Ethiopia has become the latest African nation to default on its financial obligations, failing to make a $33 million interest payment due on December 11 after the expiration of a grace period. The government justified its decision not to make the payment by stating its intention to treat all creditors equally, as mentioned by Ahmed Shide, Ethiopia’s Minister of Finance, on state TV last Thursday.
Hinjat Shamil, a senior reform advisor at the Ministry of Finance, confirmed on Monday that the payment had not been made and will not be paid. Ethiopia had previously reached an agreement with bilateral creditors last month to suspend debt payments.
This default places Ethiopia among a growing number of developing nations that have defaulted on Eurobonds in recent years, joining the ranks of countries such as Zambia, Ghana, and Sri Lanka.
In its counterproposal for debt restructuring, the Ethiopian government has requested bondholders to extend the maturity to amortize from July 2028 to January 2032 and to reduce the coupon rate to 5.5% from the current 6.625%. However, the face value will remain at $1 billion, indicating that creditors will not face a “haircut” on their holdings.
An ad hoc committee of bondholders expressed disappointment with the decision not to make the payment, considering it both unnecessary and unfortunate.
Ethiopia aims to renegotiate its financial obligations through the Group of 20’s Common Framework, which has gained traction following successful debt restructuring efforts by Zambia and Ghana. This framework allows for coordinated debt relief from both public and private lenders, establishing standards for debt treatment.
The nation had sought to rework its liabilities since 2021 amidst a civil war in the northern Tigray region, which negatively impacted investor sentiment and hindered economic growth. The in-principle agreement with bilateral creditors to suspend debt payments reflects Ethiopia’s ongoing efforts to navigate its economic challenges.
