Ethiopia is about to become Africa’s next debt defaulter, after Zambia, Ghana

Ethiopia is set to join Zambia and Ghana as a sovereign defaulter, with an interest payment falling due to its bondholders on Monday that the state says it won’t meet.

The government last week held what it referred to as restricted discussions with some of the holders of its $1 billion of eurobonds, the Finance Ministry said in a statement late on Friday.

It advised the group of bondholders that it’s “not in a position to pay the $33 million coupon” because of the nation’s “fragile external position, with significantly lower foreign-exchange reserves,” which inevitably impacts the Ministry of Finance’s ability to service imminent external borrowings, according to the statement.

The government has a 14-day grace period before it is deemed to be in default, according to the bond’s prospectus.

Ethiopia is seeking to renegotiate its obligations through the Group of 20’s Common Framework, which has started to gain momentum after progress in restructuring by Zambia and Ghana.

The clock is ticking for Ethiopia to reach an emergency funding and economic program with the International Monetary Fund that will lay out the parameters for the government to restructure its debt.

Official creditors from the Paris Club set a deadline of March 31 for a deal with the fund, or they could declare a debt-service suspension agreed last month null and void.

A restructuring seemed likely with Ethiopia’s dollar bonds closing at 61.89 cents on the dollar on Friday. Fitch Ratings said last month it expected the government to pay the coupon that’s due Monday.

An Ethiopia Ad Hoc Bondholder committee said in a separate statement that it views the decision by the government not to make the payment as “both unnecessary and unfortunate.”

The Ethiopian government plans to hold a call with global investors this week in which it plans to “set out a proposal it may launch related to the eurobond,” according to the ministry’s statement.

The ministry said that a proposal made by Ethiopia’s government to bondholders in the restricted discussions included the following terms: A four-year amortization period from July 2028 to January 2032.

A coupon rate of 5.5 percent, of which 2.5 percent would be capitalized during the anticipated four-year IMF program period Bondholder committee “continues to remain open for constructive and proactive engagement with the Ethiopian authorities.”