Ethiopia is on the brink of defaulting on a $33 million bond interest payment due December 11th after talks with creditors broke down this week.
In a statement Friday, Ethiopia's Ministry of Finance announced it does not have enough foreign exchange to make the payment due to "acute liquidity pressures".
The Ministry said "Unfortunately, in the short time available between commencement of discussions and the upcoming interest payment date, an agreement... could not be reached.”
Missing the deadline would trigger a technical default on its $1 billion bond maturing in 2024.
Talks with bondholders aimed to restructure debt repayment terms failed to yield a deal, despite proposals from both sides.
Ethiopia had requested pushing repayments until later dates, lowering interest rates and staggering interim payments.
The bond currently trades around 61 cents on the dollar at a yield of 66%, reflecting investors' high risk expectations.
The ministry plans to continue negotiations next week in hopes of presenting bondholders with an acceptable solution.
A creditors' committee representing bondholders criticized the decision, saying it viewed the potential default as "both unnecessary and unfortunate."
The committee said it was given "very short notice" to engage in talks and felt the government presented the decision not to make the payment "as a fait accompli," leaving little room for negotiation.
While open to further discussions, the committee expressed frustration with the lack of advanced engagement and Ethiopia's position as the payment deadline looms large. This casts doubts on whether a last-minute agreement can be reached even if talks continue through next week.
However, with just a week until the critical payment date, default appears imminent. Failure to find resolution could severely damage Ethiopia's reputation in global markets and access to future financing.
As East Africa's powerhouse, its troubles send concerning signals about debt management for others in the region facing fiscal distress.
