PREVIEW
Prime Minister under pressure to conclude restructuring talks with IMF and international creditors as Addis Ababa's finances remain under severe strain
The failure of Abiy Ahmed's government to make a US$33 million coupon payment on its only international government bond in late December confirmed Ethiopia's status as the third African state to default in as many years.
The government had signalled last year that it was keen to negotiate a debt deal with the IMF and Ethiopia was one of four African economies that signed up to the G20's debt workout process, as it seeks to restructure a debt burden of $26 billion to foreign creditors, about half of which is owed to Chinese entities (AC Vol 64 No 16, Abiy ploughs on as economy staggers).
Ethiopia's $1bn Eurobond had been due to mature this year and the $33m payment had been due on 11 December.
Though not a major surprise, default is still a blow to Prime Minister Abiy, who told lawmakers last year that his government had cut debt service costs to 38% of GDP from 59% in 2018.
Government finances have been under severe strain in the wake of the Covid-19 pandemic and a two-year civil war, and economic growth has dropped to around 6% from an average of 10% between 2014 and 2017.
Abiy now faces a race against time to conclude talks with both the IMF and Ethiopia's creditors.
The Fund has indicated that a support package worth up to $3.5bn for Ethiopia will be conditional on the government agreeing debt restructuring deals with its creditors. For its part, the Paris Club of lenders has warned that an agreement to suspend debt payments to Ethiopia's creditors – with the exception of China – will be voided if it does not obtain IMF finance by March.
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