Ethiopia faces sovereign default, joins ranks of African nations in crisis

Ethiopia officially declared its sovereign default on Tuesday, December 26, failing to meet a $33 million "coupon" payment on its sole international government bond. The country, Africa's second most populous, had signaled its intention to enter default earlier this month amid severe financial challenges exacerbated by the aftermath of the COVID-19 pandemic and a concluded two-year civil war in November 2022.

The payment, originally due on December 11, had a 14-day 'grace period' clause, providing Ethiopia until Tuesday to fulfill the obligation. However, sources familiar with the matter revealed that bondholders had not received the coupon payment as of the end of the last international banking working day on Friday, December 22.

Despite inquiries, Ethiopian government officials remained silent on the matter over the weekend. The anticipated default places Ethiopia alongside other African nations, Zambia and Ghana, entering a comprehensive "Common Framework" restructuring.

Ethiopia initiated debt relief efforts under the G20-led initiative in early 2021. Progress was hindered initially by the civil war, but in November, facing depleted foreign exchange reserves and escalating inflation, the country's official sector government creditors, including China, reached a debt service suspension agreement.

However, on December 8, the government announced the breakdown of parallel negotiations with pension funds and other private sector creditors holding its bond. Subsequently, credit ratings agency S&P Global downgraded the bond to "Default" on December 15, anticipating the missed coupon payment.

Ethiopia's default adds to a concerning trend in the region, highlighting the economic challenges faced by African nations. The situation underscores the complex interplay of geopolitical conflicts, the economic fallout from the pandemic, and the urgent need for coordinated efforts to address the growing financial crises across the continent.

(With Reuters inputs.)