked to economic policy. The previous Ethiopian People’s Revolutionary Democratic Front (EPRDF) administration had applied a developmental state approach for two decades.

Government was thus the core enabler of the “normative, structural, institutional, technical, and administrative environments […] to achieve its national development vision” according to a paper entitled ‘Developmental State’ as an Alternative Development Path in Ethiopia: Miracle or Mirage?’.

The State needed funds for the construction and development of industrial parks, railways, highways, dams etc. Although it borrowed domestically, the country’s limited financial system and domestic savings meant it was forced to look to foreign creditors.

In the following years, public debt went from 39.61% of the GDP (2010) to reach 57.72% of the GDP  (2019).

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