Ethiopia Marks Africa’s Latest Sovereign Default Amid Economic Challenges

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On Tuesday, Ethiopia marked Africa’s third default within three years by failing to fulfill a $33 million “coupon” payment on its sole international government bond.

As the continent’s second most populous nation, Ethiopia declared its formal intention to enter default earlier this month. This decision was prompted by significant financial strain stemming from the repercussions of the COVID-19 pandemic and a two-year civil conflict that concluded in November 2022.

Originally scheduled for December 11, the payment deadline for the $1 billion bond included a 14-day ‘grace period,’ technically extending the cutoff until Tuesday for the funds to be provided.

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According to sources familiar with the situation, as of the last international banking working day on Friday, December 22, bondholders had not received the coupon payment.

Despite attempts to reach out to Ethiopian government officials for comment on Friday and during the weekend, there was no response. The anticipated default places Ethiopia in the company of two other African nations, Zambia and Ghana, entering a comprehensive restructuring process under the “Common Framework.”

Ethiopia initiated its request for debt relief through the G20-led initiative in early 2021. However, progress faced initial setbacks due to the civil conflict. Yet, in November, acknowledging its dwindling foreign exchange reserves and surging inflation, Ethiopia reached a debt service suspension agreement with its official sector government creditors, including China.

However, on December 8, the government announced the breakdown of parallel negotiations with pension funds and other private sector creditors holding its bond, contributing to the anticipated default scenario.