A public corporation established to soak up the debt of state-owned enterprises has settled 34.1 billion Br in arrears owed by three such companies.

The former Metals & Engineering Corporation (MetEC) – now the Ethio-Engineering Group (EEG) – the Ethiopian Electric Utility (EEU) and the Chemical Industry Corporation owe the state-owned Commerical Bank of Ethiopia (CBE) billions of Birr, including 16.4 billion Br by the EEG. It is a small share of the 540 billion Br domestic debt Ethiopia has this year, double the amount from four years ago.

Established earlier this year with a capital of 570 billion Br, the Liability & Asset Management Corporation (LAMC) absorbs debt owed by state-owned enterprises to creditors. It operates under the auspices of the Ministry of Finance and tapping the Industrial Development Fund (IDF) resources, also administered by the Ministry. The Fund comprises proceeds from privatisation and the dividends collected from the state-owned enterprises.

The Fund is channelled to the Corporation to service debts by state enterprises, according to Hinjat Shamil, technical advisor for economic reforms at the Finance Ministry.

The 850 million dollar license fee paid by the Safaricom-led consortium earlier this year was redirected to the Corporation, disclosed Hinjat.

Over the past three years, the massive debt in the books of state enterprises has become a concern for government officials. The stock of domestic and external loans that went into paying for megaprojects brought a balance of payments crisis, putting the external debt to GDP ratio above the median level of 26pc for developing economies. The Grand Ethiopian Renaissance Dam (GERD), public housing, sugar factories, Yayu Multi-Complex Industries, and railway construction have taken up these loans.

These enterprises borrow from domestic sources through corporate bonds and government-guaranteed loans, mainly from the CBE.

Mulualem Getahun runs the Corporation and the board of directors is chaired by Tegegnework Getu, a retired UN bureaucrat who also serves as a board chairperson of the state-owned Development Bank of Ethiopia (DBE). The Corporation signed an agreement with Abie Sano, president of the CBE, in August this year to settle the debts of the six public companies reaching 780 billion Br, representing 28pc of the GDP. Mulualem's next commitment is to pay off over 340 billion Br in debt owed by the EEP, ERC and the Sugar Corporation.

The next batch of debt will partly be serviced with the money obtained from the sale of the second telecom license, Mulualem disclosed to Fortune.

Cash flows from the partial privatisation of the Ethio telecom and proceeds from the sale of several sugar factories will also go into the Fund, says Mulualem, who had previosuly served as a deputy CEO of the Railway Corporation.

Pundits see the attempt by the authorities in servicing public debt from one-off proceeds as unsustainable. They have to rationalise the viability of state enterprises to enable them to service their debts, according to Abdulmenan Mohammed, a financial analyst.

"The other option is privatising them and using the proceeds to pay the debts," he said.