NAIROBI (Reuters) – Ethiopia plans to seek a restructuring of its sovereign debt under a new G20 common framework and is looking at all the available options, the country’s finance ministry told Reuters on Friday.
Ethiopia’s government bonds saw their biggest ever daily fall on the news and analysts said restructuring concerns could spill over to hit other borrowers.
G20 nations agreed in November for the first time to a common approach for restructuring government debts to help ease the strain on some developing countries driven towards the risk of default by the costs of the coronavirus pandemic.
Chad became on Wednesday the first country to officially request a debt restructuring under the new framework and a French finance ministry told Reuters on Thursday that Zambia and Ethiopia were most likely to follow suit.
Asked if Ethiopia was looking to seek a debt restructuring under the G20 framework, Finance Ministry spokeswoman Semereta Sewasew said: “Yes, Ethiopia will look at all available debt treatment options under the G20 communique issued in November.”
Ethiopia’s government bond due for repayment in 2024, which it issued in late 2014, plunged 8.4 cents on the dollar from roughly par to just under 92 cents.
Ethiopia is already benefiting from a suspension of interest payments to its official sector creditors until the end of June under an initiative between the G20 and the Paris Club of creditor nations.
Under the new G20 framework, debtor countries are expected to seek an IMF programme to get their economies back onto a firmer footing and negotiate a debt reduction from both public and private creditors.
Ethiopia has a $1 billion dollar bond outstanding, though only $66 million worth of interest payments on the issue are coming due this year.
The news that Ethiopia would seek debt relief left investors wondering whether they would be left to take a hit in the event of a restructuring.
“Given the G20 common framework has not been put to the test yet, we hope the G20 will come out with some sort of explanation as this uncertainty can hit the countries’ rating and spill over into other sub-Saharan African credits,” said Simon Quijano-Evans, chief economist at Gemcorp Capital LLP.
ING emerging market sovereign debt strategist Trieu Pham said the fact that Ethiopia has Eurobonds outstanding was a cause for concern as it could have broader implications.
“Should Ethiopia go this way then that could weigh on overall sentiment as people will wonder if there might be others (following),” he said.