Ethiopia Becomes Third African State to Default in Three years

Ethiopia defaulted. This East African country defaulted on a $33 million coupon on December 26, becoming the third African nation to default in the post-Covid period. The others were Zambia in November 2020 and Ghana in December 2022.

Financial strains, caused by the Covid pandemic and exhaustion from two years of civil war that ended at the end of 2022 and claimed 600,000 lives, have left Africa’s second most populous country in financial trouble. The payment was due on December 11, but Ethiopia technically had until December 26 to comply, thanks to a “grace period” on the billion-dollar bond.

Actually, this step was expected. Now the country, like Zambia and Ghana, faces the need to restructure its debt in accordance with the G20 Common Framework, an initiative to help low-income countries solve their debt problems.

Just a few years ago, Ethiopia recorded double-digit percentage economic growth. There was talk of an “economic miracle,” with GDP per capita growing by an average of 7% from 2004 to 2019. According to the Italian economic newspaper Il Sole 24 Ore, the country’s development was based on foreign currency loans, “which were encouraged by multilateral institutions, but turned into a financial burden at the first sign of a crisis.” Ethiopia has experienced high inflation rates of around 15% over the past decade, with the rate jumping to 30% in the last two years.