Ethiopia Financial Tightrope: Ethiopia is navigating a precarious financial situation, evident in its announcement that it cannot fulfill a $33 million bond coupon due on Monday, potentially leading to default. To address this, the country has scheduled an investor call with international bondholders on Thursday.
Having previously secured a debt service suspension for 2023 and 2024 from official bilateral creditors, excluding China, Ethiopia now aims for similar treatment from holders of its single $1 billion international bond maturing in December 2024. The finance ministry emphasizes the importance of equitable treatment for all creditors.
The risk of default looms if the bond coupon remains unpaid after the 14-day grace period. Despite the earlier statement indicating an inability to make the interest payment, Eyob Tekalign, State Minister of Fiscal Policy and Public Finance, expressed the authorities’ intention to stay current on obligations.
The bond’s market response was swift, initially dropping over 1.8 cents on the dollar before stabilizing at a 1.247 cent decrease to 59.571 cents at 0835 GMT, reflecting investor concerns.
Ethiopia’s financial struggles stem from the cumulative impact of the COVID-19 pandemic and the civil war in the Tigray region, concluding in November 2022. These challenges have strained the country’s ability to meet its debt obligations.
Eyob acknowledged unsuccessful discussions with some bondholders but expressed confidence in reaching a mutually acceptable plan. Ethiopia seeks cooperation from the Official Creditor Committee (OCC) and underscores the need for broadly similar treatment in finding a resolution.
In parallel efforts, Ethiopia is pursuing a four-year loan from the International Monetary Fund (IMF). Ongoing discussions with the IMF indicate a potential staff visit to the country early next year as part of broader financial stabilization measures. The outcome of these initiatives will significantly impact Ethiopia’s economic trajectory in the coming months.
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Our Reader’s Queries
What is the problem of Ethiopian economy?
Ethiopia has faced a multitude of economic challenges in recent years, including soaring inflation rates, a rapid rise in unemployment, a decline in currency value, and limited credit accessibility. These obstacles have posed significant hurdles for the country’s economic growth and development.
Is Ethiopia in debt distress?
Ethiopia is facing a potential default on its foreign debts, highlighting the ongoing financial struggles of developing nations. This is a concerning trend that is impacting the poorest countries in the world.
What is the current economic situation in Ethiopia?
The economic outlook for Ethiopia is being impacted by the ongoing conflict in the northern Amhara region. It is expected that economic activity in FY 2023 (July 2023July 2024) has been negatively affected due to instability and harsh security measures in the region. This is likely to have a significant impact on trade, investment, and agriculture, which are all crucial components of the country’s economy.
What is Ethiopia’s economy based on?
Ethiopia’s economy heavily relies on agriculture, contributing to 46% of its GDP and employing 85% of its workforce. This sector plays a crucial role in the country’s economic growth and development.