World Bank requests Ethiopia to prepare for debt risks

The weight of public spending concerns the Bank  

World Bank Group officials have expressed concerns over the rising level of debts in Ethiopia and suggested the need for a proper risk management aimed at employing a transparent approach. 

Concluding a three-day official visit, Sri Mulyani Indrawati, managing director and chief operating officer of the WB group, told reporters on Wednesday that with the mounting level of debts, Ethiopia needs to be prepared for risks. According to the Ministry of Finance and Economic Development (MoFED), the current level of outstanding public debts rest at some USD 20 billion, out of which the external debt figures stood at some USD 12 billion last year. The debt to the Gross Domestic Product (GDP) ratio remains at 44 percent, yet that, according to WB officials, is low compared to other nations. 

The managing director told reporters that one of her discussions was directed towards reforming the governance and regulatory framework, transparency and efficiency of the economy. With Prime Minister Hailmariam Desalegn, she discussed the role of state-owned enterprises. She mentioned that state-owned enterprises are expanding fast in Ethiopia. Indrawati said within the past couple of years, the investments made by state-owned enterprises kept rising.  For the mounting level of debt, according to Indrawati, Ethiopia needs to be sure whether it can deter the risks of increasing debts. “A good and sound financial report, transparency and consistency  and credible information are very important,” she said. “The current borrowing trend definitely will create additional exposure of risks for Ethiopia,” the managing director warned. Making matters difficult, Ethiopia’s export performance is questioned for debt financing abilities. According to the government, the performance targets have been declining for a couple of years. The worst performance was recorded in the past three years. 

The fast growth of the economy Ethiopia has witnessed over the years is impressive Indrawati said; yet transforming the structure of the economy is where Ethiopia is lagging. “Transforming the economy is diversifying the economy both from the agriculture dominated into more manufacturing and services; especially manufacturing which can create more jobs”, the managing director noted. For that reason, she said she discussed with top officials how investment could be attracted from the private sector. 

Indrawati said that stated-owned enterprises are often creating contingency liability to any government. Hence, receiving more capital is termed as necessary for such enterprises to help expand impediments. However, it is equally important for enterprises to be managed transparently, based on good governance, she said. 

The managing director paid visits to the country’s most publicized basic safety-net programs. She said what she saw in rural Ethiopia and the changing environments for basic services are impressive. The basic public safety-net program which runs in Ethiopia, according to Indrawati, will cover some ten million beneficiaries in the years to come since the vulnerability both in rural and urban population is increasing. 

Ethiopia needs capital investment to address poverty. Yet Indrawati urged the government to build the capacity to sustain borrowings sourced from bilateral and multilateral sources are destined and kept for development reasons. The government is recommended to capacitate its analytical works as well as policy discussions where WB is working on both issues with the government.

It is to be recalled that the WB has made a record high loan and grant disbursements as well as commitments for Ethiopia. Out of the 1.6 billion USD the Bank has approved, some USD 1.3 billion was disbursed recently. Currently, the WB is financing eight projects in the country which accounts USD six billion. The funding includes the industrial zones development projects to which the Bank is convinced of their job creation and expanding the manufacturing sector. 

Sri Mulyani Indrawati formerly was a minister of finance for Indonesia and coordinating minister of economic affairs. She joined the WB in 2010. In the WB, Indrawati sees responsibilities of the operations of the institution all over the regions. In addition to that the managing director oversees administrative vice presidencies and functions which include the integrity vice president, sanctions board secretariat and the office of the evaluation and suspension. 
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