Ethiopia has renewed efforts to tackle its sovereign debt crisis by offering bondholders a 15% reduction on a $1 billion Eurobond that it defaulted on in 2023. This move revives stalled negotiations from last October and marks cautious progress in the country’s ongoing debt restructuring process.
The announcement was met with positive market reaction, as Ethiopia’s sole Eurobond climbed nearly 3 cents, reaching 110.2 by late morning trading in London—its strongest single-day gain since October, according to Bloomberg.
Under the proposal, Ethiopia plans to replace the defaulted bond with a new $850 million note—reflecting the 15% discount on the original principal. The new bond would mature in 2029 and carry a 6.125% coupon, featuring front-loaded repayments, including $350 million due by July this year and another similar payment scheduled two years later. This repayment schedule and attractive coupon appear to have helped boost investor confidence despite the principal reduction.
Negotiations between Ethiopia and bondholders collapsed last October due to disagreements on restructuring terms, leaving the country in default and cutting off access to external financing. The current offer signals renewed willingness to reach a compromise, although the deal still requires approval from the International Monetary Fund (IMF) and the Official Creditor Committee to align with Ethiopia’s IMF program and bilateral agreements.
Smail Ait-Mahrez, a capital markets expert based in Dubai, noted that a bondholder agreement “would be a positive signal, particularly if it is transparent, timely, and consistent with IMF parameters.” He added, however, that investors are likely to reserve full judgment until the restructuring process is complete.
The proposal also includes a value recovery instrument extending until 2037, potentially allowing investors to recover up to $180 million if Ethiopia’s export revenues exceed expectations. Instruments like this have become more common in emerging-market restructurings, notably in Suriname’s recent exit from default through an oil-linked recovery mechanism.
Ethiopia’s exports, particularly coffee and gold, saw strong growth in 2025, supported by rising global commodity prices. Central bank data shows gold exports earned $3.45 billion and coffee shipments brought in $2.65 billion in the fiscal year ending July 2025.
Resolving the Eurobond default would be a crucial step toward restoring foreign investor confidence after more than two years of default. A successful restructuring could reopen access to external capital and help stabilize expectations around Ethiopia’s debt sustainability.
Improved investor sentiment would also ease Ethiopia’s ongoing foreign exchange shortages, which have driven inflation and weakened the local currency, the birr. Better availability of foreign currency would reduce pressure on banks and businesses, supporting imports and trade financing.
These debt talks coincide with Ethiopia’s ambitious reforms in banking, foreign exchange, and monetary policy aimed at attracting foreign investment and liberalizing the economy. Progress on restructuring would bolster the credibility of these reforms and strengthen Ethiopia’s prospects for re-entering global capital markets.
Reporting by Noko David.
