Ethiopia is in talks with China about converting part of its debt from the U.S. dollar to the Chinese yuan, as the East African nation looks to ease pressure from the dollar and strengthen economic ties with Beijing.
The country is seeking to convert a portion of the $5.38 billion it owes China into the East Asian nation’s legal tender.
The initiative was proposed by Eyob Tekalign, governor of Ethiopia’s central bank, during his visit to China in September.
He revealed this development in an interview in Washington during the annual meeting of the International Monetary Fund (IMF), noting that Ethiopia is exploring potential currency swap arrangements with both the Export-Import Bank of China and the People’s Bank of China.
“China is a very important partner for us now, there is growing volume of trade, investment,” Eyob said. “So it really makes sense to arrange some currency swap, but in terms of converting these things as well. So absolutely, this is something in the making, we’ve requested officially and then working on it.”
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According to Bloomberg, Ethiopia’s potential move follows a growing global trend among countries such as Sri Lanka, Hungary, and Kenya, which are increasingly turning to the Chinese yuan for cheaper financing options.
Although the initiative is still in its early stages and dollar-denominated debt remains dominant, the yuan is expected to play a larger role in international trade as China pushes to globalize its currency.
This comes amid rising skepticism from investors. Ethiopia And Investors Open Formal Talks In Paris On $1 Billion Bond Restructuring toward the dollar due to the U.S.’s unpredictable trade policies.
Speaking in Washington on October 16, South Africa’s central bank governor, Lesetja Kganyago, noted that converting dollar debts into lower interest-rate renminbi liabilities “is part of the bigger Chinese strategy of internationalizing the yuan.”
Currently, China’s one-year prime rate stands at 3%, compared to the U.S. rate of 7.25%.
According to IMF data, Ethiopia’s debt to China, one of Africa’s largest lenders, totals $5.38 billion.
The East African nation has been in talks with creditors to restructure more than $15 billion in debt since defaulting in 2023.
While Ethiopia and its official creditor committee, co-chaired by China and France, reached an agreement in July, discussions with holders of a $1 billion Eurobond have remained difficult.
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Image Credit: Bloomberg
