The board of directors of the Commercial Bank of Ethiopia (CBE) is about to request a 17-billion-Br liquidity injection from the Ministry of Finance in the form of paying back a portion of state-owned enterprises' debt guaranteed by the Ministry.

The board is set to propose the liquidity injection, while a committee composed of members from the Ministry, the National Bank of Ethiopia, and the Public Enterprises Holding & Administration Agency is mapping out scenarios on how to restructure the accumulated debt state-owned enterprises owe the CBE.

The committee that was formed a month and a half ago has been devising a strategy to reinforce the country's financial stability. The mechanism, which proposes a partial debt write-off, debt rescheduling and making the lawmakers and Ministry's officials accountable for approving the loansand failing to follow up on the projects, is expected to soon be tabled to the macroeconomic committee, which is chaired by Prime Minister Abiy Ahmed (PhD).

CBE has outstanding loans of 400 billion Br to Ethiopian Electric Power (EEP), 120 billion Br to Ethiopian Railways Corporation, 70 billion Br to the Sugar Corporation, and an additional 70 billion Br to the Metals & Engineering Corporation (MetEC). The total value these state-owned enterprises owe CBE equals the last two years of the country's federal budget.

“We need more cash to avail loans and operate the Bank,” Tekelwold Atenafu, board chairperson of CBE, told Fortune. “But how the Ministry of Finance will source the money is still in question.”

CBE has been engaged in financing long-term projects undertaken by state-owned enterprises by investing in bonds and extending loans, drawing on its deposit base. Of the total debt stock of state-owned enterprises at the end of the last fiscal year, which amounted to 26pc of GDP, 14 percentage points are held by the CBE in the form of corporate bonds and loans.

The credit to the state-owned enterprises have expanded in line with significant growth in state-owned enterprise investment in recent years, which tightened liquidity conditions of the CBE and exacerbated the maturity mismatch. The Bank has been financing the Sugar Corporation, Ethiopian Railways Corporation, Ethiopian Electric Power and the Metals & Engineering Corporation.

In response to the crunched liquidity stance of the Bank, the central bank has availed 16 billion Br to serve depositors for withdrawal purposes but not for borrowers. CBE received the cash three weeks ago in the form of a bond that will be paid in three years with an eight percent interest rate.