(Bloomberg) -- Ethiopia plans to issue 900 billion birr ($7.4 billion) of bonds to settle debts owed by several government-owned enterprises that have hobbled the East African nation’s biggest lender.
It will raise the funds via 10-year government bonds, according to a proclamation sent to parliament on Tuesday. Around 846 billion birr of the proceeds will be used to repay loans issued by Commercial Bank of Ethiopia and the remainder will boost the lender’s capital.
The interest on the bonds will be determined by the finance ministry, the central bank and state-owned CBE, according to the decree.
The move comes as Africa’s second most populous nation rearranges public finances after defaulting on its sovereign borrowing, and with CBE’s ability to lend hampered by the debts.
State-owned companies including Ethiopia Electric Power, Ethiopian Sugar Corp., Ethio Engineering Group and Ethiopia Railway Corp. borrowed almost 399 billion birr. CBE also loaned another four companies money to service older foreign debt, according to the document.
Some of that money went into the construction of the Grand Ethiopian Renaissance Dam and sugar milling factories that the government now intends to privatize.
Earlier this year, the government agreed to increase CBE’s capital from about 40 billion birr at mid-2023.
Ethiopia’s finances fell into disarray after a series of shocks including a two-year civil war, the Covid-19 pandemic and Russia’s invasion of Ukraine which upended global trade. The country reneged on its debts at the end of 2023 and sought help from the International Monetary Fund.
Ethiopia projects domestic debt will shrink to 14.8% of gross domestic product this fiscal year, from 19.3% in the previous year. Overall debt will, however, increase to 43.6% of GDP from 34.7% on account of a $3.6 billion IMF program and other foreign loans.
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