Test Debt Guide

Country Debt Guide
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ethiopia
Current Financing Challenges
As is clear from the below, Ethiopia has very significant financing needs in order for the population to achieve
poverty reduction, in particular ensuring access to electricity, water and internet, and even improving basic road
infrastructure, much of which is highly unlikely to be met through domestic financing alone.
WHAT DOES ETHIOPIA STILL NEED TO FINANCE?
SOME EXAMPLES:
ACCESS TO ELECTRICITY FOR 55% OF THE POPULATION
ACCESS TO DRINKING WATER FOR 70% OF THE POPULATION
ACCESS TO INTERNET FOR 82% OF THE POPULATION
IMPROVING ROAD INFRASTRUCTURE BY 130% TO REACH CHINESE LEVELS
Despite these needs, both the IMF and the Jubilee debt campaign predict that the country is at high risk of a debt
crisis in 2020. The public debt to GDP ratio is forecast to rise to 80% in 2020 due to pressures on balance of
payments, a 40% rise from 2019. According to the IMF, the existence of state-owned enterprises (SOEs) is a major
factor leading to debt vulnerability, with no transparency in terms of access to budget frameworks and financial
statements. The government has tried to address this issue through privatization, limiting SOEs’ access to nonconcessional
loans as well as renegotiating the grace periods and loan maturities associated with some SOE
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loans. However, Ethiopia dedicates the lowest share of government expenditure to servicing its debt amongst
all countries analysed in this report, reflecting the low interest rates and long grace periods it enjoys on its debt.
Furthermore, the Ethiopian economy is expected to grow at a rate of 3.1% in 2021 according to AfDB’s ‘worst
case’ forecast, assuming global economic recovery. This is substantially lower than the country’s pre-pandemic
growth track record not just because of potentially prolonged worldwide disruptions, but also because
domestically the development strategy seems to be changing based on IMF recommendations. In line with the
HERP, the government aims to focus on addressing macroeconomic stability, such as keeping inflation in check as
well as promoting debt sustainability, alongside greater private sector involvement. Therefore, growth may be
subdued in the medium term as Ethiopia tries to take a more austere approach.
The COVID19 Impact
Ethiopia’s response to the pandemic has included social protection initiatives through food distribution and the
Productive Safety Net Programme (PSNP), which is largely based on cash transfers. These programmes were
intended to reach 30 million people across the country, 26.6% of Ethiopia’s population. The central bank has also
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provided support for private commercial banks. By September 2020, the Ethiopian government had budgeted
$1.7 billion (2.1% of GDP) on such measures.
This is because the COVID-19 pandemic is expected to dampen Ethiopia’s economic growth prospects, though it
is projected to avoid recession. The African Development Bank’s (AfDB) ‘worst case’ scenario for Ethiopian GDP
growth is 2020 is 2.6%. Though commodity exports may be affected by weaker global demand and supply chain
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disruptions, Ethiopia is neither an oil exporter nor a resource-intensive country, so the high-level impact of the
pandemic is not likely to be severe. The pandemic-stricken tourism sector, which contributes about 9% of GDP,
has been hard hit, but this is offset by the country’s low dependence on remittances and trade with China, Europe
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and the US. Meanwhile, in terms of credit worthiness, Fitch maintained Ethiopia’s ‘B’ rating in June 2020 – which
is below investment grade and highly speculative but suggests an ability to meet current financial commitments
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assuming no further economic shocks – though the outlook is negative.