Ethiopia Seeks IMF Deal as Talks Begin to Revamp Older Debt

(Bloomberg) --

Ethiopia asked the International Monetary Fund for a new deal, days after France and China co-chaired the first meeting of the nation’s major creditors panel to rework the nation’s previous debt.

Setting up a creditors’ panel and an agreement on how to deal with Ethiopia’s nearly $30 billion of external debt paves the way for the IMF to determine how to engage with the country on economic recovery. The lender’s executive board has yet to approve disbursements from the Extended Credit Facility and Extended Fund Facility, the former of which has expired -- despite reaching staff-level agreements. 

The government requested a new IMF credit arrangement, potentially with a similar amount, to replace the one that just lapsed, State Minister for Finance Eyob Tekalign told reporters on Wednesday in the capital, Addis Ababa. A new ECF will grant Ethiopia access to concessional resources under a poverty reduction and growth program, he said.

The IMF board in December 2019 approved an equivalent of $2.9 billion for Ethiopia’s two credit arrangements. On Thursday, the Washington-based lender said it was “too soon” to engage with Ethiopia over any possible new program.

The formation of an Ethiopian creditors panel marks a breakthrough in a global push to restructure the debt of poor countries hit hard by the coronavirus pandemic under the Group of 20’s common framework. It could also set a roadmap for the role of private creditors on the same. 

The panel may propose that commercial lenders push their payment-due dates by one or two years, Eyob said later in an interview.

“The creditors committee will reach an agreement on some parameters on how to deal with comparable debt treatment,” Eyob said. The “sense we got is that there was no strong opinion on this, so we’re hopeful in getting the required amount of debt being restructured without market disruption.”

Ethiopia’s announcement on Jan. 29 that it plans to restructure its debt triggered a selloff of its $1 billion of Eurobonds. The yield on the 2024 debt has since risen, and traded at a record high of 11.75% by 11:07 a.m. in London.

Ethiopia’s economic pain, following the hit from the pandemic, was exacerbated by a civil war in its northern Tigray region, which has depleted government finances. Ethiopia, along with at least two other African nations, Chad and Zambia, have approached creditors for debt relief under the G-20 program that aims to rework the debt for countries at risk of defaulting amid the fallout from the virus.

China’s inclusion as the co-chair of the creditor committee is key, according to Mark Bohlund, a senior credit analyst at REDD Intelligence. It “strengthens the likelihood that re-profiling of debt service to bilateral creditors will need to be reciprocated by commercial creditors, for instance through a consent solicitation with eurobond holders to delay coupon payments,” Bohlund said.

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