Ethiopia Defaults In Payment Of $33 Million Bond
The African nation of Ethiopia has announced its inability to make a $33 million bond payment, citing severe financial strain exacerbated by the impact of the COVID-19 pandemic. The country’s recent two-year civil war in Tigray, which ended in November 2022, has also been attributed to the default.
According to a Reuters report, Ethiopia was due to make the payment on December 11 but technically had until Tuesday to provide the money under a grace period clause written into the $1 billion bond. However, bondholders did not receive the coupon payment by the end of Friday, December 22, marking the expiration of the grace period.
Ethiopia now joins Zambia and Ghana, two other African nations, in full-scale restructuring under the Common Framework. The country initially requested debt relief under the G20-led initiative in early 2021. Progress was hindered by the civil war but, faced with depleting foreign exchange reserves and soaring inflation, Ethiopia’s official sector government creditors, including China, agreed to a debt service suspension deal in November.
Adding to the country’s financial woes, the government announced on December 8 that parallel negotiations with pension funds and other private sector creditors holding its bond had broken down. As a result, credit ratings agency S&P Global downgraded the bond to Default on December 15, assuming the coupon payment would not be made.
With this default, Ethiopia faces significant challenges in managing its debt and restoring economic stability. The default further highlights the financial strain faced by many developing nations grappling with the aftermath of the COVID-19 pandemic and internal conflicts.
As Ethiopia navigates this difficult period, it remains to be seen how the country will work towards resolving its financial obligations and rebuilding its economy. The impact of the default on Ethiopia’s reputation and its ability to attract future investments also remains uncertain.
The situation in Ethiopia serves as a reminder of the global implications of economic instability in developing countries. Open dialogues, international assistance, and innovative solutions will be crucial in addressing these challenges and supporting nations on their path to recovery.
