Op-Ed: Ethiopia – Abiy leads African appeal for relief actions

By Irmgard Erasmus – Senior Financial Economist

Acutely aware of Ethiopia’s vulnerability to the health and economic repercussions of the Covid-19 pandemic, Prime Minister Abiy Ahmed urged “collective leadership and coordinated responses” to overcome the challenges posed by the unprecedented shock.

The Ethiopian leader has taken a dominant position in the campaign for comprehensive stimulus packages and debt relief for the African continent, stressing that “we are not prepared to overcome the virus on our health systems and the long-term impact on our economies”.

Echoing this concern, a consortium of African ministers of finance emphasised in a communique dated April 1 that “urgent need” exists “for fiscal stimulus to contain the crisis”.

On April 1, G20 leaders indicated that they are preparing a response package for Africa that will include debt relief and financial aid. The response package will incorporate “recent demands from President Cyril Ramaphosa of South Africa and Prime Minister Abiy Ahmed of Ethiopia”, according to Politico.

This also came after the United Nations Economic Commission for Africa (UNECA) again requested the “urgent and immediate release” of a $100bn support package to aid domestic response actions in the fight against the health and economic implications of the Covid-19 pandemic.

While the ministers welcomed the IMF and World Bank’s call for official bilateral creditors to “provide breathing space” to African countries, the consortium believes that “such relief should be extended to countries across the region and by other creditors during this exceptional period”.

A comprehensive $100bn support package for Africa will be formalised for discussion and presentation at the World Bank and IMF’s stakeholders’ initiatives on April 15.

For the public sector, disbursements will be utilised for the servicing of public sector debt and interest payments, including on sovereign bonds, in order to create “immediate fiscal space and liquidity” for governments to focus their attention on domestic fiscal stimulus needs amid the crisis.

The consortium proposes that the $44bn disbursement be pooled into a global special purpose vehicle (SPV) to be used for external debt service “for effective management purposes till economic recovery takes hold and agreement can be reached with creditors”. The ministers stressed that this measure would guard against default by countries.

The ministers requested the IMF to raise Special Drawing Rights (SDRs) availability over the next two to three years. The consortium believes that it would service the debt relief SPV facility and provide crucial liquidity support.

Ethiopia has already rescheduled debt servicing agreements with “some major creditors”, which will alleviate hard currency liquidity demands. By September 2019, public external debt stock stood at $26.8bn, or half of total outstanding public debt.

Public external debt comprised a 60:40 split between central government and state-owned enterprises, according to official records.

Public external debt servicing costs amounted to $548.4m during Q1 FY 2019/20 (the fiscal year commences on July 8), of which $457.2m was due to SOE debt servicing.

Ethiopia has been among the most vocal of African nations to request debt waivers or debt relief – while African finance ministers called for a $100bn stimulus package, Prime Minister Abiy Ahmed urged G20 members to provide $150bn under a proposed three-point action plan. The disbursal should take the form of supplementary budgetary support, debt relief, and private sector financing, according to the proposal.

The prime minister furthermore urged G20 nations to support the World Health Organisation (WHO) and Africa Centres for Disease Control and Prevention (CDC) in strengthening public health delivery and emergency preparedness.

Cognisant of the fragility of the private sector, especially as small- and medium-sized enterprises account for over 70% of the private sector in Africa, the consortium stressed that liquidity relief should be extended in particular to service and tourism sectors.

African finance ministers requested support from the G20, EU, and all Development Finance institutions to support a proposal aimed at the refinancing, rescheduling, and implementation of guarantee schemes and liquidity facilities for the private sector.

In particular, African airline companies require preservation and protection “given their significant contribution to the GDP of Africa”. Ethiopian Airlines suspended flights to 80 destinations in light of the pandemic.

Demand for local flights, which are ongoing, dropped by at least 50% already. The airline estimates that it will lose at least $190m due to the pandemic.

The Ethiopian government has ordered the central bank to release Etb15bn ($460m) to private banks as it ramped up its fight against the economic spillover effects of the Covid-19 pandemic. The liquidity injection will enable the banking sector to extend debt relief and additional loan facilities to customers.

This came in addition to instructions to avail foreign currency to importers, with priority given to importers of essential goods or the manufacturing of essential goods.

In March, the World Bank granted a $500m grant and loan facility (split evenly) to Ethiopia in support of its reform programme.

The prime minister voiced his gratitude to “the generosity of the Ethiopian people” as local stakeholders contributed generously to the National Resource Mobilisation Committee initiative.

