Addis Ababa, Ethiopia – Global credit rating agency Fitch Ratings has affirmed Ethiopia’s long-term foreign currency issuer default rating (IDR) at “Restricted Default” (RD).
In light of the country’s continued default on some of its foreign obligations. These include $33 million in Eurobonds, which have not been repaid since December 11, 2023.
Causes and implications
A “constrained default” rating reflects a country’s inability to meet its obligations on one or more foreign currency debts. However, it does not imply total bankruptcy.
According to Fitch, Ethiopia is still repaying other debts but has not yet reached an agreement with its international bondholders. This reflects a financial stalemate that has been ongoing for nearly two years.
Restructuring details
Addis Ababa is seeking to restructure approximately $15 billion of its external debt, including arrears due until mid-2024, under the G20’s “Common Framework,” which it submitted in 2021.
The country reached a memorandum of understanding with the Official Creditors Committee (OCC) in July 2025. This memorandum provided temporary debt relief of $2.5 billion until 2028, with:
12.5% reduction in present value
Maturity extended by 3 years
Debt service payments reduced by 34% during IMF program
Negotiations with bondholders stall
Regarding private sector creditors, Fitch reported that negotiations have been ongoing since December 2023, with no agreement yet.
A new round of talks was held between September 25 and October 13, 2025. These talks included the government’s proposal for a 15% discount on the debt value, with an export performance-linked instrument, but the offer was not accepted.
Meanwhile, Fitch data revealed that other commercial claims amounted to $1.3 billion. These claims include $1.1 billion in Eurobonds and their interest, along with $200 million in non-bond commercial debt.
Macroeconomic indicators
Despite financial challenges, the agency noted “remarkable progress” in economic reforms since July 2024. The most notable of these reforms are:
The liberalization of the exchange rate, which narrowed the gap between the official and parallel markets to about 10%.
Lower inflation: expected to reach 12% in fiscal year 2026, compared to 15.8% in 2025 and 26.6% in 2024
Improved monetary policy tools: Short-term market rates are now linked to the official interest rate of 15%.
Deficit and public debt
Fitch expects:
The fiscal deficit will rise to 1.7% of GDP in 2026, compared to 1.3% in 2025.
Interest expenditure will reach 1.3% of GDP in 2026.
Public debt will peak at 40.4% of GDP in 2025, then begin to gradually decline.
Political and governance challenges
The agency noted that Ethiopia continues to record low levels of governance and political stability. It remains below the global average in World Bank indicators, which negatively impacts its credit rating. Rating Future
A rating upgrade is contingent on the completion of a commercial restructuring and the normalization of relations with creditors. On the other hand, a domestic rating downgrade could occur if liquidity pressures worsen or domestic debt is included in a restructuring process.
Ethiopia defaulted on its only international bond in late 2023. As disagreements with bondholders over key terms persist, the government announced, according to Reuters, that talks are currently on hold. However, it expressed hope that they will resume soon.
