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It now joins Zambia and Ghana among the countries of the continent declared in default. Fitch said it would downgrade Ethiopia to “DR” (restricted default) if she did not pay the coupon within a 14-day grace period
In a development that will give Ethiopia’s effort to move ahead economically a setback, the Rating agency Fitch downgraded the East African country’s credit rating to junk status. (bad), suggesting an “increased probability” of non-payment. The main reason for the downgrade seems to be Ethiopia’s inability to pay coupon (a euphemism for servicing) its unique euro bond outstanding, for a billion dollars, which matured on December 11. Authorities said last week that it was unable to perform the payment.
Ethiopia is the second most populous country in Africa. It now joins Zambia and Ghana among the countries of the continent declared in default. Fitch said it would downgrade Ethiopia to “DR” (restricted default) if she did not pay the coupon within a 14-day grace period.
The default is on a very modest sum, US$ 33 million in interest. It can still pay the amount during the grace period of 14 days granted. The Ethiopian economy has been severely shaken by the pandemic, the decline in the prices of certain export products, and an episode of drought unprecedented in forty years. Inflation is very high there, and the country is cracking in the face of a shortage of hard currency and increasing repayments of foreign debt. In November 2022, the federal government and rebel forces in the northern region of Tigray signed a truce to end a war civil war that had started two years earlier. Ethiopia requested debt relief under the G20 common framework earlier in 2021. At the start of the year, the government asked the IMF for a new loan program worth 2 billion dollars. The two sides have not yet reached an agreement, but the IMF said discussions were ongoing.
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With 132 million inhabitants, Ethiopia has long been a good destination for investors, both Western and Chinese, due to its solid industrial base and an attractive legal and institutional framework.
