Ethiopia Becomes Third African State to Default on Sovereign Debt

TUESDAY DECEMBER 26 2023    

National Bank of Ethiopia Governor Mamo Mihretu speaking during a past interview. PHOTO | X via @mihretu

Ethiopia became Africa's third default in as many years on Tuesday after it failed to make a $33 million "coupon" payment on its only international government bond.

Africa's second most populous country announced earlier this month that it intended to formally go into default, having been under severe financial strain in the wake of the Covid-19 pandemic and a two-year civil war that ended in November 2022.

It had been supposed to make the payment on December 11, but technically had up until Tuesday to provide the money due to a 14-day 'grace period' clause written into the $1 billion bond.

According to two sources familiar with the situation, bondholders had not been paid the coupon as of the end of Friday December 22, the last international banking working day before the grace period expires.

Ethiopian government officials did not respond to requests for comment on Friday or over the weekend, but the widely-expected default will see it join two other African nations, Zambia and Ghana, in a full-scale "Common Framework" restructuring.

The East African country first requested debt relief under the G20-led initiative in early 2021.

Progress was initially delayed by the civil war but, with its foreign exchange reserves depleted and inflation soaring, Ethiopia's official sector government creditors, including China agreed to a debt service suspension deal in November.

On December 8, the government said parallel negotiations it had been having with pension funds and other private sector creditors that hold its bond had broken down.

Credit ratings agency S&P Global then downgraded the bond, to "Default" on December 15 on the assumption that the coupon payment would not be made.