BRICS state to convert dollar debt to yuan

Ethiopian officials have hailed a potential currency swap with China to help rebuild the country’s economy after years of shocks

Ethiopia has begun negotiations with China to convert part of its $5.38 billion debt to Beijing into yuan-denominated loans amid the government’s push to ease foreign-exchange pressure and deepen trade ties.

According to its governor, Eyob Tekalign, the National Bank of Ethiopia held talks in Beijing last month with the Export-Import Bank of China and the People’s Bank of China on payments, trade facilitation, and debt restructuring, Bloomberg reported on Monday.

“China is a very important partner for us now… It really makes sense to arrange some currency swap … we’ve requested officially and then working on it,” Eyob told Bloomberg on Friday after the International Monetary Fund’s annual meetings in Washington.

The move by the East African country’s government followed a similar arrangement by Kenya. Earlier this month, Nairobi completed the conversion of three China-financed railway loans from US dollars into yuan – a measure the Finance Ministry says will cut interest costs by about $215 million a year. Nigeria also renewed a 15-billion-yuan ($2 billion) currency-swap with the People’s Bank of China last December to support naira-yuan trade settlement.

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Addis Ababa has been under severe economic pressure due to the coronavirus pandemic and a brutal two-year civil war in the country’s northern Tigray region, which ended in 2022. The country defaulted on its single $1 billion international bond in December of 2023 but has since formalized a relief deal with its official creditors under the G20 Common Framework, co-chaired by France and China, which provides more than $3.5 billion in cash-flow relief. Separate talks with bondholders reportedly remain fraught.

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Earlier in September, Finance Minister Ahmed Shide said Ethiopia and China agreed on a currency-swap framework to facilitate birr-yuan trade as part of an effort to rebuild the economy and diversify partnerships after years of economic shocks.

In January of 2024, Ethiopia joined BRICS, which comprises Brazil, Russia, India, China, South Africa, Egypt, Ethiopia, Iran, the United Arab Emirates, and Indonesia. The economic group has promoted more local-currency settlements to curb reliance on the dollar, a push criticized by US President Donald Trump, who has threatened retaliatory tariffs and sanctions.