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Ethiopia at High Risk of Debt Distress - UNCTAD Official

By Staff Reporter

Ethiopia-External-Debt-2018November 21, 2019 (Ezega.com) -- Ethiopia is at high risk of falling into debt distress if it cannot expand its export capacity and earn reasonable foreign currency, an official of the United Nations Conference on Trade and Development (UNCTAD) warned.

While disclosing the Least Developed Countries (LDCs) Report 2019, Dr. Taffere Tesfachew, Principal advisor to UNCTAD told Ezega.com that, out of the 47 countries which are designated by UN as LDCs, five of them fall under debt distress, which means they really have too much debt and are not in a position to pay back.  

13 other countries including Ethiopia have been designated as at high risk of debt. They are not in debt distress yet but the potential is there for them to join if correction measures are not taken, Taffere said.

In 2019, Ethiopia’s total debt is estimated to be around $52 million and out of which slightly more than half - around $26 million - is external debt.

The external debt represents roughly 32-33 percent of the country’s GDP. The ratio is not high as compared to many countries, including Italy whose debt-GDP ratio stands at 120 percent, Dr Taffere said.

According to the official, remittance inflows to Ethiopia, much of it from Ethiopians in the diaspora, remains a major source of foreign currency and the nation received over $5 billion during 2019.  The remittance surpassed the nation’s Overseas Development Assistance (ODA) and FDI which stood around $3 billion and $3.3 respectively.

Overseas Development Assistance has become the main source of external financing followed by remittance for many of the LDCs, the report said

According to Taffere, ODA has seen declining interns of a pattern of growth down from 7 percent in the previous decade to 2 percent the current decade and that has worried LDCs.

The report revealed that LDCs have increasingly resorted to debt financing, more than doubling their external debt stock from $146 billion to $313 billion between 2007 and 2017.

Currently, one-third of LDCs are in debt distress or at high risk of debt distress, becoming increasingly dependent foreign aid, remittances and foreign direct investment, the report noted.

The report recommended that LDCs, the world's most impoverished nations, to proactively direct external finances to national development priorities.

For LDCs to attain the Sustainable Development Goals and escape aid dependency, they need external finance that is targeted at the structural transformation of their economies, the report said

There are 47 countries designated by the United Nations as least developed countries (LDCs) after their per capita income, human assets and economic vulnerability have been assessed.

Out of the 47 LDCs, 32 are found in Africa. According to the report, 17 and 9 LDCs are at moderate and low risk, respectively.

A country will qualify to be included in the list of LDCs if it meets the three criteria and is put into the LDCs status.

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