Ethiopia

What it is

Ethiopia is home to roughly 130 million people, the second-largest population in Africa after Nigeria, with its capital and the African Union headquarters in Addis Ababa. Ethiopia's government under Prime Minister Abiy Ahmed is navigating the continent's most closely watched sovereign debt restructuring: external debt stood at US$28.9 billion in 2024, and total public debt at roughly 59% of GDP. Ethiopia applied to the G20 Common Framework, a multilateral mechanism that coordinates debt relief from official bilateral creditors, in February 2021. China is the single largest bilateral creditor, holding roughly a quarter of Ethiopia's external obligations.

History

Ethiopia borrowed heavily through the 2000s and 2010s to fund large infrastructure projects: roads, the Grand Ethiopian Renaissance Dam on the Blue Nile, industrial parks, and a Djibouti railway. The Export-Import Bank of China became the dominant lender for these projects. The 2020-2022 Tigray war, which killed hundreds of thousands and devastated northern Ethiopia, accelerated fiscal deterioration and widened the deficit. In February 2021, Ethiopia formally applied for Common Framework debt treatment. Ethiopia's creditor committee, co-chaired by China and France, was constituted in September 2021, but talks dragged for more than two years with little progress. In December 2023, Ethiopia missed a US$33 million coupon payment on its sole US$1 billion Eurobond, triggering a formal sovereign default.

Current state

In July 2024, the IMF approved a four-year Extended Credit Facility of SDR 2.556 billion (approximately US$3.4 billion), designed as the restructuring's anchor. In March 2025, Ethiopia signed a Memorandum of Understanding with the Official Creditor Committee covering US$8.4 billion in bilateral debt and providing more than US$3.5 billion in debt-service relief through 2028. The most contested piece, private-creditor negotiations, reached an Agreement in Principle on June 29, 2026: bondholders in an Ad Hoc Committee controlling over 45% of the outstanding US$1 billion note agreed to exchange their claims for a new US$880 million bond at 6.15% interest, maturing July 15, 2029. Three missed coupons totaling US$99.4 million will be repaid in full at settlement. A detachable warrant gives those holders rights to subscribe to a future US$1 billion Ethiopian Eurobond from July 2028. The IMF completed its fifth program review in July 2026, releasing roughly US$464 million.

Relationships

China's posture as co-chair of the Official Creditor Committee largely sets the pace of parallel creditor negotiations. The "comparability of treatment" principle requires private creditors to accept terms no better than bilateral ones, binding the two tracks together. IMF disbursements are contingent on restructuring milestones and macroeconomic targets, including the managed float of the Ethiopian birr introduced in 2024. Debt sustainability is bound up with political and security conditions: the Prosperity Party's 2026 election landslide consolidated Abiy Ahmed's hold, but the Amhara and Tigray conflicts continue to constrain revenue collection and raise security spending. Hydropower revenue from the GERD's fourth filling is Ethiopia's most significant projected hard-currency earner and features in IMF debt-sustainability models.

What to watch

Whether the Ad Hoc Committee's June 2026 agreement converts to a binding exchange offer, and whether bondholders not yet party to it join, is the immediate test. The IMF program's fiscal benchmarks face pressure from inflation and from security spending tied to rising Ethiopia-Eritrea tensions and unresolved internal conflicts. Ethiopia must make amortisation payments on the new Eurobond of US$180 million in 2026, US$100 million in 2027, US$300 million in 2028, and US$300 million in 2029, while simultaneously servicing multilateral creditors. The G7's diplomatic engagement on the GERD adds a geopolitical layer: a Nile agreement that unlocks hydropower exports would substantially improve Ethiopia's hard-currency position and, with it, creditor confidence.