Ethiopia
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Debt servicing announced as “top priority” for upcoming budget year

Top priority is to be given in debt servicing in conjunction with restructuring and tightening regulations on recurrent budget, for the coming financial year, underlines the Ministry of Finance (MoF).
The country’s external debt service is expected to have a sharp rise in the coming years since some of the credit maturity period has drawn closer for payment day.
In the latest meeting with the central government budgetary offices, Finance Minister, Ahmed Shide, emphasized that the coming budget year, 2023/24’s priority agenda will be to settle credit on time.
As the minister explained, no new capital projects will be introduced for the upcoming budget year, “On the recurrent budget, appropriate restructuring and prudent control will be applied.”
He stressed that budgetary offices have to prepare their budget plan on the consideration of resource on hand rather than incoming external loans and grants.
For the past few years, the central government was allocating huge amounts of money from its annual budget for debt servicing. The amount has over the years been growing sharply from time to time owing to some of the huge credit stocks resettlement period.
For instance, in the current budget year that started on July 8, 2022, the government allocated 126 billion birr for domestic and external debt service. The amount has a 179 percent increment compared with 45 billion birr that was allocated for the 2021/22 budget year, for debt servicing.

(Photo: Anteneh Aklilu)

The 126 billion birr that was allocated for debt service for the 2022/23 budget year took 36.5 percent from the 345 billion birr recurrent budget and 16 percent from the total 786.6 billion birr budget for the year.
Similarly, in the past few years the debt servicing portion has taken the lion’s share in contrast to other sectors.
For instance from the total capital and recurrent budget allocated by the central government, the debt servicing budget now stands at the top with 22.36 percent , followed by defense budget at a 14.9 percent share.
From the total 126 billion birr budget allocation, 56 billion birr was for the settlement of external debt that the country accessed in the past year.
Even though the country showed its strong stand on debt servicing particularly for external creditors, in the past few years the inflow was incomparable with the outflow for debt settlement, which is stated as one of the reasons for hard currency shortage in the country, as per the experience of about three years ago. Other reasons for negative inflow were the refraining of international partners from disbursing the expected loan as promised.
On the meeting held on Wednesday March 15, Ahmed said that public offices should plan their budget proposal on the consideration of financial capability.
He underlined that for the coming budget year, public offices ought to diligently prepare their budget under the maximum limit that MoF provides.
The public external debt settlement that includes the service of state owned enterprises (SOEs), which operate out of the government budget, is expected to increase in the coming year.
According to MoF debt bulletin that evaluates the 2021/22 budget year, the total public debt service payments in 2021/22 was USD 3.2 billion with external debt service standing at USD 2.13 billion or 66 percent of the total.
The total amount of external debt serviced in the last five years including the 2021/22 budget year was USD 9.68 billion. The central government paid about USD 2.05 billion or 21.2 percent of the total external debt service payment to its multilateral and bilateral creditors, as well as interest payments to Eurobond holders, with SOEs paying the remaining 78.8 percent to their respective creditors.
“Over the last four years, the total annual payment for servicing the public sector’s external debt has not changed significantly but SOE external debt service payments has been growing much faster than central government external debt service payments,” the bulletin read.
It added that since most of its external loans have matured, the SOE’s payment for servicing its external debt has increased.
In 2021/22, the total external debt service payments were USD 2.13 billion, “External debt service is expected to rise steadily over the next two years, from around USD 2.1 billion in 2022/23 to USD 2.2 billion in 2023/24, and then to around USD 3.4 billion in 2024/25 due to maturing sovereign bonds.”
At the discussion, Ahmed said that in consideration of the economic condition in its midterm plan that spans from 2023/24-2025/26 budget years, a priority to use resources carefully, servicing of domestic and external debts, and cost minimization and improvement in revenue, is of paramount importance.
MoF’s bulletin forecast signaled that the contribution of SOE external debt service payments to total external debt service is much higher than that of the central government, but it will decline after about six years, “which can be explained by the short-term maturity structure of most SOE borrowing and the absence of non-concessional borrowing by SOE in recent years, except for Ethiopian Airlines.”
In contrast, the central government’s external debt service payments has increased gradually at the start of the projection before increasing sharply in 2024–2025 when the EUROBOND matures with a plateau afterwards.
“Assuming that the com

mitted and undisbursed amounts are disbursed over the next few years, the total estimated external debt service (Principal plus Interest) will rise from USD 2.3 billion in 2022/23 to USD 4.1 billion in 2024/25 due to maturing sovereign bonds, and subsequently fall,” the MoF document explained.
The government is staking different initiative to ease its debt burden, while so far efforts like debt restructuring that is supported by the likes of International Monetary Fund has not taken shape.
Similarly, there is news that some investors on the first Ethiopian Eurobond, raised USD 1 billion in offering maturity extension, meanwhile the government has declined to speak on the matter.