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Ethiopia in Selective Default After Missing $33 Mln Bond Payment, S&P Says

15:56, 16 December 2023

Christina Glazkova

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Selective default is a rating applied when Standard & Poor's (S&P) believes that an obligor has selectively defaulted on its obligations with respect to a particular issue or class of obligations, but will continue to make timely payments on other issues or classes of obligations.

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S&P Global Ratings said Ethiopia went into selective default after the Ethiopian government missed a $33 million coupon payment on Monday and indicated that it would not pay within the grace period, media reported on Saturday.

"We view the nonpayment of interest and the statement that the government would not honor its debt service obligations within the stipulated grace period as a default on its external commercial debt," S&P analysts are cited in the media.

Ethiopia's "fragile external position, with significantly lower foreign exchange reserves" is the reason the country is not able to make the payment, the finance ministry stated last week, according to the report.

Additionally, S&P attributed the downgrade to ongoing discussions with bondholders in which the Ethiopian government's Ministry of Finance announced that it would "treat all its external creditors equitably."

"[...] Ethiopia's decision to withhold the December coupon payment on its Eurobond, despite the affordable amount at stake, stemmed from the intention to treat all its external creditors equitably. A failure to do so could indeed jeopardize ongoing discussions with other external lenders on the same matter," the ministry wrote on Friday.

Moreover, the country is ready to propose to other external creditors to participate in similar debt arrangements.

"With Ethiopia having recently agreed debt service suspension arrangements with its official creditors, the Ministry of Finance is now seeking to ensure consistency and fairness by requesting other external creditors, including bondholders, to participate in similar debt arrangements," the statement said.

Speaking of other assessments of the East African country's financial situation, on Thursday, Fitch Ratings downgraded Ethiopia's rating to C, one notch over default, and while Moody's Investors Service reportedly gave the country the fourth-lowest score with a stable outlook.

Sub-Saharan Africa

Ethiopia at Risk of Default as Nation Fails to Pay Interest on Bonds

11 December 2023, 11:38

In early 2021, Ethiopia made a request to renegotiate its debt under the Common Framework, which the G20 countries have established in response to the COVID-19 pandemic. Addis Ababa said in November that it would begin negotiations to restructure its $1 billion Eurobond, which is due next year, and that it had reached an agreement in principle with its bilateral creditors to temporarily suspend debt payments.

As of late November, Ethiopia reached an agreement with creditors to suspend debt service on $1.5 billion debt, the country's central bank governor said. This measure was aimed to ease Ethiopia's financial load as it seeks a wider funding scheme.