Moody’s Rating has indicated expected losses for Ethiopia’s private creditors due to the government’s ongoing debt restructuring under the G-20 Common Framework. A protracted restructuring process may amplify these losses. Despite recent progress, notably with the IMF, a definitive debt agreement remains outstanding. Finance Minister Ahmed Shide indicates that negotiations are entering final stages.
Moody’s Rating, a leading global credit rating agency, has completed its review of Ethiopia’s credit rating, indicating potential losses to private creditors amid the government’s ongoing debt restructuring initiative under the G-20 Common Framework (CF). The agency warns that a prolonged debt restructuring process could lead to more significant losses for creditors than currently anticipated. The review follows reassessments of ratings based on data from March 11, though no immediate rating action is projected.
Ethiopia began pursuing debt restructuring under the CF in February 2021, forming a creditor committee of 12 countries, co-chaired by China and France, six months thereafter. A critical step for successful restructuring is aligning with the International Monetary Fund (IMF) economic program; however, despite the IMF approving a program in July 2024 and economic reforms advancing, a final debt restructuring agreement remains unachieved. As of December 2024, Ethiopia missed a $1 billion Eurobond principal payment, and an ad hoc committee of bondholders rejected an 18% proposed haircut on the principal in October, expressing doubts about the IMF’s assessment of Ethiopia’s economic situation.
According to Moody’s latest announcement, “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 stated that the potential upgrade of the foreign currency rating is contingent on lower anticipated losses for private-sector creditors, while improved foreign exchange reserves and government revenue generation could positively influence ratings in the future. Conversely, issues such as increased likelihood of losses beyond the existing rating limits or deterioration in domestic liquidity could have the opposite effect.
Moody’s had downgraded Ethiopia’s foreign currency rating to Caa3 in September 2023 due to heightened risks of default on foreign currency-denominated debt. Other rating agencies responded with similar downgrades, yet Fitch upgraded Ethiopia’s Long-Term Local-Currency Issuer Default Rating to ‘CCC+’ in the past five months, citing reduced financing pressures and enhanced macroeconomic stability.
Following the IMF agreements in July, Ethiopia has adopted a market-based exchange system, enhanced domestic revenue targets, and decreased energy subsidies. Despite some local critiques suggesting insufficient support for vulnerable populations, the reviews by the IMF have remained generally favorable. Ethiopia’s financial leaders are optimistic about the continued success of the IMF’s extended credit facility and debt negotiations, with Finance Minister Ahmed Shide declaring progress into the “final stages” of discussions with creditors.
In summary, Moody’s recent review reveals the expected losses for Ethiopia’s private creditors amid ongoing debt restructuring efforts. While progress has been made in economic reforms and IMF agreements, the anticipated prolonged nature of these debt negotiations poses significant risks. The outlook remains dependent on successful restructuring, which could ultimately improve credit ratings over time. Ethiopia’s finance leaders remain hopeful for favorable outcomes in the near future.
Original Source: shega.co
