Ethiopia secures $1.5bn in debt relief

 

Mamo E. Mihretu is the 10th Governor of the National Bank of Ethiopia (NBE).

The two-year conflict in the northern region of Tigray has had a negative impact on the finances of the second most populous country in Africa.

Ethiopia, which is severely short on cash, has reached a $1.5 billion debt relief deal with creditors, according to the head of the central bank. This will temporarily lessen Ethiopia's financial load while it looks to expand its funding program.

 

Mamo Mihretu, the governor of the National Bank of Ethiopia, made the announcement on Wednesday. The Paris Club of creditor nations approved the agreement on Thursday, calling it a "significant accomplishment."

 

Mamo testified before a parliamentary committee, saying, "We've been able to achieve an interim debt service suspension and therefore able to save around $1.5bn that would have gone to debt servicing."

 

The two-year battle in the northern district of Tigray, which ended with a peace settlement in November of last year, has had a negative impact on the finances of the second most populous country in Africa.

 

After a conflict that killed around half a million people, according to US estimates, Ethiopia has stated that it needs about $20 billion to restore northern Ethiopia.

 

The landlocked nation struggles with extreme inflation, a dearth of foreign currency reserves, and over $28 billion in external debt.

 

The bilateral creditors, notably China, which has lent Ethiopia an estimated $14 billion, were included in the debt reduction pact.

 

“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”.