In a bid to alleviate economic pressures exacerbated by a civil war in the Tigray region, Ethiopia has reached a preliminary agreement with bilateral creditors to temporarily halt debt payments. The nation is also set to initiate discussions to restructure its $1 billion eurobond set to mature next year.
Since 2021, Ethiopia has been actively seeking to rework its financial commitments, with the civil conflict negatively impacting investor confidence and hindering economic growth. In a positive development, China has separately agreed to a temporary pause in repayments, aligning with Ethiopia’s efforts to address its financial challenges. Additionally, the Ethiopian government is working towards securing an International Monetary Fund (IMF) program.
The finance ministry, in a statement released on Wednesday, explained that the agreed interim debt-service suspension aims to address the current economic challenges and provide the country with necessary breathing space throughout 2023 and 2024. The terms of redemption are designed to optimize debt-service relief during the anticipated IMF program years while avoiding a concentration of maturities post-program.
Ethiopia’s approach to renegotiate its obligations through the Group of 20’s Common Framework is gaining momentum, especially following successful restructuring efforts by other African nations such as Zambia and Ghana.
Despite these positive steps, yields on Ethiopia’s eurobond experienced a 195 basis point climb by 3:30 p.m. in Addis Ababa. Simon Quijano-Evans, Chief Economist at Gemcorp Capital Management in London, noted that investors seemed to be “selling the fact,” anticipating potential volatility in the bond market. Quijano-Evans highlighted that the market might second-guess official creditor agreements, especially against the backdrop of the Common Framework. However, he emphasized that Ethiopia is not currently in default, with the next coupon payment due on December 11.
As Ethiopia navigates these debt relief and restructuring efforts, the global financial community will be closely monitoring the situation, recognizing the broader implications for the region’s economic stability.