Ethiopia is bracing for a critical meeting with its international bondholders on Thursday as the country teeters on the brink of default, according to an official source at the Ministry of Finance cited by Reuters.
Last week, the Ethiopian government declared its inability to meet a $33 million bond coupon payment due on Monday, intensifying fears about its financial stability.
The finance ministry disclosed that talks with a group of bondholders had reached an impasse, with both sides failing to agree on the extension of maturity and the restructuring of repayments for Ethiopia's $1 billion international bond, which is set to mature in December 2024.
With the expiration of a 14-day grace period imminent, non-payment of the bond coupon would push Ethiopia towards a default. Almost two years ago, the country sought a debt overhaul under the G20 Common Framework.
While Ethiopia had been servicing interest payments on its international bond until now, the finance ministry recently indicated its intention to seek similar treatment from bondholders, following recent debt service suspension agreements with official creditors and selected commercial lenders, including China.
"We believe it is crucial to treat all our creditors fairly," stated the ministry, echoing remarks made last week that hinted at the unlikelihood of payment.
However, State Minister of Fiscal Policy and Public Finance, Eyob Tekalign, provided a contrasting perspective to Reuters. He affirmed that the authorities' objective was to fulfill their obligations and revealed that a meeting with investors holding the international bond is scheduled for Thursday, December 14.
Ethiopia's mounting financial challenges stem from a combination of the COVID-19 pandemic's impact and a civil war in the Tigray region, which concluded in November 2022. These crises have severely strained the country's ability to meet its debt obligations, despite its previous reputation as one of Africa's most promising economies.
As anticipation builds, all eyes are on the outcome of Thursday's meeting, which will determine the course of action for Ethiopia's debt crisis. The bond prices experienced turbulence on Monday, initially plummeting by over 1.8 cents on the dollar, only to recover and gain 0.2 cents later in the day, trading at 60.995 cents at 1016 GMT, according to Tradeweb data.
The meeting's focus will revolve around resolving the divergences between Ethiopia's government and its bondholders, primarily concerning the duration of maturity and the size of the coupon.
Proposed outlines presented at the end of last week revealed that Ethiopia suggested an amortizing structure featuring eight equal payments from July 2028 to January 2032, accompanied by a 5.5% coupon.
In contrast, the latest proposal from the bondholder group called for a significantly shorter amortization period between July 2028 and July 2029, coupled with a 6.625% coupon, as per the finance ministry's statement.
Eyob acknowledged to Reuters that discussions with a few bondholders failed to yield any agreement on the terms. However, he expressed confidence in finding a mutually acceptable plan that could receive approval from the official creditor committee.
In addition to the bondholder negotiations, Ethiopia is actively seeking a four-year loan from the International Monetary Fund. The IMF confirmed that discussions with the government are ongoing, and a staff visit to the country is likely to occur early next year.
