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Ethiopia: As default looms Fitch further downgrades country into junk territory

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Rating agency Fitch Ratings downgraded Ethiopia’s credit rating on Thursday to junk status. (bad), suggesting an “increased probability” of non-payment.

The East African country has not paid the coupon on its unique euro bond outstanding, for a billion dollars, which was due to mature on December 11, declaring last week that it was unable to perform payment.

The second most populous country in Africa therefore joins Zambia and Ghana among the countries of the continent declared in default

Fitch said it would downgrade Ethiopia to “DR” (restricted default) if she did not pay the coupon within a 14-day grace period.

A default on a very modest sum (33 million dollars in interest). The Ethiopian state still benefits from a grace period of two weeks before being officially declared in default of payment.

Civil war

The Ethiopian economy has been severely shaken by the pandemic, the decline in the prices of certain export products, and an episode of drought unprecedented in forty years.

Inflation is very high there, and the country is cracking in the face of a shortage of hard currency and increasing repayments of foreign debt.

In November 2022, the federal government and rebel forces in the northern region of Tigray signed a truce to end a war civil war that had started two years earlier.

Ethiopia requested debt relief under the G20 common framework earlier this year 2021, but progress was initially delayed by the war.

At the start of the year, the government asked the IMF for a new loan program worth 2 billion dollars.

The two sides have not yet reached an agreement, but the IMF said discussions were ongoing.

With 132 million inhabitants, Ethiopia has long been the darling of investors, both Western and Chinese, due to its solid industrial base and an attractive legal and institutional framework.

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