Ethiopia

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Debt vs GDP / Bonds vs bills

All Data - Ethiopia

Year 2011 2012 2013 2014 2015 2016
GDP (billions US$) 30.48 42.21 46.56 53.94 - -
Total Outstanding Amount (Billion US$) - - - - - -
Bonds - - - - - -
Bills - - - - - -
Outstanding Amount/GDP (%) 0.00% 0.00% 0.00% 0.00% - -

News

Country Summary

Ethiopia has experienced double-digit economic growth, averaging 10.8% since 2005, which has mainly been underpinned by public-sector-led development. Real gross domestic product (GDP) is estimated to have grown by 10.2% in fiscal year 2014/15. The agriculture, services and industry sectors accounted for 38.8%, 46.6% and 15.2% of real GDP, respectively. Public investments are expected to continue driving growth in the short and medium term with huge investments in infrastructure and the development of industrial parks, prioritised to ease bottlenecks to structural transformation, which will still have to take shape with industry playing a significant role in the economy.

Fiscal policy has remained prudent, focused mainly on increasing spending on propoor and growth-enhancing sectors, and on boosting efforts in tax-revenue collection. The monetary-policy stance has been geared to ensure a stable exchange rate and single-digit inflation targets. Despite this, inflation has tended to rise from single digits and reached 10.1% in December 2015. Although Ethiopia has been pursuing a sound debt-management policy, debtburden indicators signalled a rise in debt distress from low to moderate in 2015, as indicated by the World Bank/International Monetary Fund (IMF) debt-sustainability analysis. Moreover, poor performance and volatility in export earnings, and ever-increasing demand for imports have led to a deterioration of the balance of trade deficit.

In 2015, Ethiopia faced one of the worst droughts in 30 years caused by the El Niño climate conditions, leading to failed harvests and shortages of livestock forage. Some 10.2 million persons have been affected by the drought and will need emergency food and non-food aid into 2016. Ethiopia, the second most populated country in Africa after Nigeria, is also the least urbanised, with urbanisation at only 19%, significantly below the sub-Saharan average of 37%. The urban population has grown at an average 3.8% per annum since 2005 and is expected to triple from 15.2 million in 2012 to 42.3 million by 2037. This could pose a significant development challenge if not addressed. Since 2004/05, the government has focused more on developing housing, upgrading slums, providing infrastructure and promoting small urban enterprises.

Source : African Economic Outlook 2016

Monetary policy & Public debt

The objective of the monetary policy of the National Bank of Ethiopia (NBE) is to achieve price stability, while supporting the economic development of the country. The stability of the exchange rate is carefully monitored by the NBE for the sake of improved international competitiveness. The NBE also sets the minimal rate on savings accounts and time deposits; financial institutions are however free to fix their lending rate.

The monetary targeting framework of the Central Bank is a monetary aggregate targeting one. Money supply is used as the intermediate target and the growth in base money as the operational target. The NBE uses several monetary policy mechanisms to achieve its objectives: open market operations (purchase and sale of government securities), inter-bank operations (repo instruments), reserve requirements and standing credit facilities.

Historically, Ethiopia has been a low inflation country. However since 2006, the country is going through series of inflation rises: in 2011, the inflation rate reached 33%. The Central Bank responded to this environment by tightening its fiscal and monetary policies. In 2010-11, the birr was devaluated by 20% with the objective of restoring the international reserves of the Central Bank. The government efforts led to a 25% depreciation of the birr and a drop in the inflation rate to around 8% in 2013-14.

Ethiopia’s public debt has been marked by a predominance of foreign aid and loans. The major source of domestic debt is direct advances or DAs. During the period 2011-12, DAs represented more than half of the entire stock of domestic debt. Government bonds’ share was 15.49% while that of Treasury bills was 25.38%. At the end of 2011-12, total public debt was 33.6% of GDP.

Ethiopia’s public debt policy follows the Medium-Term Debt Strategy (MTDS) which runs until 2017. Prior to the MTDS, there was no debt management strategy and debt was implicitly managed through the Debt Sustainability Analysis and the Growth Transformation Plan. The new MTDS directs the domestic component of the public debt; the introduction of a secondary market is even considered.

Market Structure

Instruments issued

Treasury Bills

Four maturities exist for Treasury Bills: 28-days, 91-days, 182 days and 364-days.

