Tigrai Television on July 22, 2022, published a website article claiming that Ethiopia’s debt has dramatically increased since the coming of PM Abiy Ahmed to power in 2018. Citing a report by BBC Amharic on July 22, 2022, the media outlet stated that Ethiopia’s total debt was 28 billion dollars in 2018 and now after four years has amounted to 56.6 billion dollars.
Dimtsi Weyane Television on Jul 26, 2022, claimed that Ethiopia’s debt stock has skyrocketed since PM Abiy came to power.
Tigrai Television again reported the same claim that Ethiopia’s debt soured from 28 billion dollars four years ago to 56 billion dollars in a video report made and released on YouTube on August 11, 2022.
The claim by Tigray Television and Dimtsi Weyane Television was based on a report published by the BBC Amharic on July 22, 2022. BBC Amharic in its article misleadingly said “according to the World Bank in 2020, Ethiopia’s debt was 30.36 billion dollars. But after two years now, Ethiopia’s external and domestic debt is 56.6 billion dollars.”
The statement by BBC Amharic is misleading because the figure ‘30.36 billion dollars’ was only Ethiopia’s external debt stock.
The World Bank on its website has data regarding Ethiopia’s external debt stock from 1970 to 2020. The World Bank data indicates that Ethiopia’s debt in 2020 was 30.36 billion dollars.
A country’s total debt is a combination of external and domestic debts. The World Bank defines external debt as “the outstanding amount of actual current, and not contingent, liabilities that require payment(s) of interest and/or principal by the debtor at some point(s) in the future and that are owed to nonresidents by residents of an economy.” It is owed to sources that are external or non-residents and is repayable in currency, goods, or services. It is obtained from outside sources or lenders such as multilateral financial institutions, foreign governments, foreign commercial banks, external corporations, private households, etc.
On the contrary, domestic or internal debt is all liabilities owed to internal or residential lenders within the country.
Ethiopia’s external creditors are generally categorized into three; multilateral, bilateral, and commercial. Multilateral creditors are international financial organizations such as the World Bank, IMF, and other multilateral development banks.
Bilateral lenders are foreign governments and commercial creditors are external commercial banks or private financial organizations.
According to the annual report of the 2020/21 fiscal year issued by the National Bank of Ethiopia, the country’s external debt was 29.5 billion dollars in July 2021.
As of March 31, 2022, Ethiopia’s total (external and domestic) debt was 56.5 billion dollars, according to a statistical bulletin issued by the Ethiopian Ministry of Finance in May 2022. Out of that, external debt amounts to 28.5 billion dollars. The remaining 28 billion dollars was owed to domestic creditors (internal debt). Accordingly, external debt accounts for 50.4 percent and domestic debt for 49.6 percent of the overall debt Ethiopia owed.
Most of the loans Ethiopia borrows have been gained from multilateral financial institutions. As of the 2020/21 fiscal year, Ethiopia owed 19.5 billion dollars to multilateral lenders, 6.7 billion dollars to bilateral creditors, and the remaining 3.3 billion dollars out of the total 29.5 billion dollars in external debt were obtained from commercial lenders.
Out of the 28.5 billion dollars, 14.9 billion dollars, or 52 percent of the total external debt of Ethiopia as of March 31, 2022, was owed to multilateral creditors such as the International Development Association (a subsidiary of World Bank), the African Development Fund (a subsidiary of African Development Bank), IMF, and the International Fund for Agricultural Development (an agency of the UN).
Loans from multilateral development banks such as the World Bank, IMF, and the African Development Bank are usually cheap and accessible. Additionally, poorer countries tend to these development banks for loans because their creditworthiness is low and commercial lenders cant lend to them fearing the risk of default.
Ethiopia’s creditworthiness has been decreasing from to time. That means that external lenders are not confident enough to extend loans to Ethiopia. Last year, Standard & Poor’s (S&P), a top global credit rating organization, downgraded Ethiopia’s creditworthiness to “junk”. In addition to that, Moody’s Investors Service downgraded Ethiopia’s credit rating from B2 to Caa1 indicating Ethiopia’s higher susceptibility to defaulting on its debts.
Ethiopia’s external debt has been steadily increasing since 2007. According to the World Bank, the country’s external debt stock was 2.59 billion dollars in 2007. It has since then enormously expanded to reach 30.36 billion dollars in 2020.
In 2006 Ethiopia’s external debt stock significantly decreased and was the lowest since the year 1982. It was 3.28 billion dollars in 1982 and 2.22 billion dollars in 2006.
In 2006, the external debt of Ethiopia fell to 2.22 billion dollars from 6.18 billion dollars in the previous year and from 10.36 billion dollars in 1998.
Ethiopia benefited from the Heavily Indebted Poor Countries (HIPC) and the Multilateral Debt Relief Initiative (MDRI), both debt relief initiatives targeting poor countries. The prominent multilateral financial institutions, the World Bank and IMF together with the governments of developed countries, particularly the G8 countries started the debt relief to poor and indebted countries initiatives.
The HIPC Initiative was launched in 1996 by the IMF and World Bank to help poor countries struggling with debt burdens. The MDRI initiative was approved in June 2005, by the G8 countries.
Countries should meet the requirements set in order to obtain debt relief under these two initiatives.Ethiopia completed the preconditions of the Heavily Indebted Poor Countries (HIPC) initiative in 2004, and the Multilateral Debt Relief Initiative in 2005. Thus, the country managed to get its 1.3 billion dollars debt canceled under the HIPC initiative and obtained 2.3 billion dollars of debt relief under the MDRI program.
