Moody’s has reviewed Ethiopia’s credit rating and anticipates significant losses for private creditors due to the ongoing debt restructuring under the G-20 Common Framework. The restructuring process may be lengthy and complicated, with previous agreements and ratings suggesting future uncertainties in Ethiopia’s financial landscape. Despite challenges, Ethiopian officials express optimism regarding negotiations and IMF agreements.
Moody’s Rating, a leading global credit agency, completed a credit rating review of Ethiopia, anticipating significant losses for private creditors due to ongoing debt restructuring under the G-20 Common Framework (CF). The agency warns that the protracted restructuring process could yield more substantial losses than currently indicated in Ethiopia’s rating. Although there is no immediate rating action, this review follows their assessment on March 11.
Since February 2021, Ethiopia has been negotiating debt restructuring, forming a creditor committee co-chaired by China and France after six months. An agreement with the International Monetary Fund (IMF) is essential for successful restructuring. Although progress was made after the IMF approved a program in July 2024, a formal debt restructuring agreement with official creditors is still pending. Ethiopia also defaulted on a $1 billion Eurobond payment in December 2024. An ad hoc bondholder committee, which controls about 40% of the bonds, rejected the proposed 18% reduction in principal. This committee disagreed with the IMF concerning Ethiopia’s economy, claiming there were significant flaws resulting in an artificial solvency issue.
The latest statement from Moody’s noted, “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 upgrades to the foreign currency rating are unlikely unless smaller creditor losses are expected. Improvements in foreign exchange reserves and government revenue following debt restructuring could positively influence ratings over time.
Moody’s downgraded Ethiopia’s foreign currency rating to Caa3 in September 2023 due to a high likelihood of default on private sector foreign currency debt. Conversely, Fitch Ratings upgraded Ethiopia’s Long-Term Local-Currency Issuer Default Rating (IDR) from ‘CCC-‘ to ‘CCC+’ five months ago, citing decreased financing pressures and improved macroeconomic stability, indicating local-currency obligations are less likely to undergo restructuring.
Following agreements with the IMF in July, Ethiopia has begun implementing a market-based exchange regime, raised domestic revenue targets, and reduced energy subsidies. Though local critiques suggest insufficient support for vulnerable segments, Ethiopian officials remain optimistic about the IMF’s extended credit facility and ongoing restructuring negotiations. Last month, Finance Minister Ahmed Shide stated that negotiations with creditors are entering their final stages.
Moody’s analysis indicates that Ethiopia’s ongoing debt restructuring will likely result in significant losses for private creditors. The complexity of negotiations with the IMF and other creditor committees has delayed agreement outcomes, leading to missed payments and a downgrade in ratings. While some improvements in economic conditions and local currency ratings have been noted, critical challenges remain, and optimism hinges on successful conclusion of negotiations.
Original Source: shega.co
