Ethiopia seeks to restructure $1bn Eurobond ahead of maturity in 2024

Ethiopia, a country in East Africa, has recently made significant strides in addressing its economic challenges, particularly concerning its debt obligations. The nation has secured an agreement in principle with its bilateral creditors to temporarily suspend debt payments and has expressed interest in restructuring its one billion Eurobond that is set to mature next year. To provide insights into these developments, Mulalo Madula, an economist at the Standard Bank Group, joined CNBC Africa for an exclusive interview. Madula highlighted Ethiopia's past decade of economic growth driven by large public investments in infrastructure but also pointed out the shortcomings of this model. The focus on public investment did not adequately boost exports, create high-quality jobs, or stimulate private sector growth, leading to macroeconomic imbalances such as high inflation, foreign exchange shortages, and the risk of debt distress. The country has been struggling to maintain its foreign exchange reserves, with reserves falling to less than a month's worth of import coverage. To address these challenges, Ethiopia has engaged in debt restructuring efforts under the G20 Common Framework, securing debt suspension agreements with bilateral lenders, including China. While these measures are positive steps, Madula emphasized that they may not be sufficient to restore macroeconomic balance. Notably, Ethiopia faces a significant debt repayment milestone in 2024, with a one billion Eurobond maturing in December, accounting for 29 percent of the total debt service that year. Discussions are underway with Eurobond holders to restructure this debt, while multilateral debts are expected to make up 20 percent of the total debt service in 2024 without restructuring. Madula underscored the importance of securing an IMF-funded program to facilitate additional funding from development partners. He also highlighted the need for Ethiopia to enhance its regulatory and legislative frameworks to address inflationary pressures and support economic reforms. Madula pointed out that these developments could signal a positive shift for investors, enhancing financial deepening and improving foreign exchange liquidity. Drawing parallels to Tanzania's experience in the 1990s, where liberalizing the financial sector led to enhanced FX liquidity despite facing reform obstacles, Madula expressed optimism about the potential benefits of Ethiopia's regulatory reforms. While time constraints limited the depth of the discussion, the interview highlighted the critical nature of Ethiopia's economic challenges and the importance of proactive measures to achieve financial stability.