Ethiopia to use funds from partial privatisation to pay down debt
The move will enable the government to recapitalise state-owned enterprises so they can repay borrowings debts issued by lenders
17 OCTOBER 2019, Nairobi (Business Daily) — Ethiopia will use some of the proceeds from partially privatising state companies to pay off government-guaranteed debts issued by lenders, including the largest state bank by assets.
Selling sugar factories and a stake in the country’s telecoms monopoly will enable the government to recapitalise state-owned enterprises (SOEs) so they can repay borrowings, National Bank of Ethiopia governor Yinager Dessie said in an interview.
The two main state lenders are Commercial Bank of Ethiopia, which accounts for more than 60% of the nation’s financial-services industry; and the Development Bank of Ethiopia (DBE), which allocates credit as directed by the government. They, in turn, could be recapitalised, Yinager said, depending on recommendations on their health due to be delivered by a government committee in about a month.
Ethiopia’s privatisation plan is part of a shift in strategy under Prime Minister Abiy Ahmed to reduce national debt, generate foreign exchange and strengthen large swaths of the economy of Africa’s second most-populous nation.
Ethio Telecom and assets owned by Ethiopian Sugar Corporation are first on the list, with rail, industrial parks and logistics assets among those slated to follow. Many of those are weighed down by debt guaranteed by the finance ministry.
“With liberalisation and privatisation, definitely some money will be raised and that will definitely be used to repay the banks,” Fitsum Assefa, head of the National Planning and Development Commission, said in a separate interview. Such a move will also help the liquidity position of the lenders, she said.
The International Monetary Fund (IMF) classified Ethiopia at a high risk of debt distress during Abiy’s first year in office, with total public sector external debt at $20.3bn for 2017/2018, or 351% of exports.
The DBE’s 2018/2019 annual report, obtained by Bloomberg News, shows a non-performing loan ratio of 34%, with the bulk coming from the manufacturing and agriculture sectors. The government now wants the private sector to “play the major role in the economy”, according to Fitsum, with the state more focused on regulation and enabling the provision of finance.
“The liquidity issue will be resolved easily,” said Fitsum, who sits alongside Yinager as part of Abiy’s team in charge of economic policy.
The proportion of privatisation proceeds to be used for servicing state-enterprise debt has not been decided, said Yinager. “The purpose for now is to get foreign exchange, then the government will decide for what purpose this foreign exchange is used.”
While Ethio Telecom’s debt is non-guaranteed and external, Yinager said talks are under way with unspecified Chinese lenders to reschedule payments to help expand the company.