Ethiopia

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.

Ethiopia became Africa’s latest defaulter after it failed to make an interest payment following the end of a grace period on Monday, Bloomberg News reported. The Horn of Africa nation had to pay a $33 million coupon on Dec. 11. The government didn’t want to make the payment because it “wants to treat all creditors in the same way,” Ahmed Shide, Ethiopia’s minister of finance said on state TV on Thursday. Hinjat Shamil, senior reform advisor at the Ministry of Finance confirmed Monday that the payment had not, and will not be paid.

Ethiopia's only international government bond slipped in price on Monday after credit ratings agency S&P Global Ratings downgraded it to "Default" after the east African country failed to make a key 'coupon' payment, Reuters reported. The $1 billion bond, which matures in December 2024 with a full principal repayment known as a bullet payment, dipped 0.4 cents on the dollar to 66.5 cents having jumped roughly 10% since the start of the month.

Ethiopia's government told bondholders on Thursday it was hoping to negotiate a rework of its single international bond quickly and was set to include a form of "loss reinstatement" provision for investors, three sources attending the call told Reuters. The global investor call was part of Ethiopia's eleventh hour push to resuscitate an overhaul of its $1 billion Eurobond after disclosing on Dec. 8 that it failed to reach an agreement with a core group of bondholders.