Amid financial strains, Ethiopia has successfully negotiated a $1.5 billion debt relief agreement with creditors, easing its immediate financial burden while pursuing broader funding initiatives.
Announced by National Bank of Ethiopia governor Mamo Mihretu on Wednesday, the agreement was confirmed in a statement from the Paris Club of creditor nations on Thursday, marking a significant 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 nation’s financial stability has been adversely affected by the two-year conflict in the northern Tigray region, which culminated in a peace deal last November. Ethiopia seeks an estimated $20 billion to rebuild the war-stricken northern region, where an estimated half a million lives were lost, as per US estimates.
With approximately $28 billion in external debt, the landlocked country faces challenges of soaring inflation and a scarcity of foreign currency reserves.
This debt relief agreement, involving bilateral creditors including China, which has loaned Ethiopia around $14 billion according to analysts, offers Ethiopia temporary liquidity relief before engaging in broader debt discussions, as stated by the Paris Club.
Ethiopia, a landlocked nation, has been in talks with the International Monetary Fund (IMF) for financial support in its economic reforms. Prime Minister Abiy Ahmed initiated significant reforms in 2018 to liberalize the tightly regulated economy. However, recent economic downturns have stalled these reforms.
Fitch Ratings recently downgraded Ethiopia’s debt to CC, further plunging it into junk territory, indicating a higher likelihood of a default event.
