Ethiopia Defaults on $33 Million Bond Payment Amidst Financial Strain

Ethiopia has become Africa’s third nation to default in as many years, as it failed to meet a $33 million “coupon” payment on its sole international government bond. The East African nation, the continent’s second most populous, officially declared its intention to default earlier this month, citing severe financial challenges exacerbated by the Covid-19 pandemic and a two-year civil war that concluded in November 2022.

The payment, originally scheduled for December 11, had a 14-day “grace period” clause, allowing Ethiopia until Tuesday to fulfill the obligation. Sources reveal that, as of the last international banking working day on Friday, December 22, bondholders had not received the expected coupon payment.

Despite numerous requests for comment, Ethiopian government officials remained silent over the weekend.

The widely-anticipated default now aligns Ethiopia with Zambia and Ghana, placing all three nations under the umbrella of a comprehensive “Common Framework” restructuring.

Ethiopia initially sought debt relief under the G20-led initiative in early 2021, but progress was hindered by the civil war.

In November, facing depleted foreign exchange reserves and surging inflation, the government secured a debt service suspension deal with official sector government creditors, including China.

However, on December 8, the government disclosed that negotiations with pension funds and other private sector creditors holding its bond had broken down.

Subsequently, credit ratings agency S&P Global downgraded the bond to “Default” on December 15, reflecting the anticipation that the coupon payment would not be fulfilled.