Ethiopia

Ethiopia has reached a deal with its official creditors to restructure $8.4 billion of international debt, a key milestone in the nation’s efforts to overhaul its loans and boost growth, Bloomberg News reported. The agreement with bilateral lenders under the G20 Common Framework, backed by an International Monetary Fund program, will slash debt service by $2.5 billion through 2028, its finance ministry said on Friday, without giving details of the terms. The deal will allow the country to spend more on “critical public investments,” the ministry said in a statement.

The International Monetary Fund’s executive board completed its first review under the Extended Credit Facility for Ethiopia, which will disburse about $340.7 million to the East African country, Bloomberg News reported. The funds are part of a broader $3.4 billion four-year financing package approved in July. Completion of the review brings total disbursements under the arrangement to about $1.363 billion, the IMF said late on Friday. “Ethiopian authorities have shown strong commitment to their home-grown economic reform program,” according to the IMF’s statement.

Investors holding Ethiopia’s defaulted dollar bonds have rejected the debt-restructuring terms proposed by the government for the $1 billion issue, Bloomberg News reported. An ad hoc committee representing holders of the sovereign notes maturing Dec. 2024 said Ethiopia’s proposal of an 18% haircut on the bond’s principal is “wholly inconsistent” with the nation’s economic fundamentals. “The committee does not consider the illustrative terms to be a reasonable starting point for negotiation,” it said in a statement Thursday.

Ethiopia caught its bondholders off-guard with a proposal to introduce a 20% haircut in the nation’s debt-restructuring process, setting the scene for tense negotiations, Bloomberg News reported. The government’s suggestion to reduce the value of $1 billion eurobonds due in December contrasts with proposals creditors exchanged with Ethiopia last year, which would have seen them receive the principal in full, but over a longer period and at lower interest rates, according to Kevin Daly, emerging markets investment director at Abrdn Investment Management Ltd.

Ethiopia has earmarked several billion dollars to cushion the cost-of-living impact of economic reforms being implemented to win support from the International Monetary Fund, Bloomberg News reported. It plans 550 billion birr ($5.9 billion) in additional spending, of which 40% will go into food, fuel and fertilizer subsidies, as well as increasing salaries for government workers, according to Eyob Tekalign Tolina, state minister in the finance ministry. “The government has prepared a big package for social spending,” Eyob said in an interview with Bloomberg TV’s Jennifer Zabasajja.

Ethiopia needs about $3.5 billion in relief from debt restructuring through 2027-28, according to the International Monetary Fund, setting the key parameters for creditors to negotiate deals with the government, Bloomberg News reported. Overall, Africa’s second-most populous nation faces a financing gap of more than $20 billion over the period, the Washington-based lender said this week in a report outlining its $3.4 billion economic program. That reduces to $10.7 billion after actions including proceeds from privatization processes and an existing debt suspension with creditors, it said.

Ethiopia’s defaulted international bond jumped after the International Monetary Fund agreed to lend the country $3.4 billion over four years as part of an economic reform program, a key step that’s also expected to ease negotiations with creditors on restructuring its debt, Bloomberg News reported. The decision will allow the immediate disbursement of about $1 billion, the fund said in a statement on Monday announcing the loan. The IMF funds are part of about $10.7 billion that eastern Africa’s biggest economy expects from creditors through loans, grants and debt re-profiling.

Ethiopia’s central bank allowed the nation’s currency to trade freely, a key reform needed to secure more than $10 billion of funding and debt relief it’s been negotiating with the International Monetary Fund. The birr plunged. The National Bank of Ethiopia permitted banks to buy and sell foreign currency at freely negotiated rates, according to a directive on its website, Bloomberg News reported.

Ethiopia’s official creditors have granted financing assurances to the country to help fast-track approval of a new loan by the International Monetary Fund’s executive board, Bloomberg News reported. Members of an official creditor committee held a meeting last week to approve the financing assurances, according to two of the people, who asked not to be named because the talks are private. Financing assurances mean that bilateral creditors such as the Paris Club and China provided certainty that they will restructure their loans to Ethiopia in a way that’s consistent with the fund’s program.

Talks between the International Monetary Fund and Ethiopia around a new loan and reform package have "made substantial progress", but are ongoing, an IMF spokesperson said on Thursday, Reuters reported. "We have made substantial progress towards establishing how the IMF can support the authorities' economic programme, and we will continue to work closely with the authorities in these virtual discussions," the IMF's Julie Kozack said during a press briefing.