Interview

Key Takeaways

Below are a few of the main takeaways from COVID-19 Africa Watch’s conversation with H.E. Yasmin Wohabrebbi, State Minister for External Economic Cooperation, Ethiopia Ministry of Finance.

• Early preparation and planning (both for macro-economic management and emergency response) enabled Ethiopia to minimize the most devastating consequences of the pandemic. But the economy has suffered, particularly due to a decline in external revenue, falling tourism receipts and remittances, and a sudden halt in foreign direct investment.
• Prior to the pandemic, Ethiopia launched a series of comprehensive policy reforms. The government has been liberalizing key sectors, addressing several binding constraints across the economy, and working to bolster critical sectors such as agriculture, healthcare, logistics, education, tourism, and manufacturing. Despite the impacts of the pandemic, Ethiopia is moving ahead with enhancing investment climate reforms.
• The Ministry of Finance has identified four pillars for their National Digital Payments Strategy, which is seen as all the more pressing in light of the pandemic: 1) establishing a universal national digital ID, 2) expanding digital payment platforms and digital financial inclusion, 3) promoting good governance by leveraging e-government, and 4) enabling e-commerce.
• Even before the pandemic, addressing debt sustainability was a key priority. Unfortunately, the G20 Debt Service Suspension Initiative (DSSI) has arguably fallen short of expectations and of the dire needs of developing countries. In practice, the initiative has lacked clarity and a central communication mechanism for providing a framework for requesting and negotiating the terms of debt suspension.
• The more recent G20 Common Framework for Debt Treatments is a welcome improvement in terms of providing a broader framework for debt relief – but even this framework will need flexibility and adaptable implementation mechanisms in order for it to effectively address the needs of Ethiopia and other countries.

The interview was conducted by Veronica Moraa Nyamweya, an IFC-Milken Institute Capital Market Scholar from the Capital Market Authority of Kenya. A transcript is available below.

Transcript

Interviewer

Hello, my name is Veronica Nyamweya. I work at the Kenya Capital Markets Authority, and I’m an alumnus of the IFC-Milken Institute Capital Markets Program. Today I am delighted to welcome State Minister Yasmin Wohabrebbi, Ethiopia’s State Minister for External Economic Cooperation, with the Ministry of Finance. Welcome.

We are one year into this ongoing pandemic. What is the story of the past year in terms of the economy of Ethiopia, and how are you coping with the latest wave of cases? What are your concerns for the economy looking ahead?

State Minister Yasmin Wohabrebbi

Thank you very much. One year and a half down the line, the economic impact from the COVID-19 pandemic is continuing to affect us. At the initial stage, the way in which we took measures pretty much controlled the effects so as to keep them at a minimum level, but more recent phenomena are showing us that the pandemic is picking up.

I believe Ethiopia is one of the few countries across the globe that was able to manage the initial effects of the pandemic through early planning and response. But our economy has suffered a lot. At an early stage we didn’t really go into a lockdown situation, but we had strict measures, including a situation with a lot of restrictions in terms of movement. Also, the economy has experienced a decline in external revenue, due to falling tourism receipts and remittances, and a sudden halt in foreign direct investment.

To address the second part of your question, we are preparing to rebound the economy and build back better with accelerated COVID-19 vaccinations and community-based preventive measures. Recently, we have also joined the COVAX initiative which makes a limited amount of vaccines available to all developing countries. We expect to immunize 20 percent of our population over the coming months thanks to this initiative. And with the African Union and Africa CDC, we are also aiming to bring this 20 percent up to 60 percent. We are planning to use resources partly mobilized from our development partners to cover that. We will continue to strengthen our community-based prevention efforts, to accelerate vaccinations, and to make sure that we really stand on our feet and do all the activity starts with enabled us to, to recover fast.

Interviewer

And I can see that your government has put on quite a number of measures to address these hardships, while keeping in mind the effects the pandemic has had on government’s fiscal policy. Despite this pandemic, Ethiopia has made progress in areas that seek to encourage private sector growth, access to finance and innovation, including the Capital Markets Proclamation and the national Digital Payments Strategy.  Can you tell us a bit more about these efforts and how they will boost the economic recovery?

