Ethiopia to meet bondholders this week as default looms
Ethiopia is scheduled to hold a call with its international bondholders on Thursday as the country faces the risk of default. Last week, Ethiopia announced its inability to pay a $33 million bond coupon due on Monday. Talks with a group of bondholders broke down on Friday, with disagreements over the extension of maturity and the restructuring of repayments for its single $1 billion international bond maturing in December 2024.
Failure to make the bond coupon payment would potentially lead Ethiopia, which sought a debt overhaul under the Group of 20 (G20) Common Framework in early 2021, into default after a 14-day grace period expires. Ethiopia had been meeting interest payments on its international bond until this recent development.
In a statement, the finance ministry indicated that, given the debt service suspension agreements secured with official creditors, including China, and certain commercial lenders, Ethiopia would aim to negotiate a "broadly similar treatment" from bondholders. The outcome of the call with international bondholders will be crucial in determining the path forward for Ethiopia's debt situation.
Key Takeaways
Ethiopia, once considered one of Africa's most promising economies, is grappling with significant challenges, including the combined impact of the Covid-19 pandemic and a civil war in the northern Tigray region that concluded in November 2022. These crises have left the country struggling to meet its financial obligations. As of Monday, the bonds associated with Ethiopia were exhibiting volatility, initially dropping over 1.8 cents on the dollar. However, they later reversed losses, gaining nearly 2 cents and being bid at 62.6 cents at 5.25 pm GMT, according to Tradeweb data. With Ethiopia heading toward becoming the latest country to default on its foreign debts, the financial difficulties in the developing world are intensifying once again. If Ethiopia defaults, it would join the ranks of countries such as Zambia, Sri Lanka, and Ghana that have faced similar challenges in recent years, leading to prolonged and fragmented processes to secure debt relief.
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