The National Bank of Ethiopia (NBE) issues Treasury bills on a more frequent basis than Treasury bonds. During the period 2010-11, the amount of T-bills offered increased by 51%. The stock of T-bills was dominated by the 91-d tenor which represented 12.14% of the portfolio.

T-bills are offered bi-weekly.  

Government Bonds

Government bonds are usually issued to finance infrastructure spending and to absorb excess liquidity.

In 2008 and 2011, the government of Ethiopia launched two bond programs, the Millennium Corporate Bond and the Grand Renaissance Dam Bond. Both programs were only offered to Ethiopians nationals and to the Diaspora.

The Millennium Corporate Bond was offered in 3 maturities: 5, 7 and 10 years and bears a fixed interest rate; the maturities of the Grand Renaissance Dam Bond range between 5 and 10 years with a floating interest rate based on the Libor.

Average time-to-maturity and yield to maturity

The average yield on government securities is very small: it fell slightly from 1.8% in 2012 to 1.59% in 2013.

Market participants

Issuers

The Central Bank, the NBE is the authority that issues Treasury securities.

Other issuers include parastatal entities (Development Bank of Ethiopia) and regional governments.

The corporate bond market is small; it is limited to issuances by large corporations (i.e Commercial Bank of Ethiopia).

Investor base

Non-bank institutions, such as pension schemes, insurance companies and individuals are major investors in the T-bills market. They are slowly overtaking the position of commercial banks, which used to be the dominant investors. At the end of 2010-11, non-banking institutions held 91.7% of outstanding T-bills.

Foreigners cannot purchase government securities; their absence in the market is another obstacle impeding the development of the capital markets.

Other intermediaries

N/A.

Primary and Secondary Markets 

Primary Market

Tenders are placed through competitive bidding.

Treasury bills are offered in Birr 5,000 tranches.

Secondary Market

OTC vs. Exchange listed

There is no secondary market. Most investors prefer a buy and hold strategy in managing their portfolio of securities.

Clearing, settlement and custody

The NBE handles the clearing, settlement and administration of all investments in government securities.

In May 2011, the government launched the new National Payment and Settlement System; all commercial banks are to use this new system.

Recent Developments

In 2010, the Central Bank introduced a new T-bill tenor, the 364-d. The government plans to introduce a secondary market for fixed-income securities by June 2017. This will help the country expand its fundraising options.

Investor Protection

The judicial system remains poorly staffed and inexperienced. While no assets may be nationalized except under certain circumstances, property reportedly has been seized without compensation.

Ethiopia was ranked 32 out of 52 in the 2014 Mo Ibrahim Index of African governance.

Guide to Buying Bonds

Procedures for market participation

All eligible investors in government securities must apply directly to the National Bank of Ethiopia (NBE). They must also have account with the Central Depository which is managed directly by the NBE.

Taxation

Interest income and capital gains arising from debt securities are tax-exempt.

Settlement cycle

N/A

Market restrictions

Openness to international investors 

The government of Ethiopia understands the importance of the private sector for the economic development of the country. For this reason, it has promulgated some laws with the objective of increasing foreign direct investment. The 2012 Investment Proclamation and the multiple revisions of the Investment Code are two of these legislation (Ethiopia Investment Guide, 2013). The 2012 law enables any foreign investor to own a house in Ethiopia.

Capital controls

The NBE strictly monitors the movements of foreign currencies. Due to the shortage of foreign currency, there is a black market for foreign currency.

Non-residents can open foreign currency accounts. Residents can only hold foreign currency for 45 days before they have to exchange it at a bank.

Restrictions on Foreign exchange and profit repatriation

Foreign investors can freely remit profits, dividends, principal and interest on foreign loans, fees related to technology transfers and proceeds from the liquidation of a business with few restrictions. However, foreign exchange reserves are relatively low and as a result, foreign investors have experienced difficulty obtaining foreign currency.

Credit rating

In May 2014, Ethiopia received its 1st rating from the 3 major credit rating agencies (Moody's, S&P and Fitch), in preparation of the 1st international issue of the country. Moody's assigned B1 while S&P and Fitch gave it"B.

List of Primary Dealers

There are no Primary Dealers in Ethiopia.

Documents & Resources

Documents - Ministry of Finance

Documents - Central Bank