Complete collapse of the Ethiopian economy into a state of worthless currency and financial chaos is drawing closer every day. Long lines for diesel or gasoline costing many times its traditional costs are now a reality in the capital city of Addis Ababa. In a country where 50% of food requirements must be imported now the government has announced there will be no more food subsidy which will send prices soaring.
Over $2.5 billion in debt has been added just this year in payments to countries (UAE, Turkey, Iran )in hard foreign currency or gold reserves. This has resulted in cuts to medical services and supplies, education, infrastructure, and housing as well as the ending of food and fuel subsidies.
The Ethiopian economy and the value of its currency has been on a continual downslide since Abiy Ahmed and his Prosperity Party took office in 2018. While for the previous 10 years the Ethiopian economy grew at 10% annually for the upcoming year it has become unpredictable but estimated to be -2 to -3% by the International Monetary Fund. Meanwhile the total Ethiopian government debt is now projected to be $60 billion by the end of 2022 and approach $100 billion in the next four years. The Ethiopian government now no longer publishes Consumer Price Index numbers.
Ethiopian failure to deal with a failing economy worsens the credit crash and severely limits possibilities for further international loans to support the government. Despite promises to cooperate with foreign lenders no progress has been made. There is a growing possibility that the Ethiopian federal government may collapse.
In February 2021 under an agreement called the Common Framework for Debt Treatment Ethiopia agreed to work with the International Monetary Fund to find a way to renegotiate its debt payments. Currently the Ethiopian government is estimated to be $40-$50 billion in debt for loans to the Ethiopian Federal government as well as “hidden” loans backing private businesses deals in targeted industries. This means Ethiopia currently has to pay more than $ 2 billion annually in debt service. The debt service may now be almost 50% of the Gross Domestic Product which is five times higher than the normal upper acceptable limit of 10%.
The Ethiopian government was supposed to come to terms with a committee which included France and China starting in September but so far according to Mood’s Investment Services report that came out today there has been no progress. As a result Moody’s downgraded the credit rating once again to Caa2. Their assessment is that the Ethiopian economy has a negative outlook and now has no likely source at this time for obtaining any further loans.
Moody notes weak government, poor control of COVID 19, increasing political unrest and war, drought, locust outbreaks, inflation, and loss of foreign investment interest among the factors making economic growth and stability unlikely for Ethiopia in the near future.
The conquest obsession of Abiy Abid is rapidly fading any future of economic growth and financial independence for Ethiopia. They seemed to have missed out on the first lesson in any college freshman economic class about the “guns vs butter” trade off.
This month the inflation rate for Ethiopia will reach a record 50% in one year the highest in the world. The consumer price index is expected within a short time to also reach a new high of 300 points above normal. The Central Statistical Agency which normally posts this finding has actually closed its normal reporting website.
The Ethiopian government probably has less the $400 million to run the country for the next 11 months which normally requires about $2 billion. The International Monetary Fund has decided that Ethiopia’s finances are in such disarray that it cannot issue a report on growth. Although the official government report is 6.6% growth this year most analysts are saying it will exceed -2% net loss. Fantasy will not feed the hungry nor create sustainable businesses to drive economic growth.
Prime Minister Abiy Ahmed has spent all cash reserves and transferred most gold reserves out of the country. France and China are trying to broker a new repayment plan for debt that exceeds $40 billion requiring payments of at least $2 billion year alone in debt service. Meanwhile Abiy Ahmed promises to guarantee private loan deals between private companies in Ethiopia and foreign interests have been discovered adding another $25 billion in debt previously hidden. His armies have destroyed hundreds of billions of birr worth of businesses and industries in Tigray. The war damage blight to Tigray now extends to much of Amhara with Ethiopian and Eritrean blanket destruction adding billions of birr in economic production loss and human life.
At this point the continued war and misery are no doubt going to leave what was formally the prosperous state of Ethiopia in tatters. Severe austerity measures will need to be imposed just to get any country to fund loan repayment and it is likely that natural resources will likely be the mechanism of repayment but not at any significant profit to Ethiopia. The dream of Ethiopia being a second world country that escaped poverty is gone. The previous decades of progress will be just a memory traded for the false promise of conquest and repression. Ethiopia has become another Eritrea.
It is no secret that Abiy Ahmed is moving away from alignment with the Western democracy capitalist based economic model and moving towards the state dominated economic model of Eritrea, Cuba, and Iran as well as Turkey problem child of NATO. This action is being somewhat camouflaged by pro-Africa anti-colonization rhetoric given to falsely buoy his supporters in the wake of catastrophic economic failure now on the horizon.
This week, Andargachew Tsige, former ally of the Ethiopian Peoples Revolutionary Democratic Front who was imprisoned by the previous government then released by Prime Minister Abiy Ahmed, is making the rounds on the Amharic media calling for a new economic model like that of Cuba and Eritrea.
