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Ethiopia to save $4.9 bln from debt restructuring— Minister

Published

2 months ago

August 3, 2024

According to State Finance Minister, Eyob Tekalign, Ethiopia will receive relief of $4.9 billion from its debt obligations after it completes a long-postponed restructuring. He expressed his optimism in signing agreements with creditor nations within the next few months.

Following its recent default on debt, the East African nation, which now ranks as the third largest economy on the continent, aims to resume its debt restructuring efforts. This objective has been facilitated by its recent agreement to a new financing package with the International Monetary Fund.

“We will sign and finalise with each individual (creditor) country over the next few months,” Eyob told Reuters, referring to the estimated savings to Ethiopia as a result of the restructuring.

According to figures from the finance ministry, the total external debt of the country was $28.38 billion in March of this year.

In a televised speech on Thursday, Prime Minister Abiy Ahmed clarified the recent economic reforms and stated that the anticipated savings would encompass $200 million resulting from the restructuring of the $1 billion Eurobond.

Abiy justified the recent transition to a market-based foreign exchange rate, asserting that its purpose is to narrow the disparity between the official and black market values and that it does not constitute a currency depreciation.

The central bank has implemented a policy where the birr currency is now permitted to fluctuate without any restrictions, meeting an important requirement to obtain financial assistance from the International Monetary Fund (IMF).

Subsequently, the birr has depreciated by at least 31.5% versus the dollar, currently trading at 83.94 per greenback, according to the Commercial Bank of Ethiopia, the country’s largest lender. This has raised concerns among economic analysts and pundits about the possibility of a significant increase in inflation.

“There were two markets. One is 100 and the other is 50. So when the gap between the two became wide, it brought many dangers. So what we said, (the two) should be unified,” Abiy said, chiding banks for failing to unify the two rates swiftly.

“I believe your approach is not correct. The rate you are currently posting does not ensure unification,” he told bank executives who were present when he spoke.

Following Abiy’s remarks, banks adjusted the exchange rates for the birr, resulting in a decline. Some banks are now quoting the exchange rate at 90 birr per dollar, which is closer to the prevailing black market rate of 118 birr per dollar.

Although the removal of foreign exchange trading limitations enabled Ethiopia to secure the IMF deal and money from other creditors such as the World Bank, authorities have taken action due to concerns over the policy’s inflationary effects on low-income households.

Related Topics:Ethiopia Featured IMF World Bank

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Nigeria’s central bank issues fresh guidelines for ‘Ways and Means’ to govt

Published

12 hours ago

September 18, 2024

Ifeoluwa Dada

The Central Bank of Nigeria (CBN) has issued new guidelines on Ways and Means which limit Ways and Means Advances to the federal government to 5% of the previous year’s revenue collection.

The apex bank made the position known in its fiscal year 2024-2025 monetary, credit, international trade, and exchange policy guidelines.

“Ways and Means Advances shall continue to be available to the Federal Government to finance deficits in its budgetary operations to a maximum of 5.0 per cent of the previous year’s actual collected revenue. Such advances shall be liquidated as soon as possible and shall in any event be repayable at the end of the year in which it was granted,” it said.

The Treasury Single Consideration (TSA) system requires these advances to take into consideration Ministries, Departments, and Agencies (MDAs) sub-accounts, which are linked to the Consolidated Revenue Fund.

The federal government’s consolidated cash situation will be more precisely reported, improving public financial management openness and resource availability. The CBN also stated that Ways and Means Advances must be repaid by the end of the fiscal year they were awarded, encouraging short-term borrowing.

In the Nigerian context, “ways and means” refers to the Federal Government’s ability to borrow money from the Central Bank of Nigeria (CBN). This means that the government may use “ways and means” to meet short-term needs or emergencies, which is why the CBN is referred to as the “lender of last resort.”

Over the past seven years, the facility had grown 2,900% to an extraordinary N23.7 trillion by 2023. This fast surge, which exceeded legal restrictions, increased inflation and Nigeria’s debt.

The CBN Act allows the bank to grant temporary advances to the federal government for budget revenue deficits at a rate deemed appropriate, but the total amount of such advances “shall not at any time exceed 5% of the previous year’s actual revenue of the Federal Government.”

In addition, it stipulates that “All advances shall be repaid as soon as possible and shall, in any event, be repayable by the end of the Federal Government financial year in which they are granted and if such advances remain unpaid at the end of the year, the power of the bank to grant such further advances in any subsequent year shall not be exercisable, unless the outstanding advances have been repaid.”

The Senate and House recently enacted a bill to increase the CBN’s federal Ways and Means borrowing ceiling. The upper chamber of Nigeria’s legislature boosted the central bank’s loan capacity to the federal government from 5% to 10% of annual income.

Yemi Cardoso, CBN governor, announced earlier this year that the bank would stop making Ways and Means advances to the federal government until existing loans were returned. He said this is one of the bank’s key strategies to handle the country’s economic issues.

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Kenya, IMF discuss economic and fiscal issues

Published

17 hours ago

September 18, 2024

Ifeoluwa Dada

The International Monetary Fund (IMF) said on Tuesday that it had had productive discussions with Kenya’s government on its economic and fiscal goals after widespread protests prompted it to shelve tax rises.

In June, President William Ruto abandoned this year’s finance bill, leaving the deeply indebted government with a larger budget deficit, unpaid payments, and a delay in IMF funding.

“We remain fully committed to supporting the authorities in their efforts to identify a set of policies that could support the completion of the reviews under the ongoing program as soon as feasible,” the IMF said in a statement.

Kenya signed a four-year IMF loan in 2021 and another for climate change measures in May 2023, totalling $3.6 billion. The country secured a staff-level agreement with the IMF on its seventh review in June, but the protest and finance bill withdrawal delayed the executive board’s sign-off and payout.

Public debt helps development. Governments utilise it to fund spending, protect and invest in their citizens, and improve their futures. However, too quick governmental debt growth can be a burden. The developing world which Africa forms core is experiencing this.

Kenya’s government debt was 70.10% of GDP in 2023. Kenya’s government debt to GDP averaged 56.36% from 1998 to 2023, peaking at 78.30% in 2000 and falling to 38.20% in 2012.