Moody’s Predicts Losses for Ethiopia’s Private Creditors Amid Debt Restructuring
Moody’s Rating has completed its review of Ethiopia, indicating potential losses for private creditors due to ongoing debt restructuring under the G-20 Common Framework. The agency anticipates a prolonged restructuring process may result in larger losses, but an upgrade in ratings is possible with improved economic performance. Despite missed payments and rejections of debt proposals, Ethiopian officials remain hopeful in negotiation outcomes with creditors.
Moody’s Rating, a prominent global credit rating agency, recently concluded its periodic credit review of Ethiopia, signaling potential losses for private creditors due to the government’s active debt restructuring under the G-20 Common Framework (CF). The agency noted that the duration of the restructuring process might lead to more significant losses for private creditors than what is currently estimated in its rating for Ethiopia. It clarified that while there are no immediate rating changes anticipated, this assessment follows prior revisions conducted on March 11.
Ethiopia has been engaged in debt restructuring under the CF since February 2021. A creditor committee, co-chaired by China and France, was established six months later. A crucial condition for effective restructuring is an agreement with the International Monetary Fund (IMF). Despite the approval of an IMF program in July 2024 and advancements in economic reforms, a formal agreement with official sector creditors remains elusive. Notably, Ethiopia defaulted on a $1 billion Eurobond principal payment in December 2024. A bondholder committee, possessing approximately 40% of the bonds, rejected an 18% proposed principal reduction back in October, later disputing the IMF’s assessment on the economy’s state.
Moody’s recent statement highlights, “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 G-20 Common Framework.” The agency has indicated that while an upgrade of the foreign currency rating is improbable, it may be possible if lesser losses for creditors are anticipated. Enhanced foreign exchange reserves and governmental revenue generation post-debt restructuring could positively influence future ratings, whereas substantial losses could exert downward pressure.
In September 2023, Moody’s downgraded Ethiopia’s foreign currency rating to Caa3, citing a high probability of default on foreign currency debts. Conversely, Fitch raised Ethiopia’s Long-Term Local-Currency Issuer Default Rating to ‘CCC+’ from ‘CCC-‘, noting reduced financing pressures and enhanced macroeconomic conditions. Following the IMF agreements in July, Ethiopia has embraced a market-based exchange system, enhanced domestic revenue collection, and curtailed energy subsidies. While the IMF’s reviews have been largely favorable amidst some local critiques, the country’s officials, including Finance Minister Ahmed Shide, remain optimistic about concluding debt restructuring negotiations in the final stages with creditors.
In conclusion, Moody’s recent assessment underscores the challenges Ethiopia faces during its ongoing debt restructuring under the G-20 Common Framework. The agency anticipates notable losses for private creditors, while any upgrades in Ethiopia’s ratings depend on diminished anticipated losses and successful economic reforms. Despite setbacks, Ethiopian leadership expresses confidence in nearing resolutions in negotiations, highlighting a cautious yet proactive approach towards restoring financial stability.
Original Source: shega.co