State Minister Yasmin Wohabrebbi

Before I go specific to your question, I should note that three years back, much before the pandemic the Ethiopian government launched into very comprehensive reform. It has looked into political, social, and economic policy aspects, and we have really developed our “homegrown economy” reform where a lot of progress has been made in different fronts.

One of the points that I can mention is that the investment climate has been really reformed. We have enacted an investment proclamation, which really opens up a lot of sectors for private investors, including foreign investments. Also, creating a “digital Ethiopia” is one of the agenda items, when we look into the latest reforms.

Now to address your specific question, the Capital Markets Proclamation aims to leverage the growing markets for primary issues of equity and debt securities and create a framework to establish a capital market that will support the development of the national economy through mobilizing capital, promoting financial innovation and sharing investment risks

We recently formed a financial sector roadmap that is really well developed. And before we fully open up, there are a lot of activities that we plan to do which are indicated in this roadmap. We also plan to create a strong legal framework to protect investors and an enabling environment for long-term investments.

We are currently implementing the proclamation together, especially with the National Bank of Ethiopia which is leading this effort. At the Ministry of Finance, we’re working with the National Bank to support them in all needed technical expertise, as well as in financial resources needed to set up this capital market.

Regarding the digitalization strategy, the government’s decision to liberalize the telecom sector will enable us to address several binding constraints across the economy, in key economic sectors such as agriculture, healthcare, logistics, education, tourism, and manufacturing. By any standard, today Ethiopia is way behind other countries in terms of digitalization, even when compared to some of our neighboring countries. So we really want to move ahead and unleash that potential. This also includes some of the mobile banking elements, where we want to go ahead with universal and reliable connectivity for Ethiopia.

We have seen how crucial digitalization is in the past months. To be honest some of the things that we were not considering a year and half ago (like having virtual meetings) have now become priorities because of the pandemic.

Establishing a universal national digital ID, expanding digital payment platforms and financial inclusion, promoting good governance by leveraging e-government, and enabling e-commerce are the four pillars of our National Digital Payments Strategy. E-government is particularly important, because efficiency in the government system can suffer from not having a system that traces efforts and ensures accountability.

All of these priorities are supported by the reforms in the power and telecom sectors, where we are already seeing very encouraging progress.

Interviewer

This is quite impressive. It’s quite evident that your government has remained focused on progressive initiatives, despite funding challenges. Turning now to the area of international cooperation, how has COVID-19 changed the nature of international and regional cooperation so far for Ethiopia? And how is it likely to further change in the future?

State Minister Yasmin Wohabrebbi

Ethiopia is one of the countries that has strong partnerships with a range of different development partners and international organizations, bilateral organizations, and different philanthropic organizations and foundations. On this front, we were having to face a pandemic that was a challenge even for those strongly developed countries, which were hit at an earlier stage, much before Ethiopia started to feel the pain. And yet they really didn’t let us down.

Because of the pandemic, the Ethiopian government had to decide to delay some of our investment projects. We did that, and I personally think it was highly important to have those dialogues. Many of our ministries really wanted to keep their projects active, but as the Ministry of Finance, we had to make tough decisions and to cut programs and projects, and repurpose some of the other resources and funds towards tackling the pandemic.

“We have now started the exercise of understanding the details of the impact of this pandemic, and from that we’ll be developing an 18- to 24-month plan to make sure that we recover from it and that we build back better.”

We have now started the exercise of understanding the details of the impact of this pandemic, and from that we’ll be developing an 18- to 24-month plan to make sure that we recover from it and that we build back better.

We are also identifying key areas where we can work with our regional partners to manage the impacts of the pandemic but also improve integration in the post-COVID-19 world. COVID-19 really came as a surprise to all of us, and we have looked into how this platform, the Horn of Africa Initiative, can be leveraged in terms of accessing the necessary vaccinations.

Interviewer

You say that the international community has been very supportive, which is great – and we’ve also seen that with the COVAX vaccine initiative. Also right now, Kenya is keen on the regional cooperation you’ve mentioned, being your neighbors.

