Fitch Ratings has downgraded Ethiopia's sovereign credit rating further into default territory after the country failed to make a coupon payment on its Eurobond debt.
In a statement, Fitch lowered Ethiopia's Long-Term Foreign-Currency Issuer Default Rating to 'C' from 'CC', indicating that a default is imminent. This came after Ethiopia announced it did not have the funds to pay the $33 million interest payment due on December 11th for its $1 billion Eurobond maturing in 2024.
Fitch said it views the missed coupon as the start of a sovereign default process consistent with a 'C' rating. The ratings agency warned it will cut Ethiopia's rating to an 'RD' restricted default if the payment is not made within the 14-day grace period.
The downgrade reflects Fitch's view that default risks have increased significantly for Ethiopia given its declining external liquidity and large financing gaps. It was already struggling before formally joining the G20 Common Framework debt relief process in November.
However, Fitch maintained Ethiopia's local currency rating at 'CCC-' as the government continues to service domestic debt for now. But it noted substantial default risks remain from deepening economic imbalances and liquidity strains.
The downgrade piles pressure on Ethiopia to reach a debt restructuring deal with private creditors like Eurobond holders. It secured a bilateral debt service suspension from official lenders in November but still needs to agree terms with commercial bond investors. Talks are scheduled to continue on December 14th.
Failure to make the next scheduled coupon or agree a distressed debt exchange would trigger another cut to Restricted Default, according to Fitch. Payment on upcoming debt obligations and signs of repayment capacity are now needed for ratings relief.