Ethiopia has moved closer to resolving its long-running Eurobond default, with Fitch Ratings indicating that a proposed exchange offer for the country’s $1 billion bond could be completed by the end of 2026, even as the agency kept the country’s Long-Term Foreign-Currency Issuer Default Rating at “Restricted Default” (RD).
According to Fitch, the government reached an agreement-in-principle in June 2026 with an ad hoc committee representing Eurobond holders on restructuring terms. The consent solicitation process is expected to launch in the coming weeks. If investors holding at least 75% of the bond’s principal approve the proposal, Ethiopia could complete the exchange before the year is out.
Under the proposed terms, holders of the outstanding $1 billion bond—which carried a 6.625% annual coupon and matured in December 2024—would receive a new bond valued at $880 million. That represents a 12% reduction in principal, alongside a lower annual coupon of 6.15% and a three-year maturity. Investors would also receive a new-money warrant granting them the right to subscribe to a seven-year Eurobond that Ethiopia may issue during an agreed exercise period. If the government opts not to exercise the warrant, it would be redeemed at a price agreed under the deal, capped at 9% of the redeemed notional amount.
Fitch said the proposed terms align with the principle of comparable treatment among creditors and the debt sustainability thresholds established under Ethiopia’s International Monetary Fund program.
The default rating itself stems from the government’s failure to pay a $33 million Eurobond coupon due on Dec. 11, 2023. Ethiopia is currently restructuring approximately $15 billion in external debt, including arrears recorded as of late June 2024, under the G20 Common Framework for Debt Treatments.
Beyond the Eurobond, Ethiopia continues discussions with official and commercial creditors over its broader external debt. The government signed a memorandum of understanding with the Official Creditor Committee in July 2025, and most bilateral agreements with official creditors have since been finalized. However, negotiations remain ongoing over an un-backed $200 million commercial loan. Fitch noted that completing the commercial external debt restructuring and normalizing relations with a clear majority of private creditors remain vital conditions for revising Ethiopia’s foreign-currency rating.
Fitch also reported an improvement in Ethiopia’s international reserves, bolstered by stronger export performance—particularly from gold and coffee. The National Bank of Ethiopia’s gross international reserves reached an estimated $5.9 billion in the 2025/26 fiscal year, covering roughly 2.5 months of external payments, up from 2.1 months in 2024/25 and just 0.7 months in 2023/24. Despite the rebound, reserve coverage remains below the 3.7-month median for countries rated in the ‘B’, ‘C’, and ‘D’ categories in 2026. Fitch anticipates sustained export growth, ongoing current account liberalization, and strong foreign direct investment inflows will help stabilize reserves through 2027/28.
General government debt is projected to fall from an estimated 33% of GDP in 2025/26 to 30% by 2027/28, supported by economic growth and moderate fiscal deficits.
However, Fitch warned that renewed fighting in the Tigray region in September 2026 has heightened risks to Ethiopia’s economic stability. Clashes between federal forces and forces led by the Tigray People’s Liberation Front ended the fragile peace established under the 2022 agreement, disrupting essential services and humanitarian aid and raising displacement risks. The agency also warned of potential regional escalation, including tensions involving Eritrea.
Fitch forecasts real GDP growth will slow to 7% in the 2026/27 fiscal year, down from 9% in 2024/25, reflecting the fallout from renewed fighting in Tigray and Amhara, alongside potential El Niño-related impacts on agricultural yields. The fiscal deficit is projected to widen to 2% of GDP in 2026/27, up from an estimated 0.5% the previous year, partly due to the reintroduction of fuel subsidies and fiscal strains from the conflict.
Fitch reiterated that Ethiopia’s restricted-default rating will be reconsidered once the country completes its commercial external debt restructuring and normalizes private creditor relations. Renewed confidence in reform implementation and restored macroeconomic stability could also pave the way for an upgrade to its local-currency rating. The agency assigned Ethiopia a ‘B-‘ country ceiling, reflecting its evaluation of transfer and convertibility risks.
