Ethiopia hikes budget to $17 billion in first post-default plan
Ethiopia will raise spending by 21% in its 2025 budget, the first since it defaulted on a eurobond payment and committed to talks on economic reforms with the International Monetary Fund.
The nation plans to spend 971.2 billion birr ($16.9 billion) in the fiscal year starting July, Finance Minister Ahmed Shide said in a budget speech to lawmakers in the capital, Addis Ababa. The fiscal deficit works out to 2.1% of gross domestic product, unchanged from the current fiscal year.
Ethiopia plans to plug the 358.5 billion-birr hole through local and foreign borrowing, Ahmed said, with the domestic component covered by government treasury bills and medium-term bonds, he said.
Until significant external donor support materializes, Ethiopia will continue to rely largely on domestic markets to finance budget deficits, according to Giulia Filocca, a senior analyst for sovereign and international public finance ratings at Standard & Poor’s.
“While the government has secured some external financing from the World Bank and EU, the negotiation of an IMF program will still be very important to alleviate pressure on local banks and help secure overall debt relief,” she said. “Our expectation is that an IMF program will be signed this year, but the timeline remains unclear due to ongoing political developments and intractability over foreign-exchange reforms.”
In December, Ethiopia failed to remit $33 million coupon payment for its $1 billion bond maturing this year.
That was after it reached agreements with some creditors including the Paris Club to suspend debt repayments. In exchange, Ethiopia has to reach a staff-level agreement with the IMF, which would include reforms such as devaluing the birr currency.
Budget Highlights:
- Government expenditure will comprise 451.3 billion birr recurrent spending, 283.2 billion birr capital expenditure and 236.7 billion birr for regional subsidies
- The ministry projects income of 612.7 billion birr, which will likely include:
- Tax revenue of 502 billion birr and non-tax income of 61.6 billion birr
- Sector budget support of 7.3 billion birr and 41.8 billion birr from aid and grants
- The Horn of Africa economy is forecast to expand by 8.4% in the coming fiscal year from an expected 7.9% in the current period
