Ethiopia early this year joined two other African countries, Chad and Zambia, in asking G20 creditors for debt restructuring as the economy continues to crumble amid instability in Tigray, Oromia and elsewhere in the East African nation.
Before the coronavirus pandemic and the current widespread instability in Tigray and elsewhere, Ethiopia boasted one of the fastest growing economies in the world, experiencing average growth of 9.4% a year from 2010/11 to 2019/20.
But that all seems to be ancient history right now as the raging conflict in Tigray claims many lives and leaves millions of people at risk of an unprecedented famine. It is also driving away tourists and scaring new and old investors.
And although the East African nation is already benefiting from a suspension of interest repayments to its official sector creditors until the end of this month under an initiative between Paris Club of creditors nations and the G20, the economy continues to struggle.
The IMF Managing Director Kristalina Georgieva told a gathering at the African Development Bank Annual Meetings on Tuesday, June 23, 2021, that three African countries have asked for ‘debt treatment under the Common Framework‘—Chad, Ethiopia, and Zambia, confirming once again what has been known for a few months now.
In layman terms, depending on a country’s circumstances, the idea behind ‘debt treatment under the Common Framework‘ is to help a struggling country restructure its debt profile.
Last November, G20 countries agreed for the first time to a common approach for restructuring government debts amid the coronavirus economic fallout that affected all countries, but impacted developing countries more severely, placing many of them at risk of default.
Under that G20 framework, debtor countries are expected to seek an IMF program to get their economies back on track before negotiating a debt reduction from both public and private sectors.
Ethiopia’s government bond, which it issued in 2014, is due for repayment in 2024. It has $1 billion bond outstanding with only $66 million worth of interest payments due this year.
By asking to restructure its sovereign debt under a new G20 common framework, Ethiopia has effectively gone from Africa’s economic star to a struggling nation where recent headlines have been mainly about the risk of an unprecedented famine in Tigray and instability elsewhere in the country.
In her remarks on Tuesday, the IMF chief Kristalina Georgieva noted that the African Development Bank’s Annual Meetings were taking place at a critical moment for Africa and for the world.
“Africa is now facing the world’s fastest growth rate for new COVID cases, with an exponential trajectory even more alarming than during the second wave in January. Based on current trends, this wave will likely surpass previous peaks within the next week,” she said. “It is a human tragedy—and an economic calamity. Countries across the continent—from South Africa, to Uganda and Rwanda—are forced to reintroduce restrictions, further denting a precarious recovery. In the face of new variants, Africa is ill protected, due to severe vaccine shortages. So far, only 0.6 percent of Africa’s adult population have been fully vaccinated.”
Georgieva said the warning signs for Africa are clear with a two-track pandemic leading to a two-track recovery.
“Africa is already falling behind in terms of growth prospects. This year, we project the global economy to grow by 6 percent, but only half that—3.2 percent—in Africa,” she said, adding that “this ought to change, for the sake of Africa and for the benefit of the world. And it requires international cooperation on multiple fronts.”
Last month, IMF staff proposed a $50 billion plan that involves vaccinating at least 40 percent of the population of all countries by the end of this year and at least 60 percent by mid-2022.
“The $50 billion price tag is dwarfed by the estimated $9 trillion boost to global economic activity by 2025 from faster vaccine rollout and faster recovery. It would be the best public investment of our lives—and it would be a game changer for Africa,” she said.
Georgieva argued that while Africa continues to struggle with economic crisis and low vaccination rates, “debt levels—which were already elevated before the pandemic—have increased sharply.”
“Public debt in sub-Saharan Africa jumped by more than 6 percentage points to 58 percent of GDP in 2020, the highest level in almost two decades. Interest payments last year reached 20 percent of tax revenue for the region as a whole and exceeded one-third of revenue in some countries. Similarly, public debt in North Africa rose by about 12 percentage points to an average of 88 percent of GDP last year,” she said.
She called on the world to ‘step up’ to help safeguard debt sustainability, noting that the IMF has already provided debt service relief to its poorest members.
“And together with the World Bank, we advocated for the G20 Debt Service Suspension Initiative, as well as for the Common Framework for debt resolution, designed to provide deeper debt relief to countries with higher debt vulnerabilities.”
Last year, Somalia received debt relief under the enhanced HIPC Decision Point and is now benefiting from IMF financing—and today, Sudan is on the same path.
“The DSSI has provided much-needed breathing space; and it has been extended until the end of this year. Now is the time to make the Common Framework fully operational,” she said, adding that “we now need speedy commitments, on comparable terms, by private creditors and other official bilateral creditors.”
For Ethiopia, with the conflict in Tigray far from over, the economy may continue to struggle for many months and potentially several years.
On Tuesday, an airstrike killed dozens of people in Ethiopia’s Tigray region and health workers were blocked from traveling to the scene, witnesses and several reports said on Wednesday.
The airstrike hit a busy market in the village of Togoga with some reports citing more than 80 civilians bombed to death.
The AP quoted wounded patients being treated at Mekele’s Ayder hospital as telling health workers that “a plane dropped a bomb on Togoga’s marketplace.” It quoted a nurse as saying that the six patients included a 2-year-old child with “abdominal trauma” and a 6-year-old.
“An ambulance carrying a wounded baby to Mekele, almost 60 kilometers (37 miles) away by road, was blocked for two hours and the baby died on the way, the nurse added,” according to the AP.
Hailu Kebede, foreign affairs head for the Salsay Woyane Tigray opposition party and who comes from Togoga, told the AP that one fleeing witness to the attack had counted more than 30 bodies and other witnesses were reporting more than 50 people killed. Many more were said to be wounded in the remote village that’s linked to Mekele in part by challenging stretches of dirt roads.
“It was horrific,” said a staffer with an international aid group who told the AP he had spoken with a colleague and others at the scene. “We don’t know if the jets were coming from Ethiopia or Eritrea. They are still looking for bodies by hand. More than 50 people were killed, maybe more.”
The news agency added that “on Tuesday afternoon, a convoy of ambulances attempting to reach Togoga, about 25 kilometers (15 miles) west of Mekele, was turned back by soldiers near Tukul, the health workers said. Several more ambulances were turned back later in the day and on Wednesday morning, but one group of medical workers reached the site on Tuesday evening via a different route.”
It said those medical workers were treating 40 wounded people but told colleagues in Mekele that the number of wounded is likely higher as some people fled after the attack. Five of the wounded patients were said to need emergency operations but the health workers were unable to evacuate them.
“We have been asking, but until now we didn’t get permission to go, so we don’t know how many people are dead,” said one of the doctors in Mekele.
The airstrike comes even as the international community warns that millions of people are at risk of famine in Tigray with the United States, the European Union, the United Nations calling on Prime Minister Abiy Ahmed to embrace peace and dialogue.
But the Prime Minister has rebuffed all peace moves and chosen war and his soldiers have been accused of even using food or famine as a weapon of war. And as that all goes one, the economy struggles.