Features of the Formation and Mechanisms For Regulating Ethiopia's External Debt

Abstract

The borrowing of financial resources from abroad by developing countries is designed to promote the development of the real sector of the economy and, consequently, economic growth. However, the often inefficient use of external loans found in African countries leads to the use of the funds received by financial institutions for speculative purposes, as well as to service previously received debts. Since the 1970s, Ethiopia has not been inclined to pursue a policy of active borrowing in foreign markets. Only by the early 1990s. The ongoing liberalization policy has led to active lending to Ethiopia from abroad, as a result of which its external debt has reached a record 139% of GDP. After writing off some of the debts, credit expansion continued, with China joining traditional creditors represented by international organizations and developed countries. The situation with Ethiopia's external debt began to deteriorate by the end of the 2010s, which was determined by an increased risk of default, a deterioration in the balance of payments, distortions in the structure of foreign trade, as well as armed conflicts. By 2023, the Ethiopian government was negotiating a moratorium on debt payments and restructuring, but they did not bring about the desired result, and the country defaulted on some payments caused by a balance of payments imbalance and a slowdown in economic growth. The article examines the formation of Ethiopia's external debt, as well as the causes and consequences of default in 2023.