Coincidently it was revealed this week that Canadian mining companies had tried to make a secret deal for rights to $ 2 billion in gold reserves in Tigray without any knowledge of the Tigray state many months before the Ethiopian Tigray conflict. Canadian courts had found that Canadian mining interests had violated the law by cooperating with the Eritrean government to pay slave wages to workers resulting in high profits for Esaias Afwerki, despot of Eritrea and the mining concerns. The embarrassment caused the Canadians to sell all but 10% to Chinese less scrupled interests. Canada has been remarkably quiet about the Ethiopian situation.
No doubt Abiy Ahmed can see the writing on the wall that his economic future with the West is poor given the inevitable sanctions coming soon unless he radically changes course and sues for peace with the Tigray Peoples Liberation Front. Now eleven months into a war that has seen the Tigray Defense Force initially on its knees to now controlling much of the Amhara region many such as United Nations Secretary General Gutierrez believe Ethiopia cannot obtain a military victory. Even so Abiy Ahmed has promised to never negotiate with those he has deemed terrorists. The failing economy may become more of an enemy then the TPLF for Abiy Ahmed.
A complete collapse of the Ethiopian economy comes closer to reality each passing day. The calamity this would bring in terms of literally total loss of human necessities for survival for most Ethiopians may ultimately be the cause for an end to the war. Will the Ethiopia Tigray conflict end due to peace talks, military victory, or collapse of the Ethiopian economy?
The government of Abiy Ahmed remains fixed to its position it will not negotiate with “terrorists” even though it is suffering progressive defeats and loss of territory. The Ministry of Finance is releasing optimistic economic forecasts being sternly questioned by even economists who are ardent government supporters. At the same time international financial institutions and Ethiopian economists are sounding the alarm that the war costs are bringing the country to a financial collapse. Ethiopia has received less than $500 million in loan disbursement this year while spending $1 billion in payments to Eritrea and 51 million to Turkey. Amounts for other weapons are unknown at this time. The United States and European allies are clearly indicating tough sanctions will happen if no progress to peace is made.
Over the past several weeks the armed forces of Eritrea and Ethiopia have been retreating from advancing Tigray and Oromo Liberation Army forces. Economic activity remains stalled in Tigray as well as much of the Oromo and Amhara regions. Today the large Amhara city of Dessie is surrounded, Gondar has lost all communication, and Tigray forces are 150km away from Bahir Dar. In an attempt to slow the advance of the Tigray forces into western Ahmara the Ethiopian National Defense Force destroyed a strategic bridge at Ibnat. Military analysts at this time do not predict a speedy end or that the Tigray will be defeated.
According to the Ethiopian Ministry of Finance the total foreign and domestic debt incurred by Ethiopia is $55.6 billion (USD). In just the last year in great part due to the war effort but also affected by COVID and poor agricultural prices the debt has nearly doubled. Out of this more than half is debt owed to foreign lenders. Within the last year the government has paid $1.8 billion debt service payment The country’s gross domestic product was $1.4 billion but it had to pay interest on loans in excess of $1.8 billion.
Since Abiy Ahmed assumed power the percentage of the gross domestic product used to pay interest has gone from 20% to over 33% of the GDP. Some are predicting the debt cost will go to 70% of GDP and the total debt could easily double. Although Ethiopia is one of the top ten producers in the world of many grains abnormal rains, locusts, inflation, war, and displacement have reduced its agricultural output. Additionally food imports since Abiy took office have been increasing rather ten decreasing. Combining lessening high quality food exports with the need for more imports is leading to forecasts of greater food dependence of foreign aid. Before the war 25% of Ethiopians were dependent on foreign food aid. In Tigray more than 90% have been assessed as needing food aid. Now with millions displaced the number has certainly increased.
The Ethiopian government is trying to slow down inflation now at 45% for this year alone based on the Consumer Price Index by buying wheat and forcing banks to put more deposits in the central bank. Even so many Ethiopian economic experts say that even if the war stopped tomorrow it would take 10 years or more for an economic recovery assuming 5% percent or more economic growth yearly could be obtained instead of the -2% this year.
While Abiy Ahmed has struggled trying to squelch rebellion throughout Ethiopia and proclaiming wonderous record economic growth truth of financial collapse is coming out. This week China’s EximBank decided to hold disbursing $339 million in further loan to Ethiopia because it is default. Currently 12 major infrastructure projects have no capital to continue including the electric railroad from Dijoubti to Addis Ababa. Another $98 million in debt from the African Development bank is also in default.
The railway is currently disabled by forces allied with the Tigray Army but its problems started well before the Tigray Ethiopian conflict. Under Abiy Ahmed’s leadership production of electricity for the whole nation had fallen behind to the extent that often there was not enough power to run the train. Secondly, although the Ethiopian government had dreamed of the train carrying exports including shoes to Djibouti this did not happen.
