Fitch cuts Ethiopia's Eurobond to 'default' after missed payment
Fitch Ratings downgraded Ethiopia's only international government bond from "near default" to "default" after the East African country failed to make a $33 million coupon payment on its $1 billion Eurobond. The payment was originally due on December 11, but a 14-day grace period extended the deadline until the following Tuesday.
As a result of the missed payment, Fitch also lowered Ethiopia's long-term foreign currency rating to "RD" (Restricted Default) from "C." The agency does not assign outlooks to sovereigns rated "CCC+" or below. This development marks Ethiopia as Africa's third default in as many years.
S&P (Standard & Poor's) had also downgraded Ethiopia's long- and short-term foreign currency sovereign ratings earlier in the same month. The downgrades reflect challenges in Ethiopia's financial situation and its ability to meet its international debt obligations.
After assuming office in 2018, Prime Minister Abiy Ahmed initiated a comprehensive reform package aimed at liberalizing Ethiopia's tightly controlled economy. However, in recent years, the country's economy has experienced a sharp decline, and the momentum for ongoing reforms has largely stagnated. Despite the initial push for economic openness, challenges and external factors have contributed to the economic downturn. The Ethiopian government is currently engaged in discussions with the IMF for an aid package. However, progress is contingent on reaching an agreement on debt restructuring with a majority of creditors. The economic difficulties have been exacerbated by a two-year conflict in the northern Tigray region, which concluded with a peace deal in November of the previous year. Ethiopia faces significant financial challenges, estimating an need for around $20 billion to rebuild northern Ethiopia following the conflict. The war in Tigray has had severe humanitarian consequences, with an estimated half a million people losing their lives, according to U.S. estimates. The country is grappling with approximately $28 billion in external debt, along with issues such as high inflation and a shortage of foreign currency reserves. These economic challenges underscore the complexity of Ethiopia's current financial situation and the need for comprehensive strategies to address its economic recovery and stability.