By Duncan Miriri and George Obulutsa
NAIROBI (Reuters) -Ethiopia said on Tuesday that debt restructuring negotiations with its bondholders had failed due to differences over key terms that have kept the country in financial limbo for almost two years.
The East African nation defaulted on its sole international bond in late 2023 after opting for a restructuring under the G20’s flagship Common Framework initiative.
Despite failing to reach a deal, “substantial progress” had been made, the government said in a statement, adding it hoped talks would resume “in the foreseeable future”.
IMF URGES BOTH SIDES TO KEEP TALKING
Progress included bondholders agreeing to a 15% writedown, known as a haircut, on their loans and a so-called “Value Recovery Instrument” that would allow them to recoup lost money if Ethiopia’s export sector performs well in coming years.
The bondholder committee, which includes Morgan Stanley Investment Management, Franklin Templeton and hedge funds VR Capital and Farallon according to reports, said it was disappointed by the failure of the talks.
It said one of the snags had been trying to meet the Common Framework’s “comparability of treatment” requirement given it had not seen the terms offered to “official sector” lenders – the biggest of which is China, accounting for nearly a quarter of Ethiopia’s $31 billion of overall debt.
“While it remains open to considering revised proposals from Ethiopia, the Committee has determined that, at this stage, negotiations have reached an impasse,” the committee said, adding it would now consider all options, including legal action.
The $1 billion bond at the centre of the negotiations fell over 1 cent, although it remains close to its highest level since early 2021 at 95 cents on the dollar.
The International Monetary Fund, which provides the crucial calculations on Ethiopia’s debt levels, said it welcomed the progress and encouraged the two sides to keep talking.
STUCK IN LIMBO
Analysts said the deadlock further underscored the limits of the Common Framework process.
Launched in 2020, it was designed to bring different lenders to poorer countries under one roof – particularly China, whose lending surged in the decade before the pandemic.
It was regarded as a breakthrough, but the length of the process for Ethiopia and the other main test cases, Zambia and Ghana, has led to complaints of delays and complexity from governments and creditors alike.
“The Common Framework lacks the teeth to make private creditors take part in debt cancellation,” said Tim Jones, policy director at London-based Debt Justice, a campaign group.
Ethiopia’s case has also been marred by disputes about the IMF’s forecasts, which the bondholders say do not take into account the recent surge in gold and coffee prices, two of the country’s main exports.
Export earnings hit a record $8.3 billion in the 2024/25 fiscal year, the Ethiopian government has said, well above the IMF’s projection of $6.37 billion.
“The debt rescheduling process will be dragged out. The Ethiopian government should consider treating the bondholders on different terms,” said Abdulmenan Mohammed, an Ethiopian economic analyst based in Britain.
(Reporting by George Obulutsa and Duncan Miriri in Nairobi and Dawit Endeshaw in Addis Ababa. Editing by Marc Jones, Ros Russell and Markm Potter)
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