- Ethiopia's main creditor countries have decided to cancel another US$ 758 million of outstanding debts. In total, Ethiopia thus will see its debt to these countries reduced by almost US$ 1 billion, to US$ 153 million. A "rigorous economic programme" further was to secure long-term growth in Ethiopia, the creditors hold.
Representatives of the so-called "Paris Club creditor countries" had met in Paris on 13 October to discuss Ethiopia's debt burden, according to a statement released by the "Paris Club". The "Club", which was formed in 1956, is an informal group of creditor governments from major industrialised countries, including the US, European countries, Russia and Japan.
According to the Paris Club statement, the representatives of creditor countries had "signed the recommendation to their governments" for cancellation of Ethiopia's external debt, after the country in April had reached its completion point under the enhanced Debt Initiative for the Heavily Indebted Poor Countries (HIPC), following an economic reform programme prescribed by the International Monetary Fun (IMF).
In order to contribute to restore Ethiopia's debt sustainability, they decided to cancel US$ 758 million in net present value terms of July 2003, which represent the Paris Club's share of the HIPC initiative.
Most creditors also committed on a bilateral basis to grant additional debt relief to Ethiopia, "so that the stock of the debt owed to Paris Club creditors will be reduced by a further US$ 176 million in net present value terms of July 2003," according to the statement by the creditors. In total, Ethiopia's debt to Paris Club creditors has been reduced from US$ 1087 million to US$ 153 million in net present value terms of July 2003 as a result of this agreement and additional bilateral assistance.
The Paris Club creditors in the statement further welcomed "Ethiopia's determination to implement a broad-based and rigorous economic programme, which should provide the basis for sustainable economic growth and comprehensive poverty reduction." The programme had earlier been prescribed by the IMF and focuses of economic growth through privatisation.
Economic growth in Ethiopia has however been very instable during the last years, despite strict adherence to the IMF-prescribed policy. In particular the severe drought in 2002 - the worst in many years - had actually caused real GDP to decline in the 2002/03 fiscal year. While the drought is still continuing, "real GDP growth has rebounded strongly" in 2003/04, according to the IMF.
In its last recommendations to Addis Ababa authorities, the IMF holds it is "essential to press ahead with structural reforms, focusing on agriculture, food security, capacity building, export promotion, privatisation and strengthening the legal and regulatory framework." This is currently being done by Ethiopian authorities, according to the IMF.
The Ethiopian government had committed itself to allocate the resources freed by the present treatment of the debt to priority areas identified in the country's poverty reduction strategy and to seek comparable treatment from all its other external creditors - including other creditor countries as well as commercial creditors.
The Paris Club creditors in their statement further emphasised the importance they attach to "a treatment at least as favourable from non-Paris Club creditors to Ethiopia."
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