(Ecofin Agency) - The funds will primarily go toward settling loans provided by Ethiopia’s largest bank to several state-owned companies, including Ethiopia Electric Power, Ethiopian Sugar Corp, and Ethiopia Railway Corp.

Ethiopia plans to issue domestic bonds worth 900 billion birr ($7.4 billion) to pay off debts held by several state-owned enterprises that have heavily burdened the Commercial Bank of Ethiopia, the nation’s largest bank.

The funds will be raised through 10-year sovereign bonds, according to a government decree submitted to parliament on Tuesday, November 5. Around 846 billion birr will be used to repay loans from the Commercial Bank of Ethiopia to state companies like Ethiopia Electric Power, Ethiopian Sugar Corp, Ethio Engineering Group, and Ethiopia Railway Corp. The remaining amount will be allocated to increase the bank's capital.

Interest rates for these bonds will be set by the Ministry of Finance, the Central Bank, and the Commercial Bank of Ethiopia, as specified in the decree.

This unprecedented domestic bond issuance comes as Ethiopia works to stabilize its public finances after defaulting on its debt in December 2023. The country, Africa’s second-most populous nation, has seen its financial situation worsen following a conflict that broke out in November 2020 between the central government and rebel groups in the Tigray region. Although the government and Tigray rebels signed a peace deal in November 2022, political tensions remain high.

Ethiopia’s economy has also been impacted by the COVID-19 pandemic, the effects of the Russia-Ukraine conflict on global trade, a drop in the prices of certain export products, and an intense drought—the worst in 40 years.