Ethiopia's stock of debt set to rise to USD 6 bln in 2011

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Ethiopia's stock of debt set to rise to USD 6 bln in 2011

Unread post by Ethiopians » 04 Oct 2009 11:45

Foreign reserve estimated to drop by over USD 250mln this year

Country’s stock of debt set to rise to USD 6bln in 2011

Saturday, 03 October 2009
By Hayal Alemayehu

With the global recession taking a toll on remittances, export earnings and foreign direct investment inflows as well as surging oil prices, the International Monetary Fund (IMF)
projects that Ethiopia's foreign reserves will decline by over USD 250 million during the current fiscal year.

According to the IMF’s latest report on Ethiopia released last week, the forecasted drop in foreign currency reserves would reverse about one-half of the rebuilding of reserves
achieved in 2008/2009.


“[The IMF] staff have sought to quantify the effects of the changing global environment on the balance of payments in 2009/10, measured against the outturn in 2008/09, excluding
the impact of the drop-off in donor flows (as exceptional financing ends), and under the assumption of a constant real exchange rate,” read the report. “The aggregate size of the
shock is projected in the range of USD 260 to 297 million, with key components being declining remittances and direct foreign investment and higher oil prices.”

The IMF has approved a USD 240 million financing for Ethiopia to help the country cope up with external shocks that adversely affects its widening balance of payments.
According to the report, a surge in the public sector borrowing was an important factor contributing to the country’s widening macroeconomic imbalances during 2005 to 2008.

“Ethiopia’s external debt levels are rising significantly as major public enterprises borrow externally to finance infrastructure investment,” the report indicated. “The stock of debt
is set to rise from USD1.3 billion at end of June 2008 to USD six billion by the end-June 2011, with almost 70 percent of the increase accounted for by the state-owned electric
power (EEPCo) and telecom (ETC) companies.”

The report noted that “given infrastructure weaknesses, the case for large-scale investment in these sectors is compelling but the sizeable and rapid build-up of debt underscores
the need to ensure that borrowed funds are being put to effective use, that a supportive business environment is being put in place to ensure full take-up of infrastructure outputs,
and that public enterprise pricing policy will ensure the full recovery of costs needed to facilitate debt service in the future.”

Source: Reporter
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