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Why does Ethiopia fail to make a payment on its debt?

Ethiopia Debt Crisis
Mamo Mihretu, Governor of the National Bank of Ethiopia, during his appearance at the Ethiopian Parliament ( Photo : Birrmetrics)

By Staff Reporter

ADDIS ABABA – (BORKENA) – Ethiopia’s failure to settle its coupon payment (annual interest rate)  this month “is not because it lacks the capacity, but it is only for the reason not to harm the loan relief negotiations with other creditors,” State Minister of Finance Eyob Tekalign told Voice of America, Amharic Service.

On the other hand, Assistant Professor of Finance and Investment at Addis Ababa University, Sewale Abate (Dr.), said that the situation could be a cause for the country to lose trust from the side of lenders and increase the interest rates.

It has been reported world wide that Ethiopia has been caught by the whirlpool of “non-payable” or “non-payment” or “delayed payment” file for its poor financial capacity to settle the interest payment that was supposed to be made to its international creditors on December 26, 2023.

Ethiopia sold a billion dollar bond nine years ago, in 2015, as a source of financing and borrowing and has been paying more than 62 million dollars of interest every year. However, it was not able to pay the 33 million dollars for this season, which is paid twice a year, including the given two weeks deadline.

Dr. Sewale Abate, assistant professor of finance and investment at Addis Ababa University, told Voice of America, Amharic Service that “Ethiopia has never been able to pay the loan interest on time, and its capacity has declined to this level”.

For this reason “the financial resources Ethiopia is to secure from foreign lenders are bound to decrease,” according to Dr. Sewale. He further warned that inflation would boost the pressure on the lives of every Ethiopian.

Dr. Sewale points out that this loan is different from the other loans being negotiated. But “the reason given by the Ethiopian government is not convincing”  according to him.

 Dr. Sewale advised the government to pay the expected payment and conduct negotiations side by side.

Ethiopia is expected to complete the full payment of the one billion dollar Eurobond sale, which is almost ten years old.

The country’s debt to foreign creditor countries and institutions is approaching thirty billion dollars, according to the news source. 

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