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The failure to make a USD 33 million coupon payment on its sole international government bond underscores the country’s severe financial challenges. It is the result of the COVID-19 pandemic and a recently concluded two-year civil war in November 2022
Ethiopia officially entered default territory recently, becoming Africa’s third nation to do so within a span of three years, after Zambia and Ghana. The failure to make a USD 33 million coupon payment on its sole international government bond underscores the country’s severe financial challenges. It is the result of the COVID-19 pandemic and a recently concluded two-year civil war in November 2022.
Ethiopia had previously announced its intention to formally default earlier this month as reported by www.trendsnafrica.com. The payment, originally due on December 11, had a technical grace period extending until Tuesday, thanks to a 14-day clause in the USD 1 billion bond agreement.
On the close of business on Friday, December 22, the last international banking working day before the grace period ended, bondholders had not received the expected coupon payment. Ethiopian government officials remained silent on non-repayment.
This anticipated default aligns Ethiopia with two other African nations, Zambia and Ghana, which are currently undergoing a comprehensive restructuring process under the “Common Framework.” Ethiopia initially sought debt relief under the G20-led initiative in early 2021. The civil war delayed progress. In November, facing depleted foreign exchange reserves and surging inflation, Ethiopia’s official sector government creditors, including China, agreed to a debt service suspension deal.
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Parallel negotiations with pension funds and other private sector creditors, who hold Ethiopia’s bond, collapsed on December 8. Subsequently, credit ratings agency S&P Global downgraded the bond to “Default” on December 15, based on the assumption that the coupon payment would not be fulfilled. The default places Ethiopia in a challenging economic position, requiring strategic measures to address its financial instability and navigate the complexities of debt restructuring.
