Ethiopia Draws Record $13 billion Inflows in Abiy’s First Year in Office
www.bloomberg.com | April 3, 2019
World Bank committed more than $4 billion financing to country
Africa’s fastest-growing economy seeks to plug budget deficit
Ethiopian Prime Minister Abiy Ahmed attracted a record $13 billion of inflows in his first year in office, as he moves to reform the nation’s economy by allowing in more foreign capital.
The funds, some from the World Bank, come as the Horn of Africa country seeks to plug a funding gap that the International Monetary Fund has said poses risks to the nation’s medium-term outlook. Last year, Abiy pledged to open up the state-owned telecoms company and airline to foreign investors for the first time.
“In the past seven months alone, through investments, loans, grants, remittances and services, we brought $13 billion,” Abiy, 42, said Tuesday in a televised address, without giving details on sources of the funds. “If we didn’t do this, it would’ve been impossible to get out of our troubles.”
The IMF in December estimated Ethiopia’s public debt would be 57.2 percent of gross domestic product in the fiscal year to July 7 and forecast the current-account deficit at 6.2 percent of GDP. “While debt is sustainable in the medium-term, Ethiopia remains at high risk of debt distress,” the Washington-based lender said at the time.
The World Bank committed $3.2 billion in 2018 and $1.3 billion this year in financing to the country, it said Wednesday in an emailed response to questions.
Ethiopia, whose economy IMF data shows is the fastest-growing in Africa, needs to refinance maturing debt, fund infrastructure projects, pay wages and boost foreign-currency reserves, Abiy said in a separate address last week.
The inflows are “good news especially for foreign reserves,” said Pieter du Preez, an analyst at Paarl, South Africa-based NKC African Economics.
Abiy, who marks one year in office this week, has made rapid changes to the country’s once tightly regulated political and economic space. The ruling politburo has announced plans to open up state-owned industries, from telecommunications to sugar and power generation, to foreign investors. In February, he said the government had rescheduled 60 percent of its loan repayments to 30 years from 10 years.
Costs for the much-delayed Grand Ethiopian Renaissance Dam, initially estimated at 80 billion birr ($2.8 billion), could rise by about 60 percent. State-owned Ethiopian Electric Power Corp. holds more than 300 billion birr of debt, equal to 99 percent of its capital, meaning that should the state-owned company be sold, the nation would get only a 1 percent stake, according to Abiy.
“Abiy has surprised many with what seems to be a dramatic shift in thinking in the ruling Ethiopian People’s Revolutionary Democratic Front party,” said Du Preez. “Abiy has promised to reduce the government’s role in the economy through privatization while also opening the economy to greater foreign participation.”
Other sources of funding last year include the Abu Dhabi Fund for Development that allocated an 11 billion-dirham ($3 billion) economic aid package in June last year.
Besides the economy, Abiy took steps to boost diplomatic relations, including ending decades of enmity with neighboring Eritrea. At home, he pledged to open up political space, freed prisoners, and allowed opposition parties to express themselves.
The country is scheduled to hold general elections next year, which Abiy pledged will be democratic, while warning the more than 100 political parties to operate within the law. “Whoever wants to be elected needs to be registered, be ready to compete and let the election committee hold the elections,” Abiy said.
The nation’s lawmakers indefinitely postponed plans for a census before the election. The last count was conducted in 2007, and Ethiopia ranks as Africa’s second-most populous nation with 105 million people.