Ethiopia finds itself in a precarious financial position as Fitch Ratings delivers a sobering blow by downgrading its Long-Term Foreign-Currency Issuer Default Rating (LTFC IDR) to ‘RD’ (Restricted Default) from ‘C.’ This decision, prompted by the Ethiopian government’s failure to meet the USD33 million Eurobond coupon payment due on December 11, 2023, signals a critical juncture for the nation’s economic stability.
The downgrade extends beyond the LTFC IDR to include the issue rating of Ethiopia’s USD1 billion Eurobond, now marked as ‘D.’ This move underscores the severity of the government’s inability to fulfill its financial obligations within the 14-day grace period, which concluded on December 25, 2023.
In response to the crisis, the Ministry of Finance has initiated an engagement process with Eurobond holders. A global investor call held on December 14, 2023, aimed to transparently communicate the government’s position as it seeks an agreement on restructuring with bondholders. The objective is to reach a resolution ahead of a Common Framework (CF) debt treatment.
Ethiopia had previously engaged in diplomatic efforts, securing an interim suspension of debt service payments with major Chinese creditors. A parallel agreement with other bilateral creditors on the Official Creditor Committee (OCC) was reached in November.
However, the looming challenge lies in the unresolved parameters for an International Monetary Fund (IMF) program. This program is a prerequisite for negotiating a comprehensive debt treatment under the CF. While optimism surrounds expectations for an IMF program in 1Q24, the Official Creditor Committee maintains the right to cancel the debt service suspension if an agreement is not reached by end-March 2024.
In contrast, the Long-Term Local-Currency (LTLC) IDR remains stable at ‘CCC-,’ indicating the government’s commitment to servicing its local-currency debt. Notably, there is no indication of including domestic debt in the restructuring. However, this rating acknowledges the significant risk of default due to heightened macroeconomic imbalances and liquidity strains.
The Environmental, Social, and Governance (ESG) landscape adds complexity to Ethiopia’s predicament. Scores of ‘5’ for Political Stability and Rights, Rule of Law, Institutional and Regulatory Quality, and Control of Corruption underscore challenges such as weak political transitions, limited rights for political participation, institutional weaknesses, and high corruption levels.
Looking ahead, the economic outlook for Ethiopia remains uncertain. Negative rating actions loom if default on local-currency debt becomes probable. Positive rating actions, on the other hand, hinge on successfully navigating a commercial debt restructuring that normalizes relations with private-sector creditors and effectively addresses fiscal and macroeconomic challenges.
Photo (Jihane Rahhou via www.moroccoworldnews.com)
By: Montel Kamau
Serrari Financial Analyst
28th December, 2023
Article and News Disclaimer
The information provided on www.serrarigroup.com is for general informational purposes only. While we strive to keep the information up to date and accurate, we make no representations or warranties of any kind, express or implied, about the completeness, accuracy, reliability, suitability, or availability with respect to the website or the information, products, services, or related graphics contained on the website for any purpose. Any reliance you place on such information is therefore strictly at your own risk.
www.serrarigroup.com is not responsible for any errors or omissions, or for the results obtained from the use of this information. All information on the website is provided on an "as-is" basis, with no guarantee of completeness, accuracy, timeliness, or of the results obtained from the use of this information, and without warranty of any kind, express or implied, including but not limited to warranties of performance, merchantability, and fitness for a particular purpose.
In no event will www.serrarigroup.com be liable to you or anyone else for any decision made or action taken in reliance on the information provided on the website or for any consequential, special, or similar damages, even if advised of the possibility of such damages.
The articles, news, and information presented on www.serrarigroup.com reflect the opinions of the respective authors and contributors and do not necessarily represent the views of the website or its management. Any views or opinions expressed are solely those of the individual authors and do not represent the website's views or opinions as a whole.
The content on www.serrarigroup.com may include links to external websites, which are provided for convenience and informational purposes only. We have no control over the nature, content, and availability of those sites. The inclusion of any links does not necessarily imply a recommendation or endorsement of the views expressed within them.
Every effort is made to keep the website up and running smoothly. However, www.serrarigroup.com takes no responsibility for, and will not be liable for, the website being temporarily unavailable due to technical issues beyond our control.
Please note that laws, regulations, and information can change rapidly, and we advise you to conduct further research and seek professional advice when necessary.
By using www.serrarigroup.com, you agree to this disclaimer and its terms. If you do not agree with this disclaimer, please do not use the website.
www.serrarigroup.com, reserves the right to update, modify, or remove any part of this disclaimer without prior notice. It is your responsibility to review this disclaimer periodically for changes.
Serrari Group 2023
