Ethiopian News: Ethiopian Government Drowning in a Staggering 1.7 Trillion Birr Debt

Ethiopian News: Ethiopian Government Drowning in a Staggering 1.7 Trillion Birr Debt

According to the government’s obligation to buy 20 percent of the new loans given by commercial banks, the amount of bonds they bought in five months reached 25.6 billion birr.

 

The total domestic debt has exceeded 1.7 trillion birr

Commercial Bank Of Ethiopia

49

National Bank of Ethiopia

31

From Retirement

17

Development Bank of Ethiopia

3

Last week of 2016 It will be recalled that Prime Minister Abiy Ahmed (Dr.), who was present at the House of Representatives to approve the budget, stated that his government has carried out several reform activities in the financial sector. One of the reform activities he mentioned was the removal of the mandatory 27 percent bond purchase imposed on all commercial banks in the country before he came to power. However, the National Bank of Ethiopia in October 2023 Finally, re-imposed this mandatory bond purchase by all commercial banks, lowering interest rates.

National Bank in October 2023 In directive No. MFDA/TRBO/001/2022 issued at the end, all banks except the Development Bank of Ethiopia are required to buy 20 percent of the government’s Treasury Bond by calculating their total loan growth at the end of each month.

According to this mandatory directive, all commercial banks have been buying 20 percent of their new loans from treasury bonds. From November 1, 2022, to March 31, 2023, the government received a total of 25.6 billion birr from the bonds it purchased, according to the statement of the government’s debt status announced by the Ministry of Finance last week. The policy stipulates that the government will pay nine percent interest on the money collected from the bond purchase.

Prime Minister Abiy (Dr.) in his further explanation regarding the development of the financial sector during his stay in the House of Representatives last week, before he came to power, there were only 18 commercial banks in the country in 2023. They indicated that they reached 31 in the end.

He added that all the commercial banks in the fiscal year 2023 had given 461 billion birr. This means that the 20 percent treasury bond purchase by all banks, which has come into effect in November, could double the amount of money collected by the government from the 25.6 percent stated at the end of the year.

During his stay in the House of People’s Representatives, one of the issues that the Prime Minister talked about regarding financial institutions was the total wealth of banks. The Prime Minister said that when he came to power, the total assets of all the country’s banks were 1.2 trillion birrs, but at the end of the 2023 fiscal year, it had increased to 2.9 trillion birrs.

Amharic.ET observed that the government’s gross debt situation statement released by the Ministry of Finance last week, the total domestic debt of the central government and public development organizations in 2018. On March 31, 2023, it indicates that 1.7 trillion Birr has been reached.

At the same time last year, the government’s total domestic debt was 1.5 trillion birrs, and this year it has increased by 14 percent, according to the debt statement. This statement of the state of debt also lists the institutions that have borrowed the total debt of the government, which reached 1.7 trillion birrs, and their share of the loan.

Based on this, it is understood that of the mentioned 1.7 trillion birr, the share of the Commercial Bank of Ethiopia is 49 percent, the National Bank of Ethiopia is 31 percent, the Development Bank of Ethiopia is 3 percent, and the share of non-bank credit sources, mainly pension funds or pension agencies, is 17 percent.

National Bank of Ethiopia News

The National Bank of Ethiopia has decided to re-impose the mandatory bond purchase rate, which it had avoided with its new strict monetary policy. He also decided to increase the reserve ratio imposed on banks from five percent to ten percent.

National Bank on Tuesday, August 25, 2013. As he announced in his official statement, although he lifted the 27 percent bond purchase imposed on all commercial banks a year ago, he re-decided to allow insurance institutions to purchase bonds. Therefore, each bank decided to spend one percent of its annual total loan stock on bond purchases. He also announced that insurance companies should spend no less than 15 percent of their net annual income on bond buyers.

He pointed out that one of the missions given by the National Bank of Ethiopia is to formulate a monetary policy to ensure that the amount of money circulating in the economy does not cause inflation. He pointed out that although the government is making various efforts to curb inflation, it is believed that the necessary policy reforms should be made as the problem is getting worse and it has decided to implement a strict monetary policy to reduce the circulation of money in the economy.

Therefore, from August 26, 2013, Starting September 1, 2022, it has been decided to increase the amount of reserves that all banks are required to deposit in the National Bank of Ethiopia from five percent to ten percent. To solve the short-term shortage of funds faced by banks, the annual interest rate for borrowing from the National Bank of Ethiopia has been increased from 13% to 16%. He announced that this strict monetary policy action will play a positive role in solving the worsening inflation problem and will not have a significant negative impact on economic activity.

As the National Bank explained regarding the use of foreign currency, it emphasized that the proper use of the foreign currency obtained is a fundamental issue while working diligently to increase foreign exchange earnings. According to this, he stated that he has made changes in the use of foreign currency obtained by banks, and he announced that the directive that previously required banks to pay 30 percent of the foreign currency they get from foreign direct investment, diaspora accounts, and other sources to the National Bank of Ethiopia has been amended. Therefore, he announced that the balance of foreign direct investment and diaspora accounts should be used to generate income for the National Bank of Ethiopia from foreign trade, individual remittances, and non-governmental organizations.

However, banks are required to remit 50 percent of the foreign exchange they earn from foreign trade, individual remittances, and non-governmental organizations to the National Bank of Ethiopia.

He pointed out that the amount of foreign currency that any bank customer who earns foreign currency can hold in the foreign currency account without a time limit has been increased from 31.5 percent to 40 percent, and the remaining ten percent has been made to be used by banks in foreign currency. He also announced that it is believed that this policy will solve the complaint that “the share of foreign exchange generating customers is small” and increase the government’s ability to earn foreign currency to meet foreign debt payment obligations, help the country’s big projects, and import essential consumer goods.

He also stated that it answers the question that is frequently asked by banks “Foreign currency obtained from foreign investment, diaspora accounts, and foreign loans should not be remitted to the National Bank of Ethiopia”. The National Bank stated that there are many problems related to opening bank accounts, paying and depositing money due to the lack of a national identity card in Ethiopia, as it is observed that entities engaged in the black market and other illegal activities are also using this loophole, it has issued new guidelines to prevent the problem permanently. He announced that the new directive will compel financial institutions to provide their customers with a separate customer identification number until the newly launched process of issuing national IDs to citizens. He explained that through the account number, a customer of a bank can be identified as one customer even if he has many accounts in different branches of the bank.

It forces all financial institutions to use the same form for the information requested to open a bank account in the name of an individual or organization, transfer money from account to account, and withdraw or deposit money from the bank. He added that this will eliminate the irregular practices of the financial institutions. The bank has also announced that it has mandated financial institutions to ensure that individuals or organizations that do not comply with laws, provide questionable information, or make questionable payments, do not receive any services from financial institutions.

As the Development Bank of Ethiopia is the policy bank of the country, it has not achieved its mission for many reasons in the past years. The National Bank stated that since we need a policy bank for the acceleration of development, the bank has decided to sell bonds to banks, insurance, and pension guarantee organizations to collect more resources while maintaining its efforts. Therefore, according to the recently issued guidelines, each bank should purchase one percent of the annual total loan stock in development bonds, and insurance companies should purchase development bank bonds of not less than 15 percent of their net annual income.

A month ago, another directive signed by the Governor of the National Bank, Yinagar Dese (Dr.), has been reported by the reporter to establish a market where the National Bank can buy and resell bank deposits and securities.

 

Leave a Reply

Your email address will not be published. Required fields are marked *