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Investing.com -- Fitch Ratings has affirmed Ethiopia’s Long-Term Foreign-Currency Issuer Default Rating at ’Restricted Default’ as the country continues to work through its external debt restructuring process.
Ethiopia remains in default on its single Eurobond following a missed $33 million coupon payment in December 2023. The country is seeking to restructure approximately $15 billion in external debt under the Common Framework, which it applied for in 2021.
In July, Ethiopia reached a memorandum of understanding with the Official Creditor Committee that provides $2.5 billion in debt relief through fiscal year 2028. The agreement includes a 12.5% present value debt reduction, three-year duration extension, and 34% debt service reduction during the IMF program period.
Negotiations with private creditors are ongoing. Recent talks with an ad-hoc bondholder committee between September 25 and October 13 did not yield a final agreement. The committee’s last offer proposed a 15% haircut plus a value recovery instrument tied to export performance relative to IMF forecasts.
Ethiopia has made significant progress on economic reforms since July 2024. The country liberalized its exchange rate with over 60% official rate depreciation, reducing the parallel market premium to about 10%. Inflation is expected to decrease to an average of 12% in fiscal year 2026, down from 15.8% in FY25.
External liquidity has strengthened with more trade and financial flows moving through official channels. Gross official reserves increased to $4.6 billion by the end of FY25, covering about two months of external payments, up from $1.4 billion in FY24.
The current account deficit narrowed sharply to approximately $300 million (0.2% of GDP) in FY25 from $6 billion (2.8% of GDP) in FY24, primarily due to increased gold and coffee export receipts.
Fitch forecasts 7% real GDP growth in FY25 following 8.1% in FY24, supported by good harvests, recovery in construction and manufacturing, and growth in services including air transport and tourism.
The fiscal deficit is projected to widen to 1.7% of GDP in FY26 from an estimated 1.3% in FY25. General government debt is expected to peak at 40.4% of GDP in FY25 before gradually declining to 36.6% in FY27.
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