Since 2018 the African Union and international credit organizations had counseled Abiy Ahmed to focus on realistic economic development and restructure debt in a realistic matter. Instead he fixed his whole plan for fixing the economic distress and debt burden of Ethiopia on visions of selling electricity from the Grand Renaissance Dam.
International financial analysts have warned Ethiopia that the “Chinese model of heavy infrastructure development” financed by Chinese banks was a failed strategy unless domestic economic production was substantially increased. For example instead of being a net exporter of footwear the Ethiopian share of the domestic market is only 10% while 90% are imported.
Abiy Ahmed proclaimed that the Ethiopian Tigray conflict had cost more than $2.5 billion before the expansion of the war into Amhara and further uprising of regional liberation groups active throughout Ethiopia. At this point it is clear there will be no rapid return to the status quo present before November 2020. The war prosecuted by Abiy Ahmed has brought and likely will bring more sanctions from Western democracies as well as more defaults to Chinese, European, and other creditors. Financial stability does not seem attainable for the foreseeable future. There can be no prosperity without peace.
Noted international authority on national debts, Fitch, now rates Ethiopia as ccc which is equivalent to a financially failed state. Now with $40 billion in debt, in a country wide civil war, severe inflation, yearly locust outbreaks and poor forecasts of economic growth unlike was present before he took power there seems no answer but a change in leadership.
For Ethiopians previously not affected by the Ethiopian Tigray conflict it is now time to come to reality. Now is the time for all to realistically assess where to go from here. It is a time for prayer and contemplation. Ethiopians not affected by the war so far need to realize they soon will be.
Wars always start too early and end too late. Having fantasy notions about a coming Ethiopian miracle will only cause more misery. Whatever becomes of Ethiopia is going to happen regardless of what further futile military action is done by Ethiopia.
One in four people in all of Ethiopia are approaching a state of famine and for Tigray that is approaching 500,000. Ethiopian Airlines and mining interests are so disrupted by the war that the economy of Ethiopia is falling fast. Abnormal rain patterns as well as war now occurring in Tigray, Amhara, Afar, Oromia, Beningshugal, Somali, and the SNNPNR will surely reduce the major harvest this year. Inflation for the year is approaching 50% and the birr may reach 75 to the US dollar very soon.
Meanwhile, the Prime Minister has left to meet Isaias in Eritrea and then on to Turkey. It may happen that the Bole Airport may be overtaken by Oromia Liberation Army forces before he makes it back if he really intends to comeback. So far Prime Minister Abiy Ahmed has refused to negotiate but instead promising a massive counterattack which has never materialized. The Tigray and their allies have at least offered to negotiate.
At this point it is clear by many military and strategic analysts that Ethiopia cannot mount a significant counterattack to defeat Tigray. Now the Tigray Defense Force is being joined by fighters of liberation armies from Agew, Afar, Somali, Beningshugal, Oromia, and Gambella.
The Tigray Defense Force and their allies are driven by a need to free their people from perceived tyranny and abuse from Amhara elitism. The Amhara elites and their allies claim they want to preserve a chance for a unified Ethiopia that will become a more modern state. Unfortunately they cannot force their point of view upon others. As I and others have stated previously Ethiopian has always been an empire of subjugated nations. The prejudiced view of a united state of Ethiopia quickly fades from view as soon as you leave Addis for the countryside.
Thousands of Ethiopians are displaced now. Dessie Hospital and others in Amhara are overwhelmed with casualties. Most of the fighting equipment of the Ethiopian national defense force has been destroyed or taken by the Tigray Defense Force. Supply lines to both Tigray and Amhara as well as from Djibouti and Kenya are cut off. It may be just hours to days before the Bole Airport is closed. As of now no Ethiopian airline flight is flying domestically. Civilian traffic between major cities is severely restricted. The isolated and tormented people of Western Tigray will soon be freed.
A prayer from His Eminence Archbishop Abba Kewestos Ethiopian Orthodox Patriarchate:
In the name of the Father and of the Son And of the Holy Spirit one God, Amen.
For he that will love life, and see good days, let him refrain his tongue from evil, and his lips that they speak no guile:
Let him eschew evil, and do good; let him seek peace, and ensue it. For the eyes of the Lord are over the righteous, and his ears are open unto their prayers: but the face of the Lord is against them that do evil.
And who is he that will harm you if you will be followers of that which is good?
But if ye suffer for righteousness’ sake, happy are ye: and be not afraid of their terror, neither be troubled;
But sanctify the Lord God in your hearts: and be ready always to an answer to every man that asketh you a reason of the hope that is in you, with meakness and fear;