Ethiopia has renewed efforts to resolve its sovereign debt crisis, offering bondholders a 15% haircut on the $1 billion eurobond it defaulted on in 2023.
The proposal marks a restart of negotiations that broke down last October and signals tentative progress in the country’s drawn-out debt restructuring process.
The move was welcomed by markets, as Ethiopia’s sole eurobond rose nearly 3 cents, climbing 2.8 cents to 110.2 by late morning in London. This is its strongest single-day gain since October, according to Bloomberg.
The rally reflects cautious optimism that talks are back on track after the East African nation announced that it has reached an agreement in-principle with its foreign creditors last week.
Revised bond terms
Under the proposal, Ethiopia plans to replace the defaulted bond with a new $850 million note, after applying the 15% discount to the original principal. According to a January 2 statement from White & Case LLP, which represents the government, the new bond would mature in 2029 and carry a 6.125% coupon.
The structure includes front-loaded repayments, with $350 million due by July this year and another similar payment scheduled two years later. The repayment profile, combined with the relatively high coupon, appears to have supported the bond’s price jump, despite the reduction in principal.
Negotiations back on track
Talks between Ethiopia and bondholders collapsed last October after disagreements over key restructuring terms, leaving the country in default and limiting access to external financing.
The latest proposal suggests a renewed willingness to compromise, although the deal still requires clearance from the International Monetary Fund and the Official Creditor Committee to ensure consistency with Ethiopia’s IMF programme and agreements reached with bilateral lenders.
“A deal with bondholders would be a positive signal, particularly if it is perceived as transparent, timely, and consistent with IMF parameters,” said Smail Ait-Mahrez, a Dubai-based capital markets professional, adding that investors are unlikely to draw firm conclusions until the process is completed.
Experts say a successful deal would mark a significant milestone for Addis Ababa.
“A bondholder agreement would be a positive signal, particularly if it is perceived as transparent, timely, and consistent with IMF parameters,” said Smail Ait-Mahrez, a Dubai-based capital markets professional. He cautioned, however, that investors are unlikely to extrapolate too aggressively until the restructuring is fully concluded.
Value recovery and export upside
The proposed terms also include a value recovery instrument running until 2037, which could allow investors to recoup up to $180 million if Ethiopia’s export performance exceeds expectations.
Such instruments have gained traction in emerging-market restructurings, most notably in Suriname, which exited default in 2023 using an oil-linked recovery mechanism.
Ethiopia’s exports, dominated by coffee and gold, strengthened sharply in 2025, bolstered by rising global commodity prices. Central bank data shows the country earned $3.45 billion from gold exports and $2.65 billion from coffee shipments in the fiscal year ending July 2025.
Why it matters
Resolving Ethiopia’s eurobond default would be a critical step toward restoring foreign investor confidence after more than two years in default. A successful restructuring could reopen access to external financing and help re-anchor expectations around the country’s debt sustainability.
Improved investor sentiment would also support foreign-exchange inflows at a time when Ethiopia continues to grapple with acute dollar shortages that fuel inflation and weaken the birr.
More reliable FX availability would ease pressure on banks and businesses, improving the flow of imports and trade financing.
The debt talks come as Ethiopia presses ahead with sweeping reforms across banking, foreign exchange, and monetary policy aimed at attracting foreign capital and liberalising the economy.
Progress on debt restructuring would reinforce the credibility of those reforms and strengthen the case for Ethiopia’s re-entry into global capital markets.
