Ethiopia’s debt restructuring & dematerialised securities

Ethiopia is at a crossroads, facing significant challenges in its debt restructuring process and recent Moody's downgrade. However, amidst these hurdles, the country is embarking on a transformative journey towards dematerialised securities in its capital markets. This shift aims to revolutionise market liquidity and accessibility, raising important questions about its implications for investor confidence, capital inflows, and the broader economic landscape. Mered Fikireyohannes, Founder & CEO of Pragma Investment Advisory, sheds light on these crucial developments. The debt restructuring process in Ethiopia is a pivotal factor in shaping the country's economic recovery. With the Ministry of Finance set to announce the final negotiation and memorandum of understanding with creditors, including private and multinational entities, the outcome will determine the extent of losses faced by private creditors. Despite initial dissatisfaction among private creditors following the IMF report, there is optimism surrounding the successful conclusion of the debt restructuring, aligning with Ethiopia's four-year economic reform package. On the macroeconomic front, Ethiopia is witnessing signs of progress, particularly in foreign exchange reserves and government revenue generation. The government's ambitious target of mobilising 1.5 trillion in revenue this fiscal year shows promising results, with significant revenue already collected. Foreign exchange reserves have increased over the past six months, stabilising the local currency and demonstrating export growth in key sectors such as coffee and gold. The positive trajectory in exports and remittances bodes well for Ethiopia's economic stability and resilience. In parallel, the Ethiopian Capital Market Authority's transition to dematerialised securities marks a critical milestone in revitalising the country's capital markets. The directive mandates public companies with over 50 shareholders and a capital raise exceeding $800,000 to register and dematerialise their securities. This move is poised to enhance market liquidity and accessibility for both local and international investors, facilitating ease of trading and potentially attracting foreign capital. The collaboration with the central bank to house the central security depository signifies a concerted effort to ensure the integrity of the dematerialised securities market. While the transition to dematerialised securities holds promise for Ethiopia's capital market modernisation, challenges remain in terms of raising awareness among stakeholders. Greater education and outreach efforts are vital to familiarise the public and businesses with the new regulations and opportunities in the evolving capital market landscape. As Ethiopia navigates its debt restructuring and embraces dematerialised securities, the country stands on the cusp of a new era in economic revival and market dynamism.