Ethiopia has preliminarily agreed with its official bilateral creditors on a temporary halt to debt servicing and is set to commence negotiations for the restructuring of a $1 billion Eurobond maturing next year, as announced by the finance ministry on Wednesday. The Ethiopian economy faces challenges arising from inflation, limited foreign currency reserves, global higher interest rates, and escalating debt obligations.
These challenges come amidst a backdrop of heightened economic strain, occurring a year after the Government of Ethiopia (GoE) and forces from the insurgent northern Tigray region reached a truce to conclude a two-year civil conflict.
Escalation of security concerns stemming from localized regional conflicts has the potential to exacerbate economic upheavals and undermine global backing. Elevated costs of vital imports, driven by significant currency depreciation and subsidy reductions, pose a risk to social stability. Nonetheless, the International Monetary Fund (IMF) believes Implementing more stringent macroeconomic measures is imperative, although such actions will likely be destabilizing in the short-term and face public opposition. The GoE prefers for these measure to be implemented gradually.
The Eurobond payment originally due in in December 2024 is on the largest debt payments the country faces. The other big payment is one due to Chinese creditors, who recently provided a payment relief period of 12 months.
The East African nation formally sought a pause in debt-service obligations as part of its ongoing program consultations with the IMF and concurrent negotiations for debt restructuring with official bilateral creditors within the framework established by the G20. The finance ministry, in a released statement, indicated that the agreed-upon interim debt-service suspension is designed to afford the country a suitable reprieve during the years 2023 and 2024. The terms for the redemption of the suspended amount have been structured to optimize relief on debt servicing throughout the anticipated years of the IMF program, strategically avoiding a concentration of maturity dates following the program period.
According to a Reuter’s report citing the country’s Ministry of Finance, “The exigencies prompting an interim debt service relief from the Official Creditors Committee (OCC) concurrently affect the nation’s capacity to meet obligations on other external debts, encompassing the Eurobond.”
In August, Ethiopian authorities disclosed that China, a co-chair of its official creditors committee, had granted permission for the suspension of debt payments through the fiscal year concluding on July 7, 2024. Subsequently, in October, an official from the International Monetary Fund (IMF) conveyed that Ethiopia was pursuing a comparable arrangement with other creditors.