An International Monetary Fund loan for Ethiopia is “definitely back on the table,” according to S&P Global Ratings, a key step to restart the Horn of Africa nation’s delayed debt-restructuring plans.
(Bloomberg) — An International Monetary Fund loan for Ethiopia is “definitely back on the table,” according to S&P Global Ratings, a key step to restart the Horn of Africa nation’s delayed debt-restructuring plans.
Ethiopia requested debt relief under the Group of 20’s Common Framework more than two years ago, but the process was stalled by a civil war in the country and an expired IMF credit facility.
A peace deal signed between the government and dissidents from the northern Tigray region four months ago rekindled chances of a new agreement with the lender.
There are “discussions that are beginning to take place and we’re starting to see momentum pick up,” Giulia Filocca, sovereign ratings analyst at S&P, said in an interview.
“So we would hope relatively soon, but time-frame wise, we can’t give an exact date.”
An IMF program that would include a debt-sustainability analysis is required for the Common Framework.
The G-20 initiative brings together the Paris Club of traditional rich lender countries, private creditors and China to try to restructure the debts of low-income countries on a case-by-case basis.
It was envisaged in 2020 as an efficient way to deal with poor-nation debt, but has been cumbersome and increasingly caught up in the geopolitical tussle between the US and China.
Ethiopia is the largest of four African economies — Ghana, Zambia and Chad are the others — that have signed up to the process, with Chad the only country to have concluded it.
‘Positive Signal’
“A permanent peace process that was signed in November 2022 is definitely a positive signal insofar as it will help resume the process of Ethiopia negotiating” a new deal with the IMF, Filocca said.
A drought, the pandemic, domestic conflict and the global impact from Russia’s invasion of Ukraine have all hit Ethiopia’s economy.
Challenges include food insecurity, humanitarian needs, inflation of more than 30% and foreign-exchange shortages. Ethiopia is rated CCC by S&P, which means it’s “currently vulnerable” to non-payment of debt.
The IMF is engaging with Ethiopian authorities including on their request for a new program, the Washington-based lender said in a response to emailed questions.
“The fund has been providing policy advice on how best to respond to these shocks and stands ready to provide financial assistance, as conditions allow,” it said.
The African nation had about $26 billion of external liabilities as of September, most of that to China.
It has a $1-billion eurobond maturing in December 2024.
“One scenario that might be considered is that they do a restructuring, but they carve out the eurobond and continue paying the eurobond, because they don’t want a default,” said Ravi Bhatia, S&P director & lead analyst for Africa.
Ethiopia will need to resolve an impasse with the US over investigations into alleged human-rights abuses during the war in Tigray.
Ethiopia is pushing to end the mandate of the UN’s International Commission of Human Rights Experts on Ethiopia, a group that’s probing claims of violations.
The US has “not made any changes to its policy on assistance to Ethiopia,” a State Department spokesperson said by email.
“We continue to press for action in areas such as unhindered access for international human rights monitors.”
–With assistance from Matthew Hill.
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