Following the recent Chinese government debt interest cancellation, economists recommended economic policy modification to ease local and international debt burden which is threatening Ethiopia. Zafu Eyesuswork Zafu, former President of the Ethiopian Chamber of Commerce and Sectoral Association, said that the recent restructuring of commercial loans to concessional loans, not to mention the Chinese government debt interest cancellation, is a huge amount and very essential economic relief for Ethiopia.
“It is a great economic success for the Ethiopian government while a very kind and strong economic assistance of the Xi Jinping’s government,” he noted adding, “it amazed me very much as it was done in a very serious economic crisis or marginalized utilities.” Currently, Ethiopia is on a very critical debt status both locally and internationally due to the unpaid debts over the last ten to fifteen years.
These had put the nation under economic stresses and lagged the completion of many projects funded by credit, Zafu explained. He elaborated the burden by mentioning the uncompleted and lagged grand projects. “Grand Renaissance Dam (GERD), sugar factories and roads constructions have been delayed because of the lack of foreign currency and budget misuses though they have been on progress by the local supplies.
As well, the debt burden has contributed to the weakening of the foreign trade of the nation. It also decelerated the inflow of the foreign currency. These required lots of efforts from both international and local development partners and financial supporters. Therefore, the debt restructuring is a great economic relief for Ethiopia, but to boost the economic development of the country, several other major activities need to be done.
The first priority should be given to export. Agricultural exports must be promoted and facilitated through diplomacy in order to earn better prices in the international market. He added substituting imports also helps the country to funnel hard-earned currency on strategic projects. Kibur Gena, economic analyst, for his part appreciated the restructuring describing it as a huge economic input to boost rapid development and ease burden that the Ethiopian government need to scale up with other creditors diplomatically.
“The economic policy needs to be at least revised either not to fail or not be economically stressed by debt burden,” he noted supplementing with “debts should not be based on the interests of the creditors but on the profitability of the projects and their local economic inputs. It is also essential to bear in mind that good debt is that generate income and ensures profits. Hence, the initial capital and development debt need to be invested only on the profitable development sector.
“This is what puts Ethiopia under debt distress,” he stressed it. He also forwarded the way out from the debt distress; “though it may be difficult in the case of Ethiopia as the lower class is under critical economic stress, adding tax could assist to payback the debts.” On the other hand, tax reduction could also work better through job opportunity creation and reducing public expenses in addition to reducing conflicts to guarantee peace and stability, he furthered the solutions.
Similarly, he noted that further deals with the financial organizations and nations are also needed to be emphasized. Likewise, Zemedneh Negatu, Economist and International Economic Consultant said, in an interview with Reporter, that easing the current and future debt burdens requires policy improvement,. “The existing economic policy cannot manage to support the estimated over 100 Billion USD GDP in the future; therefore, there should be a policy that can embrace the development.”
Equally, Zemedneh advises that the focus needs to be on adding value on the agricultural products to earn better foreign currency supplemented with diplomatic deals. “The available untouched natural resources must be invested to pull out the country from debt burdens.” By the same token, he commended that all the development infrastructures should not be done only by the government. They have to be privatized.
“The major debts are for development infrastructures as the government was the only financial supplier and proposer of the development projects.” Development infrastructures have to be constructed collaboratively by private sectors and the government, but not owned only by the government to ease debt burden. However, there are projects like GERD that cannot be constructed by private sector, so it is important to consider that there are also exceptional projects.
To ease the debt burden which Ethiopia bears, policy change is needed. Focusing on adding value to agricultural exports, dealing with creditors, rechecking the tax system and economic policy, restoring peace and security to attract investment and partially privatizing development infrastructure construction are some of the urgent measures required to be taken.
The Ethiopian Herald, May 10/2019
BY DIRRIBA TESHOME
