By Ukumbi Afrika Ethiopia has reached a preliminary agreement with international bondholders to restructure its defaulted US$1 billion Eurobond, marking a significant milestone in the country’s debt recovery efforts and providing a critical test of the G20 Common Framework for sovereign debt restructuring.
Ethiopia has taken an important step towards restoring its financial stability after reaching a preliminary agreement with key international bondholders to restructure its defaulted US$1 billion sovereign bond, bringing the country closer to concluding a prolonged debt restructuring process.
The agreement, announced by Ethiopia’s Ministry of Finance, forms part of the country’s broader efforts to address debt challenges that have persisted since it sought relief under the G20 Common Framework in 2021.
Under the proposed terms, Ethiopia will issue a new US$880 million bond, carrying an annual interest rate of 6.15%, with repayments scheduled in instalments through 2029. The government will also settle approximately US$99.4 million in outstanding coupon payments, together with a consent fee for participating bondholders.
A notable feature of the agreement is the inclusion of a “New Money Warrant,” which gives investors the option to participate in a future Ethiopian bond issuance of up to US$1 billion at market-based interest rates. Alternatively, the government may choose to settle the warrant in cash, subject to a maximum payment of US$90 million.
According to Ethiopian authorities, the structure of the agreement has received support from the International Monetary Fund (IMF), which confirmed that the proposal is consistent with the country’s debt sustainability objectives under its ongoing economic reform programme.
The government also stated that the co-chairs of its Official Creditor Committee—China and France—have raised no objections to the agreement, although final approval from the broader creditor group remains outstanding.
Financial markets responded positively to the announcement, with Ethiopia’s international bond rising more than 3 cents to approximately 108.75 cents on the dollar, reflecting increased investor confidence that a comprehensive settlement may soon be achieved.
A Key Test for the G20 Common Framework
Ethiopia’s restructuring has become one of the most closely watched cases under the G20 Common Framework, the international mechanism established during the COVID-19 pandemic to improve the coordination of sovereign debt restructurings.
The country’s negotiations have highlighted the challenges of balancing the interests of official bilateral lenders, multilateral institutions and private investors. Discussions have been prolonged by disagreements over the principle of comparability of treatment, under which all creditor groups are expected to make broadly equivalent concessions.
Although previous restructuring proposals failed to secure consensus, the latest agreement represents a significant breakthrough after months of negotiations between Ethiopia, official creditors and commercial bondholders.
The Ad Hoc Bondholder Committee, representing approximately 45% of the outstanding bond, welcomed the agreement while also expressing concerns about aspects of the Common Framework process, including negotiation timelines and debt sustainability assessments. Ethiopia has likewise called for earlier engagement between official creditors, private investors and the IMF in future restructuring exercises.
The government intends to implement the agreement through a formal bond exchange once the remaining technical terms have been finalised and full approval has been obtained from the Official Creditor Committee.
Why It Matters
Ethiopia’s restructuring is likely to influence future sovereign debt negotiations across Africa and other emerging markets. As one of the largest economies to seek relief under the G20 Common Framework, the outcome will shape investor confidence, future access to international capital markets and the effectiveness of global debt restructuring mechanisms. For African governments facing rising debt servicing costs, the agreement may provide valuable lessons on balancing fiscal sustainability with continued access to development finance.
Source: Reuters
Reporting: Alexander Winning and Colleen Goko; additional reporting by Rodrigo Campos.
Editing: Karin Strohecker, Jacqueline Wong, Susan Fenton and Daniel Wallis.