Ethiopia Joins Ranks as Third African Nation in Sovereign Debt Default
On Tuesday, Ethiopia joined the ranks as Africa’s third country to default in three consecutive years when it missed a $33 million payment termed as a “coupon” on its sole international government bond.
Earlier this month, the second most populous nation in Africa declared its plans to officially enter a state of default, following considerable financial hardship resulting from the aftermath of the COVID-19 pandemic and a two-year civil conflict that concluded in November 2022.
Originally, the payment was expected to be made by December 11, but there was a technical allowance to provide the money until Tuesday because of a 14-day ‘grace period’ clause included in the $1 billion bond.
As per information from two individuals familiar with the matter, bondholders had not received the coupon payment by the close of business on Friday, December 22, which was the final international banking working day before the grace period ended.
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Ethiopian government officials remained silent to inquiries made on Friday and during the weekend. However, it is anticipated that the inevitable default will lead Ethiopia to participate in a comprehensive restructuring under the “Common Framework,” aligning with Zambia and Ghana, both African nations already engaged in this process.
The nation in East Africa initially asked for debt relief through the G20-driven program at the beginning of 2021.
The civil war initially caused a setback in progress, but due to Ethiopia’s depleted foreign exchange reserves and escalating inflation, the government’s official creditors, including China, agreed to a debt service suspension agreement in November.
On December 8, the government announced that the separate discussions it had engaged in with pension funds and other private creditors who possess its bonds had reached an impasse.
S&P Global, the credit ratings agency, subsequently lowered the bond’s rating to “Default” on December 15 due to the anticipation of the non-payment of the coupon.
Ethiopia Joins Ranks as Third African Nation in Sovereign Debt Default