In Ethiopia, private banks have petitioned the Central Bank to be allowed to dedicate 1% of their clients’ deposit reserves to GERD financing. If they get the authority’s approval, they will be able to buy $ 127 million in GERD bonds.
In Ethiopia, private banks are campaigning to help finance the Great Renaissance Dam. Gathered within the Association of Ethiopian Bank Managers, they sent a petition to the Ethiopian Central Bank. In the document, they asked the authority for permission to use 1% of their total deposits to purchase the bonds issued for the financing of infrastructure with a capacity of 6,450 MW.
Together, the 16 private banks operating in the country want to invest $ 127 million in bonds that have a 5-year maturity. They will leave the Central Bank free to decide the rate of remuneration that will be applied to them. It will also retain these obligations.
In addition to their customers’ deposits, banks also want to invest 5% of their security reserves. A reserve that they can only touch with the authorization of the Central Bank.
Although this proposal will be appreciated because of the infrastructure financing needs, it will pose a liquidity problem for banks. Indeed, the reserves on customer deposits are taken into account by the Central Bank to determine the liquidity of banks, which will no longer be possible if these reserves are used to buy bonds.
The infrastructure at an estimated cost of over $ 4 billion is being built with Ethiopia’s own funds. It worries its neighbors, Egypt and Sudan, who fear that it will reduce their supply of drinking water by the Nile. The countries are currently negotiating the terms for filling and operating the dam. In the final rounds of negotiations, it was agreed that the resulting agreement would be binding on all parties.
Source: Agence Ecofin