Ethiopia has edged closer to resolving one of Africa’s most closely watched sovereign debt crises after striking a preliminary agreement with a group of investors holding a significant portion of its $1 billion international bond that matured in 2024.
The deal, disclosed by the Finance Ministry on Friday, marks a critical milestone in the country’s prolonged effort to restructure its debt following its first-ever default late in 2023.
In a statement posted on the ministry’s official Facebook page, Ethiopian authorities said the parties had reached an “agreement in principle” covering the core financial terms of the bond restructuring. While the announcement signals meaningful progress, the government stressed that discussions are still ongoing over the non-financial terms of the new debt instrument that will replace the defaulted Eurobond.
These outstanding elements typically include legal provisions, governance clauses, and other structural features that can materially affect investor protections and the long-term viability of the reworked debt.
Coordination under the G20 Common Framework
The agreement has been communicated to both the International Monetary Fund and Ethiopia’s Official Creditor Committee (OCC), which represents bilateral lenders under the G20’s Common Framework for debt treatments. That step is crucial, as the framework requires comparable treatment across all creditor classes — bilateral lenders, multilateral institutions, and private bondholders — to prevent any group from receiving preferential terms.
“The terms of the Agreement in Principle have been communicated to the OCC for their non-objection as well as to the IMF to ensure compliance with Ethiopia’s long-term debt sustainability,” the ministry said.
An IMF spokesperson welcomed the development, describing it as an important advance in Ethiopia’s reform programme.
“This marks an important step toward restoring debt sustainability,” the spokesperson said in an emailed response. “We will assess the consistency of the agreement with the objectives and parameters of the IMF-supported program in the coming days.”
IMF approval is widely seen as a linchpin for Ethiopia’s broader recovery strategy, not only to unlock further disbursements under its Fund-supported programme but also to rebuild confidence among external investors and development partners.
According to the finance ministry, the Ad Hoc Committee involved in the talks consists of institutional investors controlling more than 45% of the outstanding 2024 Eurobond. Formal negotiations between the two sides took place between December 23 and January 1, following months of informal engagement that yielded limited progress.
Ethiopia said it aims to complete the restructuring process and implement the new bond instrument as early as possible in 2026. That timeline underscores both the complexity of the negotiations and the need to align private-sector concessions with agreements already reached with official creditors.
In July, the government finalized a restructuring deal with bilateral lenders, which it said would provide more than $3.5 billion in cashflow relief. That agreement was widely viewed as a necessary precursor to serious negotiations with bondholders, who have often been reluctant to commit without clarity on the scale of relief granted by governments and multilateral institutions.
Ethiopia defaulted on its sole international bond in late 2023 amid severe macroeconomic strains, including chronic foreign exchange shortages, high inflation, the economic fallout from internal conflict, and tighter global financial conditions. The default pushed the country into the G20 Common Framework, making it one of the highest-profile African economies to test a mechanism that has been criticized for slow timelines and procedural complexity.
Since then, progress has been uneven. While talks with bilateral creditors advanced more quickly, negotiations with private bondholders dragged on for months, highlighting persistent coordination challenges between different creditor groups.
What the preliminary deal signals
Although specific financial terms were not disclosed, restructurings under the Common Framework typically involve a combination of maturity extensions, reduced interest payments, and, in some cases, nominal haircuts on principal. The unresolved non-financial terms could cover issues such as governing law, dispute resolution mechanisms, and performance-linked features tied to Ethiopia’s economic recovery.
The agreement in principle offers investors the clearest indication yet that Ethiopia is moving toward a resolution, reducing uncertainty after a prolonged period of stalemate. For the government, it represents progress toward stabilizing public finances, restoring external credibility, and eventually regaining access to international capital markets.
Ethiopia’s restructuring is being closely watched by other low-income and frontier-market countries grappling with unsustainable debt burdens. A successful outcome would strengthen the case that the G20 Common Framework can deliver results, even if slowly, for countries with diverse creditor bases.
However, finalizing the deal will require securing sufficient bondholder participation, IMF sign-off, and continued implementation of domestic economic reforms. With growth pressures, social demands, and external financing needs still acute, Ethiopia’s debt challenge is far from over.
For now, however, the agreement in principle represents the most substantive step yet toward closing a chapter that has weighed heavily on the country’s economy since its 2023 default — and a tentative move toward financial normalization after years of strain.
