Ethiopia’s efforts to exit default have hit fresh turbulence after bondholders warned of legal action over stalled restructuring talks.
Bilateral creditors rejected a preliminary deal on Ethiopia’s $1 billion Eurobond, undermining hopes of a swift resolution.
The setback threatens to prolong the country’s external debt default, deepening economic strain from inflation and foreign currency shortages.
Ethiopia’s crisis began to intensify in November 2020 when war erupted in Tigray amid the global COVID-19 shock.
The conflict and pandemic collapsed a $2.9 billion IMF programme, leaving public finances badly exposed.
In 2021, Addis Ababa sought relief under the G20 Common Framework, aiming to restructure sovereign debt.
Severe dollar shortages followed, forcing import bans and highlighting mounting balance-of-payments pressures.
Ethiopia defaulted on its Eurobond in December 2023 after missing a coupon payment, triggering downgrades and market losses.
Progress returned in July 2024 when authorities floated the birr and secured a $3.4 billion IMF programme.
Disputes soon resurfaced as bondholders rejected proposed losses and questioned IMF economic assessments.
A deal with official creditors was reached in 2025, offering temporary relief and cautious optimism.
That optimism faded in January 2026 when creditors blocked a bondholder agreement, reopening uncertainty.
Bondholders now threaten lawsuits, clouding Ethiopia’s path toward financial stability and restored investor confidence.