Navigating Ethiopia’s Economic Challenges: Addressing Food Crises, Exchange Rates, Debt Relief, and Industrial Growth
Recurring Food Crises to Exacerbate Ethiopia’s Credit Risks, Moody’s Warns
According to Moody’s Investors Service, recurring food insecurity shocks will worsen credit risks, economic strength, public finances, inequality levels, and current account deficits in emerging markets.
Countries like Ethiopia, Mozambique, Rwanda, and Zambia are among the most exposed. Global food price volatility has surged over the past two decades, and despite prices falling from record highs in March 2022, they are expected to remain at historically high levels throughout 2023.
Factors such as Ukraine’s crop production and distribution, tight global supplies, weather volatility, and fertilizer supply disruptions contribute to the high prices.
World Bank Arm to Increase Concessional Loans for Debt-Distressed Nations
The International Development Association (IDA), a World Bank arm assisting the poorest countries, plans to provide more concessional loans and grants to nations at higher risk of debt distress.
This move could resolve impasses that have hampered the restructuring of the debt held by over 70 low-income nations with a combined debt burden of $326 billion.
Following the Global Sovereign Debt Roundtable, IDA’s decision to provide positive net flows and “implicit debt relief” through increased concessionality and grants were welcomed by participants. Among the debtor nations involved in the roundtable discussions were Ecuador, Ethiopia, Ghana, Sri Lanka, Suriname, and Zambia.
The talks aimed to break the deadlock among major creditor nations regarding the renegotiation of unsustainable debt for poorer nations, amidst soaring inflation and a strengthening dollar.
Ethiopia Considers Exchange-Rate System Improvements to Attract Capital
World Bank President David Malpass revealed that Ethiopia is considering improvements to its exchange-rate system to attract more capital.
The country has been facing foreign-currency shortages, leading authorities to limit allocations to private industry.
Ethiopia has an official exchange rate of around 54 per dollar, which hasn’t changed since the beginning of the year, and a parallel rate that’s nearly double on the streets of Addis Ababa. Malpass suggests that if Ethiopia unifies the exchange rate, it would encourage investment.
Last month, IMF officials visited Ethiopia to discuss a new economic-support program as the country recovers from two years of civil war. The Ethiopian government has requested IMF assistance to fund post-conflict reconstruction and boost its foreign-currency reserves.
Securing an IMF deal would allow Ethiopia to resume delayed debt-restructuring plans under the G20 nations’ Common Framework. The country has $1 billion of Eurobonds maturing in 2024.
Chinese Firm to Develop $600 Million Industrial Park in Eastern Ethiopia
China’s Sinoma International Engineering Co., Ltd. has signed a cooperation agreement with the Ethiopia-China joint venture National West International Holding (WIH) Building Materials Holding Company to undertake a $600 million industrial park development project in eastern Ethiopia.
The Melka-Jebdu Industrial Park Development Project, located in Dire Dawa, will consist of cement and metals factories as well as a lime production plant. Sinoma will handle the engineering, procurement, and construction work for the project.
Upon completion, the industrial park will produce 6,000 tons of cement and 1,000 tons of lime per day, as well as 700,000 tons of metals per year. The strategic location near the ports of Djibouti will allow easy access to international trade routes for exports.
Ethiopian Minister of Urban and Infrastructure Chaltu Sani praised the project, which he hopes will help alleviate cement shortages and transfer expertise to Ethiopian professionals.