Ethiopia’s agreement with its bilateral creditors, other than China, to suspend debt payments until 2025 could be voided if the country does not secure an International Monetary Fund (IMF) loan by March 31, 2024, the Paris Club of developed creditor nations said.
The debt service standstill for 2023 and 2024, which the central bank governor says will save the country $1.5 billion, applies to loans agreed before Nov. 10. It will see suspended payments repaid from 2027 to 2029 after a grace period from 2025 to 2026, the Paris Club said in a statement, noting that the deal was reached on Nov. 23.
Ethiopia’s economy is under pressure from double-digit inflation and foreign currency shortages, 13 months after the federal government and forces from the northern Tigray region signed a truce to end a two-year civil war.
The government requested a debt rework in early 2021 under the G20’s Common Framework restructuring process, but progress was initially delayed by the conflict.
“This debt standstill… will provide time-limited liquidity relief ahead of discussions on a wider debt treatment,” said the Paris Club, which is staffed by French Treasury officials and acts as a secretariat for bilateral creditors.
“Those discussions will gain momentum as soon as the Ethiopian authorities and the IMF have agreed the parameters for an IMF programme.”
If Ethiopia does not get an IMF staff-level agreement by March 31, the official creditor committee “reserves the right to declare the suspension null and void”, the Paris Club said.
The government announced the agreement last month, alongside stating its intention to restructure its single $1 billion international bond, maturing in December 2024 .
In August, it said China was suspending payments for debt maturing in the fiscal year to July 7.
Investors in the 2024 bond, a group of whom had offered a maturity extension earlier this year, are watching to see if a Dec. 11 coupon payment, that research firm Tellimer puts at $33 million, will be made.
The Paris Club saying that the debt standstill will be taken into account in the overall restructuring “could imply that the (official creditor committee) OCC could expect private creditors to deliver relatively greater (net present value) NPV relief to make up for their lack of participation,” said Patrick Curran of Tellimer in a note.
That “could be a point of contention”, he said, noting that Zambia’s official creditors had rejected a deal that country reached with bondholders as they disagreed it complied with “Comparability of Treatment”.
The Paris Club said 10 of its members were on Ethiopia’s official creditor committee, which is co-chaired by France and non-Paris Club member China. Other non-Paris Club committee members are India, Kuwait, Poland, Saudi Arabia and Turkey.
The IMF did not immediately respond to a request for comment, but a spokesperson in November said the deal provided “welcome relief to acute balance of payments pressures in the near-term.”
“Discussions with the authorities on IMF support for their economic reform programme are ongoing,” they added.