Test Debt Guide

Country Debt Guide
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ethiopia
Debt History
In the 1980s, Ethiopia accumulated a
substantial amount of debt chiefly to procure
arms for its civil war with present day Eritrea.
The diversion of resources away from
productive sectors was associated with low
economic growth, which averaged 0.7% during
the 1980s decade. The combination of rising
debt, higher interest rates on the debt due to
global shocks, and poor GDP performance led to
a rapid increase in the debt to GDP ratio, which
peaked at 151% in 1994. The country’s
indebtedness was eventually brought under
control in the 2000s through various debt relief
efforts, as shown below.
$1.9 billion committed debt relief
ETHIOPIA IN 2021
4.3% economic growth
75% public debt to GDP ratio
-3.1% budget balance
4 / 8 DR’s Debt Transparency Index
In recent years, Ethiopia has been one of the world’s fastest
growing economies, with annual GDP growth averaging
9.1% from 2015 to 2019 on the back of public investment
and private consumption. Starting from a low base, the
country has prioritized public investment financed through
debt, which propelled the growth of manufacturing and
services but led to a doubling of public debt to 60% of GDP
in the last decade. It has the highest expected growth rate in
2020, 3.2%, amongst all countries this guide has analysed.
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through HIPCI
$141 million Chinese debt relief
$7 million UK debt relief
$46 million USA debt relief
Despite strong growth, tax revenue as a share of GDP has
consistently declined since 2014, reaching 7.5% in 2019,
due to poor tax compliance in key sectors and political
unrest. Nevertheless, the Ethiopian government made
progress in narrowing the budget deficit to 2.5% last year
through expenditure cuts and fiscal consolidation in
response to lower revenue collection. Key interventions
included the implementation of a Public Debt Management
and Guarantee Issuance Directive to reduce borrowing by
state-owned enterprises as well as a reduction in public
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imports.
The IMF has assessed Ethiopia’s debt sustainability rating as high risk in 2019 because of the country’s limited
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sources of foreign exchange in light of poor export performance. Exports represent only 7.9% of GDP, one of
the lowest in Africa. The composition of exports is relatively undiversified and commodity-dependent, with low
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value-added vegetable products accounting for 64.7% of total exports. Partly as a consequence, Ethiopian
reserves are low and vulnerable: at just $4.2 billion in 2019, usable reserves are hardly enough to cover 2 months
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of imports. Recognizing these issues, the government has introduced a Homegrown Economic Reform Plan
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(HERP) comprising macroeconomic, structural and sectoral policies to reduce instability. The types of projects
Ethiopia has initiated with loans from China and the World Bank are shown below.