Moody’s Rating highlights potential losses for Ethiopia’s private creditors due to ongoing debt restructuring under the G-20 Common Framework. Despite an IMF program approval and economic reforms, an agreement with official creditors remains unachieved, and a bondholder committee has rejected proposed redactions on principal payments. Ethiopian Finance Minister Ahmed Shide announced the nation is in the “final stages” of negotiations with creditors.
Moody’s Rating, a prominent global credit rating agency, announced on Friday the results of its recent credit rating review of Ethiopia, indicating potential losses for private creditors due to the government’s ongoing debt restructuring under the G-20 Common Framework. The agency highlighted that a prolonged restructuring process could lead to greater losses for these creditors than what is currently reflected in Ethiopia’s credit rating. Although the review did not result in any immediate rating changes, it follows a reassessment conducted on March 11, 2025.
Since February 2021, Ethiopia has actively pursued debt restructuring, forming a creditor committee of twelve countries, co-chaired by China and France six months later. The successful restructuring process is conditional upon an agreement with the International Monetary Fund (IMF) economic program. Despite the approval of an IMF program in July 2024 and advancements in economic reforms, an agreement with official sector creditors remains elusive, as Ethiopia defaulted on a $1 billion Eurobond principal payment in December 2024. An ad hoc bondholder committee, representing approximately 40% of bond ownership, rejected Ethiopia’s proposed 18% reduction in principal.
Moody’s recent announcement stated, “The Government of Ethiopia’s ratings, including its Caa3 foreign currency and Caa2 local currency issuer ratings, reflect our expectation of losses to private-sector creditors as a result of the government’s ongoing debt restructuring under the G-20 Common Framework.” The agency indicated that an upgrade of the foreign currency rating is improbable unless smaller losses are anticipated. Improved foreign exchange reserves and enhanced revenue generation post-restructuring could lead to upward pressure on the ratings over time.
In September 2023, Moody’s downgraded Ethiopia’s foreign currency rating to Caa3, citing a high likelihood of default on foreign currency-denominated private sector debt. While some agencies downgraded Ethiopia during this period, Fitch notably upgraded the country’s Long-Term Local-Currency Issuer Default Rating (IDR) from ‘CCC-‘ to ‘CCC+’ five months ago due to reduced financing pressures and increased macroeconomic stability.
Following the IMF agreements in July, Ethiopia has transitioned to a market-based exchange regime, set more ambitious domestic revenue mobilization targets, and reduced energy subsidies. Though there has been criticism regarding the support for vulnerable economic segments, Ethiopian officials remain optimistic about the positive outcomes from the IMF’s four-year extended credit facility and ongoing debt restructuring negotiations. Finance Minister Ahmed Shide has recently stated that the country is in the “final stages” of negotiations with its creditors.
In summary, Moody’s Rating has projected potential losses for Ethiopia’s private creditors amid the government’s debt restructuring efforts under the G-20 Common Framework. The prolonged restructuring process, the need for an agreement with the IMF, and the rejection of proposed reductions by bondholders all contribute to a complex financial situation. Despite recent upgrades from Fitch and positive assessments from the IMF, Ethiopia continues to navigate significant economic challenges while striving for a successful resolution to its debt issues.
Original Source: shega.co
