Ethiopia has taken an important step toward fixing its debt problems after reaching a draft agreement with a group of international bondholders. The agreement focuses on restructuring part of the country’s $1 billion international bond that matured in 2024.
The Ethiopian Ministry of Finance confirmed the development in a statement published on its official Facebook page on Friday. Officials said the agreement outlines the main financial terms needed to restructure the debt, though further discussions are still required before the deal is final.
A Key Step in Ethiopia’s Debt Restructuring Efforts
The agreement in principle is part of Ethiopia’s broader plan to manage its heavy debt burden. The East African country defaulted on its only international bond in late 2023, meaning it failed to make scheduled payments to investors.
Following the default, Ethiopia turned to the G20’s Common Framework initiative. This international program helps heavily indebted countries restructure their debt in a coordinated way. Under the framework, countries must offer similar treatment to all major creditors, including bilateral lenders, commercial banks, and bondholders.
The Ministry of Finance said the draft deal covers the core financial aspects of the restructuring. However, discussions are still ongoing over non-financial terms. These include the structure and conditions of the new debt instrument that will replace the defaulted bond.
Talks Still Needed on Final Terms
According to the ministry, Ethiopian authorities must still agree on several technical details with the bondholder group, known as the Ad Hoc Committee. This committee represents large institutional investors who together control more than 45% of Ethiopia’s 2024 bond.
The government said formal discussions with the bondholder group took place between December 23 and January 1. These talks helped both sides reach common ground on the main financial elements of the restructuring.
Officials added that Ethiopia hopes to complete the process as soon as possible, with plans to implement the restructuring in early 2026.
Coordination With IMF and Official Creditors
The Ethiopian government has shared the draft agreement with the International Monetary Fund (IMF) and the Official Creditor Committee (OCC). The OCC represents countries that have lent money to Ethiopia on a bilateral basis.
The finance ministry said it is waiting for feedback from both groups before moving forward. Approval from these institutions is critical because Ethiopia is currently working under an IMF-supported economic program.
“The terms of the agreement have been communicated to the Official Creditor Committee for their non-objection and to the IMF to ensure consistency with Ethiopia’s long-term debt sustainability,” the ministry said.
Debt sustainability means a country can meet its repayment obligations without harming economic growth or public services.
Slow Progress After Default
Ethiopia has been negotiating with its creditors for months, but progress has been slow. Debt restructuring is often a complex and lengthy process, especially when multiple creditor groups are involved.
In July, Ethiopia reached a separate restructuring agreement with its bilateral creditors. The finance ministry said that deal is expected to provide more than $3.5 billion in cashflow relief. That agreement helped ease pressure on government finances and opened the door for talks with private bondholders.
The latest draft deal with bondholders builds on that earlier progress and signals growing cooperation between Ethiopia and its creditors.
IMF Welcomes the Agreement
The International Monetary Fund responded positively to the announcement. An IMF spokesperson said the agreement represents an important milestone in Ethiopia’s economic recovery.
“This marks an important step toward restoring debt sustainability,” the spokesperson said in an emailed statement.
The IMF added that it will review the agreement in the coming days to ensure it aligns with the goals of Ethiopia’s IMF-supported reform program.
What This Means for Ethiopia
If completed, the restructuring deal could reduce Ethiopia’s debt burden and improve investor confidence. Lower debt pressure would give the government more room to support economic growth, social services, and development projects.
However, challenges remain. Finalising the non-financial terms, securing approvals, and implementing the deal will take time. Analysts say continued cooperation with creditors and international institutions will be essential.
For now, the draft agreement offers a positive signal that Ethiopia is moving closer to resolving one of its most serious economic challenges.