Ethiopia is grappling with financial distress countries list amid mounting loan pressures.
Ethiopia finds itself in a precarious financial situation, as reports indicate the government’s struggles to meet its loan obligations.
Plans are underway for further discussions with creditors this week, focusing on the long-term loan and interest payments. According to a Bloomberg report, doubts loom over the Ethiopian government’s capacity to repay a 1 billion euros loan and $33 million in interest from the 2014 Eurobond loan.
The report suggests that Ethiopia is at risk of joining the ranks of financially distressed countries in Africa, following in the footsteps of Zambia and Ghana. Talks with creditors are scheduled for Thursday of the current week, signaling an urgent need to address the mounting concerns.
Last week, the government engaged in limited discussions with some lenders, revealing that creditors recognized Ethiopia’s inability to meet the $33 million interest debt.
The report attributes this financial strain to a shortage of foreign currency reserves, emphasizing that Ethiopia has a mere 14 days to settle the debt within the specified limit. The Ministry of Finance is actively pursuing efforts to extend the loan repayment period.
At present, Ethiopia is classified among the countries unable to meet their loan obligations, raising concerns about its future credibility with creditors.
Fitch Rating, an international financial institution, has similarly categorized Ethiopia as one of these financially challenged nations.
Ethiopia’s economic woes are further exacerbated by a foreign debt of $29 billion, with half of this amount borrowed from China. Efforts to seek an extension of the loan repayment period from various creditors, including China, have been underway.
China has granted a two-year extension, and Ethiopia is actively seeking similar arrangements with the World Bank and other creditor countries and institutions.
The country’s economic challenges stem from a combination of factors, including ongoing conflicts, the impact of the coronavirus pandemic, and unfavorable international conditions.
Beside these, Ethiopia has requested over $10 billion in loans from the World Bank to mitigate the severe economic damage caused by these crises.
The Ministry of Finance reports that the two-year war in the northern areas of Ethiopia has resulted in more than 1.5 trillion birr in expenses. This conflict has not only led to the destruction of vital infrastructure funded by loans and public funds but has also incurred a total loss of $28 billion for the country.
The economic downturn in Ethiopia has prompted several institutions to halt production due to a lack of foreign currency for purchasing essential inputs from abroad.
The consequence has been widespread employee layoffs, underscoring the far-reaching impact of Ethiopia’s current economic crisis. As the country navigates these challenges, ongoing discussions with international financial institutions will play a crucial role in determining its path to recovery.
