Prime Minister Abiy Ahmed’s government has been portraying itself as one working to ensure Ethiopia’s prosperity. However, today marked a historic moment as it became the first Ethiopian government to let the country be downgraded to “defaults” after failing to make a payment to its creditors even after the end of its “grace period.”
According to a Reuters report, the payment was due on December 11, but Ethiopia was granted a 14-day “grace period,” which ended this Tuesday.
Negotiations with the creditors, the details of which were unspecified, had been ongoing but eventually broke down.
S&P Global Credit Rating Agency downgraded Ethiopia’s rating to “default” on December 15 due to the country’s failure to make the payment on December 11.
The amount Ethiopia failed to pay in interest charges, described by Reuters as “Coupon” Payment, is $33 million. Ethiopia now officially joins Ghana and Zambia as the third country on the continent to default.
This comes amidst claims by the Ethiopian government that it raised $24 billion in foreign currency revenue in the last fiscal year, a figure it claims to be higher than before.
Earlier this week, Ahmed Shide, the Minister for Finance, had an interview with journalists in the capital Addis Ababa. He stated that Ethiopia is not currently making the payment not because it is unable to afford the amount but because the government is contesting some practices related to debt payment.
The government has been engaged in negotiations with the IMF and World Bank for several months now, although the outcome remains unknown. With unprecedented inflation and a skyrocketing cost of living that has become unbearable for millions, there have been fears that Abiy Ahmed’s administration, under pressure from the IMF, might further devalue the Ethiopian Birr. However, in an interview with the Ethiopian State Media, EBC, National Bank of Ethiopia Governor Mamo Mihretu stated that the Ethiopian currency will not be devalued further at this point.
The Federal government has faced criticism for spending foreign currency on purchasing drones for the war in the Amhara region of Ethiopia. It has been six months since the government declared a state of emergency in the region. The conflict has severely impacted economic activity in the region to the extent that the regional government was only able to collect one-third of the planned tax in the first quarter of Ethiopia’s current fiscal year.
Analysts saw Ethiopia’s debt crisis coming.
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