Ethiopia’s external debt stock mounts up to USD 5.2 billion

By Asrat Seyoum

According to official figures released by the Ministry of Finance and Economic Development (MOFED), the total outstanding debt stock of Ethiopia at the end of 2009 fiscal year had reached 5.2 billion.

In the backdrop of the debt relief programs which resulted in considerable debt reduction for the country prior to the period under consideration, the external debt statistics generally stayed low in the past couple of years. For instance, the figure for 2006/07 and 2007/08 (based on the Ethiopian FY) were 2.3 and 2.8 billion USD respectively while a rising trend which kicks off from the 2008/09 had peaked during the period under consideration.

On the other hand, the debt data also shows that multilateral donors were the most generous to the country, loaning almost half of the total volume. Still out of the multilateral sources the World Bank, the International Monetary Fund and the African Development Fund alone accounted for more than three-fourth of the loan in the period, while the bilateral counterparts that are categorized into the Paris and non-Paris club countries provided for 25 percent of the debt stock.

Government guaranteed loans advanced to the public enterprises had also seen growth both in relative and absolute terms during the period. The level of such category of loans were, for example, 10.9million USD in the 2007/08 while within the two years after that, including the one that we are talking about at the moment, the government-guaranteed loans jumped to 1.1 and 1.4 billion USD. The share of this type of loans has also seen improvement in the past year, accounting for more than 35 percent of the debt volume.

The present level of debt actually reached this level in spite of the massive debt relief programs for the country. The Highly Indebted Countries initiative (HIPC) and the Multilateral Debt Relief Initiative (MDRI) played a critical role in relieving us from the debt distress. In this regard the highest debt relief was secured in the 2006/07 when some 4 billion dollars worth of debt was cancelled.

Even the most developed economies nowdays are not afraid to run massive debt stock. However, a question of paramount importance here would be if the debt level is healthy. According to experts in the discipline, sustainable debt is the one that can be re-paid by the indebted country with out upsetting the overall economy. And this is measured in terms of Gross Domestic product (GDP) and the export earning of the country.

Alemzewod Tedla, head of the debt management core process at the Ministry of Finance and Economic Development, told the reporter that the absolute magnitude of debt by itself does not tell us any story. She noted that the level of the external debt in terms of the GDP and export earning is what one should pay attention to. The international standards for a sustainable debt stipulates that the debt to GDP ratio below 40 percent and the debt not higher than 150 percent of the export earning of the country qualifies as a healthy debt stock. Hence, according to the ratios, she said, the Ethiopian debt level is sustainable and is affordable by the country. She said that according to the data, Ethiopia's debt to the GDP ratio ranges between 15-20 percent while the ratio against export earnings stayed well below the 100 percent mark.