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Ethiopia joins Zambia, Ghana, others on Africa’s debt default list

Published

4 months ago

December 27, 2023

After failing to make a $33 million “coupon” payment on its only international government bond, Ethiopia has become Africa’s third debt defaulter in as many years.

The country declared earlier this month that it planned to formally enter default. Following the COVID-19 pandemic and a two-year civil war that came to an end in November 2022, the nation has faced extreme financial hardship.

Although it was originally scheduled to make the payment on December 11, a 14-day “grace period” provision in the $1 billion bond gave it until Tuesday to deliver the funds.

It declared earlier this month that it planned to formally enter default. On December 8, it announced the parallel talks it was holding with pension funds and other creditors in the private sector that owns its bonds had broken down. Also, on December 15, S&P Global, a credit rating agency, downgraded the bond to “default” based on the likelihood that the coupon payment would not be made.

Two people with knowledge of the matter claim that as of Friday, December 22, the final international banking working day before the grace period ends, bondholders had not received their coupon payment.

Requests for comment from Ethiopian government representatives were not answered on Friday or over the weekend.

Several African countries, like Zambia, Nigeria, Ghana, Tunisia, and Egypt, among others, are grappling with high foreign debt. Ethiopia will be included in a comprehensive “Common Framework” restructuring along with Zambia and Ghana.

Earlier this year, United Nations Secretary-General, Antonio Guterres, at the opening ceremony of the annual African Union summit in Ethiopia, argued for reforms to the structure of international finance to serve the needs of developing countries more efficiently.

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IMF, DR Congo agree on final review of loan deal

Published

14 hours ago

May 9, 2024

Ifeoluwa Dada

The International Monetary Fund (IMF) says it has achieved a staff-level agreement with the Democratic Republic of Congo (DRC) over the final assessment of a $1.5 billion loan program.

The fund however emphasized the importance of the DRC effectively handling the funds obtained from a modified mining agreement. This brings Congo closer to successfully fulfilling an IMF program for the first time. Prior agreements have been disrupted due to concerns regarding the absence of openness and clarity in its extensive mining industry.

“Performance under the (three-year) program has been generally positive, with most quantitative objectives met and key reforms implemented, albeit at a slow pace,” the Fund said in a statement.

Upon receiving approval from the IMF board, the accord will enable the release of a final instalment of approximately $200 million. The IMF has highlighted the need for the world’s leading cobalt provider, which is also the third-largest copper producer, to include the beneficial effects of the recently modified Sicomines joint venture with Chinese businesses in its updated budget law for 2024.

“In addition, mechanisms will need to be put in place or reinforced to ensure the proper use and governance of these funds,” the Fund said.
President Felix Tshisekedi advocated for revising the 2008 infrastructure agreement with Sinohydro Corp and China Railway Group, aiming to enhance the advantages for Congo. A contract was executed in March.

“The IMF is concerned about the mechanisms for using this money and has asked for it to be paid into the public treasury accounts rather than being managed by an agency as has been done in the past,” a finance ministry official, who requested anonymity, told Reuters.

As part of the IMF program, Congo was required to disclose mining contracts. Last week, Congo finally revealed the updated terms of the Sicomines agreement, which state that the Chinese side will invest approximately $7 billion in infrastructure, contingent upon high copper prices.

According to a 2023 report by Congo’s national auditor, just $822 million out of the projected $3 billion for infrastructure investments was distributed under the earlier version of the agreement.

The amended agreement still contains provisions that Congolese and international civil society organizations perceive as unfavourable to Congo. One of the benefits that Sicomines enjoys is the exemption from tax payments until the year 2040.

VenturesNow

Nigerian govt proposes VAT increase, new sharing formula

Published

20 hours ago

May 9, 2024

Ifeoluwa Dada

Nigeria’s presidential committee on fiscal policy and tax has argued for the necessity of raising the value-added tax (VAT) rate.

Taiwo Oyedele, the chairman of the committee, revealed during the policy exposure and impact assessment session that the VAT revenue-sharing formula will be reassessed.

Oyedele stated that the committee has suggested increasing the allocation of VAT money to state and local governments from the existing 85% to 90%. As to section 40 of the VAT Act, the federal government receives 15% of the tax revenue, while states receive 50% and local governments receive the remaining 35%.

According to him, the suggested new sharing arrangement implies that the committee is suggesting a decrease in the federal government’s portion from 15% to 10%.

“We are proposing that the federal government’s portion should be reduced from 15% to 10%. States’ portion will be increased but they would share 90% with local governments,” he said.

He explained that the new sharing formula for VAT is in favour of the lower tier of government because it is a tax generated at the state level.

“In 1986, we had sales tax collected by states. The military came up with VAT in 1993 and stopped sales tax so they said it would collect VAT and return 15 per cent as cost of collection and that is the 15 per cent charged today came about. But we think it is too much,” he said.

The tax expert added that the burden of VAT should be on the ultimate consumer.

“So we must make it transparent and neutral and this is what over 100 countries where they have VAT are doing,” Oyedele said.

He stated: “Nigeria’s economy is more than 50% in services and if I just stop at this, many states will be broke because VAT collection will go down by more than 50% and it won’t even fly.

“So we therefore need to adjust the VAT rate upward. We would ensure that it doesn’t affect businesses. The only thing is to look at basic consumption from food, education, medical services and accommodation will carry zero percent VAT. So for the poor and small businesses, no VAT.”

Oyedele said other consumers will pay a bit more.

“We have spoken to businesses about it and they won’t increase the product price. We want to make sure when we do VAT reform, no one will increase the price of commodities. We will work the mathematics with the private sector,” he explained.

Oyedele also said each state should not be granted exclusive custodianship of their collections– because it would likely result in chaos.

The Nigerian government has been undertaking comprehensive reforms of the nation’s monetary and fiscal policies since the inception of the Bola Tinubu administration. As a consequence, the central bank and the tax advisory council led by Oyedele have implemented audacious new policies.