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Ethiopia officially entered default territory nn Tuesday, becoming Africa’s third nation to do so within a span of three years. The failure to make a $33 million “coupon” payment on its sole international government bond underscores the country’s severe financial challenges exacerbated by the COVID-19 pandemic and a recently concluded two-year civil war in November 2022.
Ethiopia had previously announced its intention to formally default earlier this month. The payment, originally due on December 11, had a technical grace period extending until Tuesday, thanks to a 14-day clause in the $1 billion bond agreement.
Sources familiar with the situation reported that, as of the close of business on Friday, December 22, the last international banking working day before the grace period ended, bondholders had not received the expected coupon payment. Despite requests for comments, Ethiopian government officials remained silent on Friday and throughout the weekend.
This anticipated default aligns Ethiopia with two other African nations, Zambia and Ghana, which are currently undergoing a comprehensive restructuring process under the “Common Framework.”
Ethiopia initially sought debt relief under the G20-led initiative in early 2021. The civil war delayed progress, but in November, facing depleted foreign exchange reserves and surging inflation, Ethiopia’s official sector government creditors, including China, agreed to a debt service suspension deal.
Parallel negotiations with pension funds and other private sector creditors, who hold Ethiopia’s bond, collapsed on December 8. Subsequently, credit ratings agency S&P Global downgraded the bond to “Default” on December 15, based on the assumption that the coupon payment would not be fulfilled. The default places Ethiopia in a challenging economic position, requiring strategic measures to address its financial instability and navigate the complexities of debt restructuring.