Ethiopia is locked in a standoff with international bondholders as it seeks to restructure its $1 billion debt as part of a broader debt overhaul.
The country, grappling with acute foreign currency shortages and the aftermath of a devastating civil war, is under immense pressure to renegotiate its financial obligations.
The East African nation’s decision to restructure its debt comes amid a global initiative to provide relief to developing countries.
Ethiopia has been slow to progress on this front due to the protracted Tigray conflict and challenges in meeting International Monetary Fund (IMF) conditions.
A recent currency float and a subsequent $3.4 billion IMF loan, however, have injected new momentum into the process.
At the heart of the dispute lies the government’s proposal for a 20% haircut on the $1 billion bond.
Bondholders vehemently oppose this, arguing that it does not reflect Ethiopia’s economic fundamentals.
The government, on the other hand, maintains that it needs a significant debt relief to address a $3.5 billion financing gap identified by the IMF.
The disagreement hinges on whether Ethiopia faces a short-term liquidity crisis or a long-term solvency problem.
While the country’s debt-to-GDP ratio is relatively low, dwindling foreign exchange reserves and declining export and tax revenues have raised concerns among creditors.
As the negotiations intensify, Ethiopia is also grappling with the challenges of implementing economic reforms.
The recent currency devaluation has led to inflationary pressures, prompting the government to take measures to control prices.
The IMF is closely monitoring the situation and has scheduled multiple reviews to assess the country’s progress.
Both the government and the IMF expect a debt restructuring deal to be finalized by the end of the year.
However, the ongoing dispute with bondholders casts a shadow over the process, potentially delaying much-needed relief and hindering Ethiopia’s economic recovery.