Ethiopia’s international bondholders are at loggerheads with the International Monetary Fund (IMF) over its reports that insinuated that the country is not exactly solvent to fully pay its debts. The report advised Ethiopia to seek out debt restructuring plans, which may include extended loan repayment dates or debt write downs (haircuts).
According to the Financial Times who saw a statement by the committee of bondholders, the investors are alleging that the IMF is exaggerating how much debt relief the country really needs. For them, the recorded surge in gold and coffee exports has helped the country regain its economic strength and it is buoyant enough to take up repayment of its debts.
Per the committee in the statement, the IMF’s report “artificially imply a solvency issue which requires Ethiopia to seek greater concessions from its stakeholders in order to meet the IMF’s lending criteria than, in our view, are actually required to achieve debt sustainability.”
Why is the committee of bondholders and IMF at loggerheads?
Following the Ethiopian civil war from 1974 to 1991 and subsequent years struggling with economic development, Ethiopia took up loans from foreign investors, governments and international institutions.
In 2023, the country defaulted in the repayment of its $1 billion bond. It then sought to restructure its loans with the foreign creditors, including receiving a $3.4 billion bailout from the IMF.
To be granted this bailout from the IMF, Ethiopia agreed to carry out extensive reforms in its monetary and fiscal policies, including moving to a market-determined exchange rate.
While the IMF is not significantly involved in the debit repayment process, its economic reports are believed to tell the true position of the Ethiopian economy and are supposed to be used as a persuading factor for creditors to be able to demand repayment.
The creditors’ position on Ethiopia’s economy
In 2024, Ethiopia devalued its currency, the Birr. As a result of this devaluation, importation became expensive, falling to $8.6 billion, because of the higher value of the dollar against the Birr.
However, the country saw a boost in exports which rose to more than $3 billion in the same year. Coffee exports rose to 60%, totalling more than $1 billion while gold exports rose to more than 700%, up to $1.3 billion.
The IMF report from January 2025 also noted that the country’s exports would be “slightly stronger” in the near term, although its medium-term prediction for exports of goods and services remains at about 9 to 10% of the GDP.
For these reasons, the creditors believe that the country’s economy is growing and will soon stabilise to pay its debts, including the $30 billion external debts owed to countries such as China. This was one of the reasons they gave for refusing an offer of an 18% reduction on the value of the bond.
To get back their money, the international creditors have stated that they may act on their legal rights, including undertaking legal proceedings in English courts to ensure that Ethiopia pays its debt.
The committee of bondholders hold more than 40% stake in the $1 billion bond, alongside other creditors.
What is the bigger picture?
Apart from being a civil matter between Ethiopia and its foreign creditors, this faceoff between the creditor-States such as China and the IMF will greatly impact the bilateral relations between Ethiopia and its creditor-States.
This situation presents a perfect opportunity for how States wedge their powers and negotiate even when international organisations have a say (directly or indirectly) in the matter.
Apart from Ethiopia, this faceoff will also affect how creditors deal with other States which has accepted the IMF bailouts, including Sri Lanka and Zambia.