Private Creditors: Ethiopia hopes for desperately debt relief

Addis Ababa, ETHIOPIA — Ethiopia is pinning its hopes for desperately needed debt relief on a New York bill that could force private creditors like bondholders to give terms comparable to what governments offer in debt restructurings.

Addis Ababa owes more than USD 29 billion, including a USD one billion eurobond maturing in 2024. Finance Minister Ahmed Shide on last Thursday conceded debt restructuring efforts this year “didn’t go as planned.” Negotiating comparable relief from diverse creditors will be “our next task,” he said.

The new bill aims to streamline complex debt talks by coordinating private and government creditors. But analysts warn it risks spooking investors or spawning legal fights that derail negotiations.

Ethiopia seeks at least USD two billion from the International Monetary Fund (IMF) to fill a USD six billion funding gap through 2026. But the IMF said that “creditors’ assurances are required before Ethiopia’s debt restructuring request materializes.”

An analyst following Ethiopia’s debt woes said “This bill is good news. Private creditors’ role has been murky but it could now force comparable relief, unblocking a debt deal Ethiopia badly needs.”

Addis Ababa will scrutinize whether the bill helps secure relief it desperately requires to fund development and tackle humanitarian crises. But success hinges on assuaging concerns and navigating difficult negotiations with diverse creditors, the analyst said.

If workable solutions emerge that calm investors, the bill could unlock relief that eases Ethiopia’s crushing debt load, added the expert.

But with USD one billion in payments due soon, development goals on the line and a USD six billion financing gap to bridge, Ethiopia’s fate rests on a high-wire act aimed at securing meaningful relief without racking up still higher costs, the analyst remarked.

Ethiopia’s massive debt burden represents an increasingly urgent challenge for the country’s economy, with over half of all external obligations owed to multilate.

According to government data, Addis Ababa owes more than USD 14 billion to multilateral lenders as of September 2022. The World Bank accounts for the largest share at USD 11.2 billion or 75 percent of multilateral debts. The African Development Bank and IMF make up the rest.

In addition, Ethiopia faces significant debt obligations to private creditors totaling over USD four billion. This includes USD 2.9 billion owed to commercial banks, USD 1.1 billion due to suppliers and a USD one billion Eurobond.