Moody’s Anticipates Losses for Ethiopia’s Private Creditors Amid Debt Restructuring

Moody’s Rating foresees losses for Ethiopia’s private creditors amid ongoing debt restructuring under the G-20 Common Framework. Despite progress with the IMF and economic reforms, an agreement with official sector creditors remains pending. The report highlights potential challenges and cautious optimism surrounding negotiations as the country seeks to stabilize its financial situation.

Moody’s Rating, one of the leading global credit rating agencies, announced the results of its periodic credit rating review of Ethiopia, foreseeing potential losses for private creditors due to the government’s ongoing debt restructuring under the G-20 Common Framework. The agency highlighted that the restructuring process could lead to greater losses for private creditors compared to the current ratings. Although no immediate rating action is anticipated, this review follows a previous reassessment conducted on March 11.

Since February 2021, Ethiopia has been engaged in debt restructuring as part of the G-20 Common Framework, forming a creditor committee comprising 12 countries, co-chaired by China and France. A key component of the restructuring involves an agreement with the International Monetary Fund (IMF) economic program. However, despite the IMF program’s approval in July 2024 and reforms undertaken, a conclusive agreement with official sector creditors remains unmet. Notably, Ethiopia defaulted on a $1 billion Eurobond principal payment in December 2024, and a key bondholder committee rejected a proposed 18% reduction on the principal in October.

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 that while an upgrade in the foreign currency rating is unlikely, it could occur should the losses for creditors be smaller than expected. Improvements in foreign exchange reserves and government revenue post-restructuring could also enhance ratings over time.

Ethiopia’s foreign currency rating was downgraded to Caa3 in September 2023 due to high default risks on foreign currency-denominated debts. Although Fitch upgraded Ethiopia’s Long-Term Local-Currency Issuer Default Rating to ‘CCC+’ earlier this year, citing better financing conditions, the overall outlook for private credit remains cautious. The government has recently shifted toward a market-based exchange regimen and increased revenue mobilization targets while gradually reducing energy subsidies.

Despite facing criticism regarding support for vulnerable populations, Ethiopian finance officials express optimism regarding the IMF’s extended credit facility and ongoing debt restructuring efforts. Finance Minister Ahmed Shide reported that the nation is nearing the “final stages” of negotiations with its creditors. These developments could significantly shape Ethiopia’s economic landscape in the near future.

In summary, Moody’s Rating anticipates potential losses for Ethiopia’s private creditors due to the government’s ongoing debt restructuring. The situation, complicated by missed payments and differing assessments by bondholder committees, calls for cautious optimism. With recent shifts in economic policy and an impending finalization of creditor negotiations, Ethiopia is navigating a complex financial landscape that significantly impacts its future economic stability.

Original Source: shega.co