PH
On Tuesday, Ethiopia formally entered default territory, making history as the third country in Africa to do so in three years. The country faces serious financial difficulties that have been made worse by the COVID-19 epidemic and a two-year civil war that ended in November 2022. This is demonstrated by the failure to make a $33 million “coupon” payment on its only international government bond.
Earlier this month, Ethiopia had declared its intention to formally default. A 14-day stipulation in the $1 billion bond agreement allowed for a technical grace period, extending to Tuesday, for the payment that was initially due on December 11.
According to people with knowledge of the matter, bondholders have not received the anticipated coupon payment as of Friday, December 22, the final day of the grace period before international banking operations concluded. Ethiopian government representatives did not respond to calls for comment on Friday or over the weekend.
With this expected default, Ethiopia joins Zambia and Ghana, two other African countries, that are presently going through a thorough restructuring process as part of the “Common Framework.”
Early in 2021, Ethiopia applied for debt relief under the G20-led program. Though the civil war hampered progress, Ethiopia’s official sector government creditors, notably China, agreed to a debt service suspension pact in November as a result of running out of foreign exchange reserves and experiencing skyrocketing inflation.
On December 8, parallel talks broke down with pension funds and other creditors in the private sector that own Ethiopia’s bond. On December 15, credit rating company S&P Global downgraded the bond to “Default” on the grounds that it would not make its coupon payment. Ethiopia finds itself in a difficult economic situation as a result of the default, necessitating the implementation of strategic steps to resolve its financial instability and manage the difficulties of debt restructuring.
