Moody’s Ratings, concluded its periodic review of Ethiopia’s creditworthiness on Friday, signaling that private creditors are likely to face significant losses as the country navigates its debt restructuring under the G20 Common Framework (CF).
While the review does not involve an immediate rating change, it underpins the challenges Ethiopia faces in its prolonged debt overhaul, with the agency suggesting that losses could exceed those already reflected in its current Caa3 foreign currency rating.
Ethiopia embarked on its debt restructuring journey in February 2021 under the CF, a G20 initiative designed to assist heavily indebted nations.
A creditor committee of 12 countries, co-chaired by China and France, was formed six months later to facilitate negotiations. A key milestone came in July 2024, when Ethiopia secured an economic program with the International Monetary Fund (IMF), a prerequisite for advancing the restructuring process.
However, despite progress on economic reforms, a comprehensive agreement with official creditors remains out of reach, even after advanced talks. The situation worsened in December 2024 when Ethiopia missed a $1 billion Eurobond principal payment, heightening uncertainty.
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Private creditors, particularly bondholders, have also resisted Ethiopia’s proposals. In October, an ad hoc committee representing about 40% of Ethiopia’s bondholders rejected the government’s suggested 18% haircut on the principal, arguing that the IMF’s economic assessment overstated the country’s solvency issues.
“The Government of Ethiopia’s ratings, including its Caa3 foreign currency and Caa2 local currency issuer ratings, reflect our expectation of losses to private-sector creditors as a result of the government’s ongoing debt restructuring under the G20 Common Framework,” said Moody’s.
An upgrade to Ethiopia’s foreign currency rating is unlikely, according to Moody’s, unless private creditor losses prove smaller than anticipated—a scenario it deems improbable.
Positive developments, such as rebuilding foreign exchange reserves or boosting government revenue post-restructuring, could lift both foreign and local currency ratings over time.
On the flip side, greater-than-expected losses or a sharp decline in domestic liquidity would push ratings lower.
Ethiopia’s foreign currency rating was downgraded to Caa3 in September 2023 due to a heightened default risk on private-sector debt, a move echoed by other agencies, though Fitch recently upgraded Ethiopia’s Long-Term Local-Currency Issuer Default Rating to CCC+ from CCC-, citing improved macroeconomic stability and confidence that local-currency debt would be spared from restructuring.
Since securing the IMF program in July 2024, Ethiopia has implemented significant reforms, including adopting a market-based exchange rate, increasing domestic revenue targets, and scaling back energy subsidies.
While IMF reviews have been largely positive, local critics argue that the reforms fail to adequately support the nation’s most vulnerable populations.
Still, Ethiopian officials remain hopeful. In February, Finance Minister Ahmed Shide announced that negotiations with creditors had entered their “final stages,” expressing optimism about the IMF’s four-year extended credit facility and the broader restructuring process.
