Ethiopia’s announcement of a plan that will see bondholders forced to take a 20% haircut during the ongoing debt restructuring process has spooked investors.
- •Private creditors mainly hold 90% of the $1bn Eurobond, which Ethiopia defaulted on in December 2023.
- •It became the third country on the continent to default on international loan obligations, following Ghana and Zambia’s.
- •Late last week, Addis Ababa said that it would propose that Eurobond investors accept a 20% haircut as it seeks to revitalise the economy and meet its obligations..
“The terms they offered last year were very different,” an investment director told Bloomberg.
The plan involves reducing Eurobond obligations due at the end of 2024, which bondholders say is a different plan from the one Addis Ababa proposed last year, which would have seen Addis repay the principal in full, but restructure the timeline and the interest owed.
Ethiopia’s recent moves in allowing the birr to float and other macroeconomic policy shifts such as mobilising domestic revenues have unlocked much-needed funding from the IMF and the World Bank. The shifts were a necessity of the country’s ongoing debt relief from the Paris Club.
In 2021, Addis Ababa requested debt relief from its creditors, as it struggles to balance internal security and economic challenges. It got relief from China, which it owes $27.8bn, in August 2023, and from the Paris Club in November.
The most contentious has remained the $1bn Eurobond, with Addis Ababa declining to repay the $33mn coupon owed in December 2023 to “avoid treating Eurobond holders more favourably” than its other creditors.