External debt (money owed to foreign creditors) has been on the rise globally over the past years. Sovereign and corporate bond borrowing in 2024 has reached 25 trillion nearly three times the 2007 level, according to Global Debt Report 2025 released recently by the Organization for Economic Co-operation and Development (OECD).
Though the world’s richest country, the United States the highly indebted country, developing countries have also been challenged by growing debt level. Developing countries are sinking deeper into a debt-driven development crisis. Their external debt has quadrupled in two decades to a record $11.4 trillion in 2023, equivalent to 99% of their export earnings. Ethiopia is among the four African countries defaulted (failed to payback its loan) recently like that of Ghana, Zambia and Chad.
In the following interview with New Business Ethiopia, Tesfaye Melaku, Assistant Professor of Economics, Jimma university and PhD Candidate, University of Antwerp, Belgium reflected on the current state of Ethiopia’s debt – on which he is doing his PhD.
Q. What is the current total debt amount of Ethiopia in USD?
$68.9 billion as June 2024
How much of this figure is external debt? 28.9 billion USD
How much of this figure is domestic debt?40billion USD
Q- Who are the external lenders to the government of Ethiopia?
— Multilateral creditors: IDA, IMF, AfDB, AfDF, BADEA, EIB, IFAD etc
— Bilateral creditors:
I) Paris Club: like Italy, France, Germany etc
II) Non-Paris club: like ABU DAHBI FUND, China (CDB, EXIM-BANK OF CHINA, ICBC), India, Kuwait Fund, Saudi Fund, Poland, EXIM-BANK OF KOREA, Export-Credit Bank of Turkey
Q- Who are the major external loan providers of Ethiopia?
IDA, China, IMF etc
Q- How much of the external loan is provided by multilateral institutions such as IMF, WB, etc.?
More than 14, 286,098,158 (World Bank-IDA, African Development Bank, Arab Bank for Economic Development in Africa (BADEA)
Q- How much is provided by countries / bilateral lenders such as China, etc?
More than 10,452,676,712 (Major creditors like China, France, Germany, India, Italy, Korea, Republic of, Libya, Poland, United Arab Emirates, United States, Turkiye, UK).
Q- How much of the external loan has come from private lenders such as Eurobond?
For instance, the year 2023: the difference of 31,914, 034, 150 – 24,738, 774, 870 = 7,175,259,280). Excluding the one billion euro in which the country is considered as defaulted in international financial market though the government doesn’t admit its default.
Q- Do we have figures about the yearly loan repayment of Ethiopia both to external and domestic lenders?
It varies greatly, for instance for the years 2021 to 2024, the external debt data shows the following debt service payments (International debt statistics).
Ethiopia debt service:
In 2021 >1,532,400,701
In 2022 >1,798,238,349
In 2023 >1,402,478,715
In 2024 >3,349,548,020
Q- What are the major challenges Ethiopia is currently facing in terms of debt repayment as we know that the country is among the 4 African countries along with Ghana, Chad, and Zambia which defaulted?
The effect of Covid-19 pandemic shock, negative trade balance, corruption, high debt servicing cost, increased public investment demand (with low saving rate), rapid drying up of financing from China, dropping official development aids and waning inflow of private capital, lack of prudent public debt management system, military expenditures due to the ongoing civil wars in the country were among the major challenges of debt repayment.
On the other hand, if we see the data in 2023, the country has been downgraded by all credit rating agencies. For instance, in January 2023 Fitch downgraded Ethiopia’s rating from C to C-, Standard and Poor’s from B to CCC-; Moody to Caa2, with all negative outlook.
Q- What will be the probable effect of downgrading by credit agencies on the country’s credit market participation on the international market?
Consequently, with this rating, we expect that borrowing costs or terms of deal with creditors may goes up, the country remains much riskier borrower and default possibility will be much more than before on the eyes of the creditors. The country may lose its credit reputation / worthiness, miss various credit opportunities, and in general it hurts the future borrowings particularly on commercial terms.
Q- What do you think are the major causes of these challenges?
The current political instability, weak (inefficient) institutional setup, poor debt management system, the ongoing civil wars, drying of finance form creditors due to the current civil wars, corrupted government system (government failure), small bases of export (even negative), low level of democracy (the ability of the parliament to oversight debt is yet poor or executive dominance in the parliament) etc.
For instance: as the evident from Transparency international (2022), the corruption rank of Ethiopia out of 180 countries was 94/180, indicating corruption is still a big problem in the country.
The corruption perception index (CPI) score is 38 (which is below the world average, 43) for the year 2022, on 0-100 scale, where 0 indicating that highly corrupt and 100 no/very clean.
The other supporting evidence to our analysis is, the world governance indicator (WGI) which is based on data coming from 11 institutional sources that ranges from a minimum of -2.5 (lack of corruption) to a maximum of 2.5 (worst corruption).
Thus, according to WGI, Ethiopia’s level of corruption is -0.36 and -0.39 for the year 2020 and 2021 respectively, depicting that the country level of corruption is worst. With similar analysis, WGI indicates worst political instability and violence in the country having -1.757, and -2.068 estimates for the same year 2020 and 2021 respectively.
Q- Most Ethiopians both in urban and rural areas are facing high cost of living and rising prices of inputs such as fertilizers as a result of multilateral lenders such as the IMF’s pressure the Government of Ethiopia to end fuel subsidies, etc and complete market liberalization. What are the negative implications of this growing debt of Ethiopia on the ordinary people?
In-fact the country has no problem of solvency. Actually, the problem is liquidity shortage (shock). -The negative impacts were many to the nations: face high cost of living (it is what we are facing now), inflationary economy that harms the nation at large particularly the lower section of the society…over all deteriorated living etc.
If continued, this debt build-ups may harm overall growth at all. 7- Some say the growing external debt is jeopardizing Ethiopia’s autonomy to make independent policy decisions without the external / debtors influence.
Q- How do you think the country will come out of the current debt crisis in a short term and long term?
In fact, debt by itself is not a problem. From the very beginning debt increases growth but after it reaching its caring capacity, it may have negative impact, that still touches every nation. Good and independent public debt management policy, significantly reducing corruption, revisiting the current polices, and working for national interest (if the govt is a will to do so) etc.
Actively involve/participate in different debt relief negotiations and debt restructuring to clean its indebtedness: For example: In terms of debt relief negotiations and debt restructuring, the country has been dealing with G20 countries under the current debt relief called the common framework (CF) beyond DSSI.
But in order to get treatment under the CF scheme, the country need to deeply analyze the costs or conditionality like to implement IMF arrangements like unification of foreign exchange rate system to narrow the gap with the black market (which is already done), disclose all debts particularly the China’s loan held secret and expected benefits.
Meanwhile, the progress of the CF was too slow, lacks clarity on its enforcement mechanism and waiting the new DSA result in order to determine the amount of debt relief, that makes CF uncertain and seems not feasible in the meantime to provide debt relief and benefit from it. Overall, why 4 countries were applied to the CF among 73 eligible countries? Is another issue to be researched to find out the reason behind.