Ethiopia seeking more debt relief; experts say might increase market pressures on other poor countries

The Ethiopian Ministry of Finance has requested debt relief assistance in order to better cope with the economic toll that the COVID-19 pandemic has taken on the country. Two weeks ago, Ethiopia had been listed as one of the countries that received debt suspension under the G20’s Debt Service Suspension Initiative (DSSI).

Ethiopia’s request for further relief makes it the second African country to request aid during the previous week. Chad is the other African country that made the request, and Zambia was the first country to do so back in November of 2020.

While some have accused Ethiopia of attempting to ‘treat’ its debt (which means trying to get a debt canceled using artificial means), the Ministry of Finance has addressed such allegations as mischaracterizations. According to the statement, the DSSI is a legitimate avenue for Ethiopia to weather the economic storm that is the pandemic by allowing Ethiopia to direct resources towards avenues that facilitate growth and development. 

The statement also affirmed that Ethiopia only intends on engaging in dialogue with other creditors based on the comparability of treatment rules and that it does not plan on forcing or directing creditors towards debt suspension agreements unless it is their express wish to do so. Anything less would only serve to reduce the country’s access to international markets.

Morgan Stanley analysts, on the other hand, believe that Ethiopia’s request is going to put more pressure on other poor countries from bond markets. Analysts expect that tougher stances by bilateral (public and private) creditors on more emergent markets (poorer countries) will lead to more pressure on these markets.

In total, 73 countries are eligible for the DSSI with 40 having already submitted debt suspension requests. The G20 has also called on private creditors to join the initiative that was set to expire with the coming of the new year. It has not been extended till June with the possibility of further extensions.

Financial Post, Financial Times, New Business Ethiopia

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