Fitch downgrades Ethiopia further into junk territory as default looms

(Reuters) – Ethiopia’s credit rating was downgraded further into junk territory on Thursday by the Fitch Ratings agency, which cited an “increased likelihood” of default.

The east African country failed to pay a coupon on its single outstanding $1 billion Eurobond which had been due on Dec. 11, saying last week it could not make the payment.

Fitch cut Ethiopia’s rating to “C” from the “CC” it downgraded Africa’s second most populous country to last month.

The agency does not assign outlooks to sovereigns rated “CCC+” or below but said it would downgrade Ethiopia to “RD”, or restricted default, if it did not pay the coupon within a 14-day grace period.

Ethiopia’s economy is still reeling from high inflation, a hard currency shortage and growing external debt repayments more than a year after the federal government and rebel forces from the northern Tigray region signed a truce to end a two-year civil war.

Ethiopia requested debt relief under the G20’s Common Framework in early 2021, but progress was initially delayed by the war. Fitch noted that Ethiopia had agreed a debt service suspension with its official creditors.

“Official-sector debt treatment would not be judged a distressed debt exchange under Fitch’s sovereign rating criteria but official creditors may seek comparable treatment for private-creditor claims under the Common Framework,” it said.

The government on Thursday held a call for investors in the bond, which matures in December 2024, after talks with a group of bondholders broke down.

Earlier this year, it asked the IMF for a new lending program worth $2 billion. The sides are yet to strike a deal but the IMF said discussions were ongoing and staff would likely visit Ethiopia in early 2024.

(Reporting by Shanima A in Bengaluru and Rachel Savage in Johannesburg; Editing by Shounak Dasgupta, Kirsten Donovan)