Ethiopia's Economy
Debt Default and Restructuring
How Ethiopia's heavy borrowing for infrastructure, much of it from China, led to a default on a Eurobond payment in December 2023 and a debt restructuring.
Ethiopia borrowed heavily to fund infrastructure.
Lenders
- China was a major lender for railways and power.
- A Eurobond was sold to private investors in 2014.
Problems
- Foreign exchange earnings didn’t keep pace with debt payments.
- War and COVID worsened finances.
Default
In December 2023, Ethiopia missed a $33 million Eurobond coupon payment, becoming Africa’s third sovereign default since COVID.
Restructuring
Ethiopia sought relief under the G20 Common Framework, and agreed an IMF programme in 2024.
Lesson
Borrowing for investment works only if projects generate foreign currency to repay debt.
The missed coupon
Bondholders expecting a December 2023 payment received nothing, as Ethiopia sought to restructure.
Thinking infrastructure always pays for itself
It must earn enough to repay loans.
Key takeaways
- Ethiopia borrowed heavily from China and markets.
- It defaulted on a Eurobond coupon in December 2023.
- It sought relief under the Common Framework.
- Projects must earn foreign currency.
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