Ethiopia finds itself at a crossroads as it officially enters default territory, marking the third African nation to grapple with such financial turmoil in just three years. The failure to honor a $33 million "coupon" payment on its sole international government bond serves as a stark reminder of the nation's economic woes, heightened by the cascading effects of the COVID-19 pandemic and a recently concluded two-year civil war in November 2022.
In a pre-announced move earlier this month, Ethiopia signaled its intention to default. The missed payment, originally due on December 11, was granted a technical grace period extending until Tuesday, courtesy of a 14-day clause in the $1 billion bond agreement. However, as the last international banking working day closed on Friday, December 22, bondholders found themselves without the expected coupon payment, triggering concerns that went unanswered by Ethiopian government officials throughout the weekend.
This imminent default aligns Ethiopia with the ongoing financial restructuring processes of two other African nations, Zambia and Ghana, under the "Common Framework."
Ethiopia's journey towards default commenced in early 2021 when it sought debt relief under the G20-led initiative. Hindered by the civil war, progress gained momentum in November when Ethiopia's official sector government creditors, including China, agreed to a debt service suspension deal, responding to depleted foreign exchange reserves and surging inflation. However, parallel negotiations with private sector creditors collapsed on December 8, leading credit ratings agency S&P Global to downgrade the bond to "Default" on December 15.
Ethiopia now faces a challenging economic position, necessitating strategic measures to address financial instability and navigate the intricacies of debt restructuring.