Ethiopia enters default status amid financial challenges

Ethiopia has formally entered a state of default, marking the third African nation to do so within three years.

The failure to meet a $33 million payment on its sole international government bond highlights significant financial struggles aggravated by the COVID-19 pandemic and a recently ended two-year civil war in November 2022.

The country had previously signaled its intent to default earlier this month. The payment, initially due on December 11, was granted a technical grace period until Tuesday, courtesy of a 14-day clause in the $1 billion bond agreement.

Insiders familiar with the situation confirmed that by the close of business on Friday, December 22 – the final international banking working day before the grace period lapsed – bondholders had not received the anticipated coupon payment. Despite attempts to seek clarification, Ethiopian government officials remained silent on Friday and throughout the subsequent weekend.

This development places Ethiopia in line with Zambia and Ghana, two other African nations currently undergoing a comprehensive restructuring process under the “Common Framework.”

Ethiopia had sought debt relief under the G20-led initiative in early 2021. However, the civil war impeded progress. In November, facing depleted foreign exchange reserves and escalating inflation, Ethiopia’s official sector government creditors, including China, agreed to suspend debt service payments.

Concurrent discussions with pension funds and other private sector creditors holding Ethiopia’s bond fell through on December 8. Consequently, credit ratings agency S&P Global downgraded the bond to “Default” on December 15, assuming the coupon payment would not materialize. The default places Ethiopia in a challenging economic situation, necessitating strategic approaches to tackle financial instability and navigate the complexities of debt restructuring.

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