Ethiopia’s efforts to restructure its sovereign debt have stalled after negotiations with international bondholders broke down, raising the risk of legal disputes and prolonging the country’s financial uncertainty, Reuters reported.
The government confirmed that talks with holders of its $1 billion Eurobond had ended without a deal, citing disagreements over key restructuring terms. Ethiopia, which defaulted on the bond in late 2023 after seeking relief under the G20’s Common Framework, said “substantial progress” had been made and expressed hope that discussions could resume “in the foreseeable future,” according to a government statement quoted by Reuters.
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Bondholders Citing Transparency Concerns
A creditor committee—including Morgan Stanley Investment Management, Franklin Templeton, VR Capital, and Farallon—had agreed to a proposed 15% haircut and a Value Recovery Instrument (VRI) tied to future export performance. However, the talks collapsed over the Common Framework’s comparability of treatment requirement.
Bondholders said they were not shown the full terms offered to official bilateral lenders such as China, which holds nearly a quarter of Ethiopia’s $31 billion debt, Reuters reported.
In a statement shared with Reuters, the committee said negotiations had reached “an impasse” and that it would now consider “all options, including legal action.”
Following the news, Ethiopia’s Eurobond dropped by over 1 cent to around 95 cents on the dollar.
Common Framework Under Scrutiny
The breakdown further highlights shortcomings of the G20’s Common Framework, intended to harmonize restructuring between private and official creditors. Progress in Ethiopia—as well as in Zambia and Ghana, two other major cases—has been criticized for being slow and opaque.
“The Common Framework lacks the teeth to make private creditors take part in debt cancellation,” Tim Jones of Debt Justice UK told Reuters.
IMF Projections Disputed
According to Reuters, bondholders have also challenged the IMF’s economic forecasts, arguing they fail to reflect Ethiopia’s stronger export performance.
The government reported record exports of $8.3 billion in FY 2024/25—well above the IMF’s projection of $6.37 billion—driven by higher gold and coffee prices.
“The debt rescheduling process will be dragged out. The Ethiopian government should consider treating the bondholders on different terms,” Abdulmenan Mohammed, a UK-based Ethiopian economist, told Reuters.
The IMF welcomed the progress and urged both sides to stay engaged. However, with the restricted talks period now over and bondholders signalling possible litigation, Ethiopia faces renewed uncertainty.
Whether the government submits a revised offer—or prepares for a legal showdown—will determine how quickly the country can exit its debt crisis.
Source: Reuters (Reporting by Duncan Miriri, George Obulutsa and Marc Jones)
