Bloomberg – Ethiopia has reached a deal with its official creditors to restructure $8.4 billion of international debt, a key milestone in the nation’s efforts to overhaul its loans and boost growth.
The agreement with bilateral lenders under the G20 Common Framework, backed by an International Monetary Fund program, will slash debt service by $2.5 billion through 2028, its finance ministry said on Friday, without giving details of the terms. The deal will allow the country to spend more on “critical public investments,” the ministry said in a statement.
The pact with the official creditors led by China and France paves the way for a deal with private creditors, including holders of the $1 billion eurobond that Ethiopia defaulted on a year before its December 2024 maturity.
“This agreement will support ongoing good faith engagement with external commercial creditors, including bondholders,” the ministry said in a statement.
Ethiopia’s defaulted dollar bond was little changed at 86.21 cents on the dollar on Friday. But it has rallied for seven successive months amid optimism the government would move closer to a debt-restructuring deal with private creditors.
‘Better Terms’
The December 2024 security has gained 8.3% this year. That’s a bigger return than in 97% of the bonds included in the Bloomberg EM Sovereign Total Return Index.
“Bondholders have been looking for better restructuring terms and recent gains may suggest that such an outcome is partly priced in,” said Samir Gadio, the head of Africa strategy at Standard Chartered Plc. “Because the ad-hoc bondholder committee has a significant blocking minority, it may have some leverage to secure better terms.”
Further gains on the bond would depend on actual progress with the talks, he said. The eurobond restructuring must ensure comparability of treatment with official creditors and the financing-gap assumptions of the IMF, he said.
Ethiopia was Africa’s fastest-growing economy until it was hit by a series of headwinds including six years of drought, the Covid-19 pandemic, a brutal civil war in its northern Tigray region that ended in November 2023 and the impact of Russia’s war in Ukraine.
When Ethiopia stopped making payments on the bond in December 2023 it became the latest emerging-market sovereign to default. As of December 2024, four countries had applied to the so-called Common Framework to restructure their debt: Chad, Ethiopia, Ghana and Zambia.
Last year, Ethiopia floated its exchange rate and adopted an interest-rate based monetary policy framework, part of a raft of major economic reforms that helped it helped secure a $3.5 billion financing package from the IMF in July.
On a visit to the country last month, IMF chief Kristalina Georgieva said the lender had already disbursed about $1.5 billion because of Ethiopia’s “strong achievements in the early months of the program.”
The economy expanded by 8.1% last year amid the reforms, exceeding the 6.1% that the IMF had projected.
