Ethiopia: Tackling debt sustainability and macroeconomic pressures

Ethiopia, a country with a rich history and a promising future, is currently navigating a complex economic reform journey. Under the leadership of Prime Minister Abiy Ahmed, the nation is implementing reforms to address macroeconomic imbalances and promote growth. However, as CNBC Africa's Flora Limukii discussed with Bhavesh Chandaria, CEO at Ethiopian Steel, during a recent interview, Ethiopia faces several challenges that threaten the success of these reforms. One of the key challenges highlighted in the interview is the issue of political instability. Bhavesh Chandaria pointed out that Ethiopia is in a unique position with a coexistence of extreme parameters. Despite recent positive developments such as the opening up of the forex market, which has led to a stabilization of the exchange rate, the country is grappling with a shortage of foreign currency. This scarcity has been exacerbated by a restrictive monetary policy aimed at curbing inflation, but which has also stifled growth. Manufacturers are facing a liquidity crisis as they struggle with rising import costs and declining demand, leading to a temporary drop in prices despite higher raw material costs. Chandaria emphasized that such transformative reforms take time to stabilize, and Ethiopia is still adjusting to the new economic landscape. The heavy debt burden also poses a significant challenge to Ethiopia's economic stability. The recent funding from international organizations like the World Bank and IMF comes with stringent conditions and key performance indicators that the country must meet. While the initial reviews of the reforms have been positive, the real impact on the economy will be seen as the funding is channeled into the private sector and everyday life in Ethiopia. Stakeholders are closely watching the government's progress in meeting these KPIs to ensure sustainable economic growth. Furthermore, infrastructure deficits and limited investment opportunities have hindered Ethiopia's economic potential. The recent opening of the Ethiopian stock exchange is seen as a significant step towards addressing this issue. The stock market provides a platform for Ethiopians to invest their savings in productive sectors of the economy, diversifying their investment options beyond real estate. The success of the stock exchange will depend on the level of subscription and the subsequent listing of companies. Chandaria expressed optimism about the transformative impact of the capital markets on the Ethiopian economy and emphasized the need for continued reforms to attract more investments. In conclusion, Ethiopia is at a critical juncture in its economic reform journey. While the country has made significant strides in opening up its forex market and launching the stock exchange, challenges such as political instability, a heavy debt burden, and infrastructure deficits continue to pose obstacles to sustainable growth. The success of Ethiopia's reform efforts will depend on its ability to address these challenges effectively and implement further reforms to attract foreign investment, broaden the tax base, and stimulate economic growth. As stakeholders eagerly await the outcomes of these reforms, the future of Ethiopia's economy hangs in the balance.