Ethiopia claims to have made a preliminary agreement with its official creditors

The finance ministry announced on Friday that Ethiopia has struck a preliminary agreement with its formal creditors during debt default negotiations. This could facilitate challenging negotiations with additional creditors, including bondholders.

Prior to defaulting on its only Eurobond in December 2023, the East African country chose to restructure its external debt via the G20’s Common Framework in 2021.

“Ethiopia has committed to negotiate with its external creditors a debt treatment delivering $3.5 billion reduction in debt service over the program period, and restoring debt sustainability on an ongoing basis,” the ministry stated in a statement.

The deal “goes a long way in achieving these objectives,” according to the statement.

According to the ministry, Ethiopia’s external redemption profile will be significantly smoothed out with a major cost decrease, and debt service relief of almost $2.5 billion would be provided between 2023 and 2028.

China and France co-chair Ethiopia’s official creditor committee. A request for comment was not immediately answered by the Paris Club of lending nations, which typically manages communications for Ethiopia’s OCC.

Last July, the government was able to try to restart the delayed debt restructuring process by signing a financing agreement with the International Monetary Fund.

Ethiopian officials claim they are making headway with its bondholders, who have accused the government of not negotiating in good faith, and hope to finalize a final agreement with the official creditors by the middle of this year.

According to the government, the agreement in principle with official creditors could facilitate those discussions.

“This agreement will support ongoing good faith engagement with external commercial creditors, including bondholders,” stated the statement.