Moving then to my last question, looking to economic recovery going forward. Can you tell us a bit more about the international debt relief initiatives and how Ethiopia is tapping into those?

State Minister Yasmin Wohabrebbi

So even before the pandemic hit, addressing debt sustainability was our priority. Ethiopia was one of the few countries to call for bold measures to provide adequate assistance to countries whose external debt situation had been aggravated by the COVID-19 pandemic.

“The biggest flagship initiative was the G20 decision to suspend debt service payments (DSSI). While noteworthy, this initiative falls short of the dire needs of developing countries.”

The biggest flagship initiative was the G20 decision to suspend debt service payments (DSSI). While noteworthy, this initiative falls short of the dire needs of developing countries. Since the announcement, the initiative lacked clarity and a framework for requesting and negotiating the terms of debt suspension. Moreover, the G20 communiqué left a broad and very ambiguous statement about multilateral and private financial institutions participating in the program.

This creates a situation where participating in the initiative is very difficult, because we have a Eurobond and we are evaluated or rated by three credit rating agencies. Private creditors and rating agencies were looking at this initiative and were very concerned about whether we could service our obligations to private bond holders. So the signal from the G20 initiative really exacerbated these concerns and really affected our credit rating, even if we didn’t fail to meet our obligations. So this is an issue that we raised in different forums.

We also needed more clarity to be provided in terms of communication. The absence of one central unit of communication and the need to request support from each bilateral and multilateral partner separately was operationally inefficient. We had to go through a lot of process and back-and-forth, trying to reach a common agreement with each partner. There was no central, managed approach to be followed for the DSSI.

The other issue is also that the DSSI was very short-term (just about eight months), after which it was again extended for six months. Now it’s again been extended for another six months. This shows you that while the G20 was aiming for a quick response, the fiscal space it was meant to create didn’t really give enough leverage for Ethiopia and other African countries to address their social, health and economic issues by delaying debt servicing. As a result, the G20 DSSI initiative has been insignificant in alleviating our debt service burden. For instance, despite our best efforts, Ethiopia only managed to differ just over 15% of the public sector debt payments during the DSSI period.

Extending the DSSI twice alone shows how the initiative was shortsighted and did not take a comprehensive approach to address debt sustainability. It did not really understand the magnitude of the pandemic on the economies of most African countries, and of other countries as well.

“The Common Framework for Debt Treatment was a welcome improvement in terms of providing a broader framework for debt relief. However, even the Common Framework needs flexibility and adequate implementation in order for it to be effective here and to address our needs.”

More recently as part of the debt conversation, the Common Framework for Debt Treatment was a welcome improvement in terms of providing a broader framework for debt relief. However, even the Common Framework needs flexibility and adequate implementation in order for it to be effective here and to address our needs. And for most African countries like Ethiopia, debt will become a global concern in 2021 as many African states remain the most fragile and have been hit hard by the economic and financial costs imposed by the pandemic.

Therefore, the debt relief initiative should go above and beyond debt payment suspension and deferment but also debt forgiveness with a binding commitment from creditors.

I believe that as part of our home-grown economy program, one of the focus areas is correcting the macroeconomic imbalance that we have, and particularly (besides controlling inflation, increasing our foreign exchange reserves, etc.), our focus is to ensure that our debt situation improves from the current high-risk level to a moderate risk level across the program period. Even before the pandemic, this was already our plan: to engage with our bilateral creditors to have restructuring and re-profiled debt. So we expect that this Common Framework that is now being discussed with bilateral creditors and the Paris Club will help move our debt’s high-risk level to moderate risk. That would make sure that we can access finance for the huge investment needs that we have. We are very hopeful that we’re coming to that.

Interviewer

This is really interesting nuance on the DSSI and the G20 Common Framework. As you say, flexibility and adequate implementation mechanisms are crucial. Thank you so much for sharing these very timely views and recommendations. These recommendations will also be very relevant for other African countries. Honorable State Minister Yasmin, the Milken Institute and I thank you again for these insights. Please keep up the good work. Goodbye and stay safe. Thank you.

State Minister Yasmin Wohabrebbi

I really appreciate it, so happy to have had this conversation.