Source: AFP

Cash-strapped Ethiopia has secured a $1.5 billion debt relief agreement with creditors, its central bank chief said, temporarily easing the country’s financial burden as it seeks a wider funding programme.

The accord was announced on Wednesday by National Bank of Ethiopia governor Mamo Mihretu and confirmed in a statement from the Paris Club of creditor nations on Thursday which described it as an “important achievement”.

“We’ve been able to achieve an interim debt service suspension and therefore able to save around $1.5 billion that would have gone to debt servicing,” Mamo told a parliamentary committee. 

The finances of Africa’s second most populous country have been hit by the two-year conflict in the northern region of Tigray that ended with a peace deal in November last year.

Ethiopia has said it needs around $20 billion to rebuild northern Ethiopia after the war that claimed the lives of around half a million people, according to US estimates.

The landlocked country has about $28 billion of external debt and is also grappling with sky-high inflation at and a shortage of foreign currency reserves.

The debt relief agreement was reached with bilateral creditors, including China which has loaned Ethiopia around $14 billion according to analysts.

“This debt standstill from Ethiopia’s official bilateral creditors will provide time-limited liquidity relief ahead of discussions on a wider debt treatment,” the Paris club said in a statement.

Landlocked Ethiopia has been in discussions with the International Monetary Fund for a programme of financial support for its economic reforms.

After coming to power in 2018, Prime Minister Abiy Ahmed announced an ambitious reform package to open up the country’s tightly controlled economy.

But the economy has deteriorated sharply in recent years and the will to continue the reforms has largely stalled.

The Fitch Ratings agency earlier this month downgraded Ethiopia’s debt further into junk territory to CC, a level it said “reflects a probable risk of a default event”.

Source: Paris Club

THE PARIS CLUB WELCOMES THE AGREEMENT TO PROVIDE ETHIOPIA WITH A DEBT STANDSTILL

November 30, 2023

THE PARIS CLUB WELCOMES THE AGREEMENT TO PROVIDE ETHIOPIA WITH A DEBT STANDSTILL

The Paris Club commends the agreements between the Ethiopian authorities and its official bilateral creditors for a time-bound suspension of debt service due from 1 January 2023 to 31 December 2024.

Complementary to the bilateral agreement between China and Ethiopia, an agreement between the other official bilateral creditors and Ethiopia was coordinated through the official creditor committee (OCC) of Ethiopia under the Common Framework, which is co-chaired by France and China. The terms for this OCC coordinated agreement to suspend debt service due over 2023 and 2024, and which are broadly comparable to those implemented during the Debt Service Suspension Initiative (DSSI), were agreed with Ethiopia’s authorities on 23 November 2023.

This debt standstill from Ethiopia’s official bilateral creditors will provide time-limited liquidity relief ahead of discussions on a wider debt treatment. Those discussions will gain momentum as soon as the Ethiopian authorities and the IMF have agreed the parameters for an IMF programme. In the context of a wider debt treatment, the efforts made by official bilateral creditors over the debt standstill period will be taken into account under the principles of Comparability of Treatment.

The Paris Club strongly welcomes this important achievement and acknowledges all parties’ collaborative efforts.

Background notes

1. The Paris Club was formed in 1956. It is an informal group of official creditors whose role is to find coordinated and sustainable solutions to the payment difficulties experienced by borrower countries. The 22 permanent members of the Paris Club consist of: Australia, Austria, Belgium, Brazil, Canada, Denmark, Finland, France, Germany, Ireland, Israel, Italy, Japan, Korea, the Netherlands, Norway, Russian Federation, Spain, Sweden, Switzerland, the United Kingdom and the United States of America. South Africa is a prospective member since 2022.  

2. The members of the Paris Club participating in the official creditor committee are representatives of countries with eligible claims on Ethiopia: Austria, Denmark, France, Israel, Italy, Japan, Korea, Sweden, South Africa, and Switzerland. Non-Paris Club members of the official creditor committee are China, India, Kuwait, Poland, Saudi Arabia, and Turkey.

3. The debt standstill provided by all OCC members (bar one who will apply its own terms) will suspend debt service repayments due over 2023 and 2024. Suspended payments will be repaid after a two-year grace period, and over a three-year period from 2027 to 2029.