NKC African Economics’ preliminary GDP forecast suggests that Ethiopia will be hit particularly hard by coronavirus-related disruptions.

Absent comprehensive external support, a sharp slump in private sector demand and investment momentum threatens an unprecedented plunge in economic growth this year to 1.1% – down from a pre-virus forecast of 7.1%.

Crucially, the pandemic threatens to disrupt progress made under the reform agenda towards policy overhaul, broad-based privatisation of state assets, financial liberalisation, and the launch of a domestic bourse.

An uncomfortable reliance on grant relief amid strained domestic fiscal capacity threatens to bloom into full-blown crisis in the absence of comprehensive external financial support.

Related Content

AxiCorp’s outlook for global oil markets

Brent crude prices have risen by 14 per cent this week and continued to rise in morning trade, eagerly waiting for the expected OPEC+ meeting that will take place tomorrow. The meeting will see the world’s major oil producers discuss extended production cuts. Stephen Innes, Global Chief Markets Strategist at AxiCorp joins CNBC Africa for more.

Rosette Muhoza on the environmental opportunity created by COVID-19

Despite the effects of COVID-19, the environment has been one of the few things that benefited from the pandemic. CNBC Africa spoke to Rosette Muhoza, Co-founder of My Green Home Rwanda to talk about how this pandemic has affected their company and how to sustain a clean environment.

Op-Ed: COVID-19 is likely to lead to a vast increase in youth unemployment in Africa, this is how business can mitigate the damage…

Why business has a greater role to play in mitigating conflict with COVID-19

Op-Ed: Tourism sector in Mauritius devastated by COVID-19

“Travel bans and containment measures around the world are having a devastating effect on the tourism sector in Mauritius, which was already experiencing sluggish growth in 2019,” writes economist, Shani Smit.

Subscribe to our newsletter

Sign up for free newsletters and get more CNBC AFRICA delivered to your inbox

More from CNBC Africa

AfrAsia Bank CEO on COVID-19 & its impact on Mauritian economy

Mauritius has been praised for its efforts in curing the spread of Covid-19 in the country, but is not immune to the economic havoc that the pandemic has brought the global economy. The country held its national budget speech yesterday and joining CNBC Africa to unpack more on this and the business opportunities that will arise Post-Covid-19 is Sanjiv Bhasin, CEO of AfrAsia Bank.

AxiCorp’s outlook for global oil markets

Brent crude prices have risen by 14 per cent this week and continued to rise in morning trade, eagerly waiting for the expected OPEC+ meeting that will take place tomorrow. The meeting will see the world’s major oil producers discuss extended production cuts. Stephen Innes, Global Chief Markets Strategist at AxiCorp joins CNBC Africa for more.

Rosette Muhoza on the environmental opportunity created by COVID-19

Despite the effects of COVID-19, the environment has been one of the few things that benefited from the pandemic. CNBC Africa spoke to Rosette Muhoza, Co-founder of My Green Home Rwanda to talk about how this pandemic has affected their company and how to sustain a clean environment.

Partner Content

DURBAN TOURISM LAUNCHES “VIRTUAL DURBAN EXCURSIONS”

FROM THE MAYOR’S DESK Halfway through the month of May, we had fruitful engagements...

Sanlam Emerging Markets and its partners on the African continent invest over $12 million to fight COVID-19

As we go through this global pandemic together, it is the little things we miss. A high five, a handshake, a walk...

Trending Now

Op-Ed: Supporting the ICT sector in Africa as a cure for the economic crisis

“We need to think, and fast, about how we can help our African partner in the race against time as it faces the predicted economic disaster in the wake of the global covid-19 pandemic,” writes Franc Bogovic and Engin Eroglu.

African Development Bank board stands by embattled President Adesina

The African Development Bank’s (AfDB) board on Thursday said it stood by an internal investigation that had cleared its president of improper conduct, but it would carry out an independent review of the report in the interest of due process.

NAICOM extends insurance recapitalisation deadline to September 2021

Nigeria's insurance regulator NAICOM has extended the deadline for the recapitalisation of insurance companies to September 2021. The recapitalisation process has also been segmented into two phases. Tajudeen Ibrahim, vice-President and Head of Research at Chapel Hill Denham joins CNBC Africa for more.

BlackRock on Covid-19 markets & economic damage

Global investment management group BlackRock believes that the best market cure for the impact of Covid-19 is inclusive and coordinated fiscal and monetary policy response. Joining CNBC Africa to unpack more on this and their 2020 investment themes is Karim Chedid, Investment Strategist at BlackRock.
- Advertisement -