Investors in Ethiopia’s defaulted $1 billion dollar bond have publicly criticized the International Monetary Fund (IMF) for exaggerating the country’s need for debt relief. A committee representing these bondholders contends that the IMF has overlooked a significant rebound in Ethiopia’s economy, fueled by surging exports of coffee and gold, which they argue have placed the country’s finances on a more stable footing.
The bondholder committee, which holds 40% of Ethiopia’s bond, claimed in a statement to Financial Times (FT) that the IMF’s projections have “significantly undervalued” the impact of these export increases, particularly after Ethiopia devalued its currency, the birr, last year. The investors assert that the IMF’s stance is complicating negotiations to resolve Ethiopia’s default situation, as it seeks to force further debt relief that is not necessary for the country’s recovery.
The dispute highlights a deeper fault line in the global response to sovereign debt crises, which have escalated in recent years in countries from Sri Lanka to Zambia. The IMF’s influence on debt relief negotiations, even though it is not directly involved in restructuring talks, is seen as pivotal. The fund’s forecasts for Ethiopia’s economic recovery have been met with skepticism by investors, who argue that these projections unnecessarily inflate the country’s solvency issues.
“The IMF’s projections artificially imply a solvency issue, which requires Ethiopia to seek greater concessions from its stakeholders than actually necessary,” the bondholder committee said in their statement. While Ethiopia’s external debt stands at approximately $30 billion, with much of it owed to multilateral creditors and countries like China, the IMF is demanding that debt reductions be aligned with the country’s export levels, a point that has drawn criticism from investors.
Ethiopia’s economic situation has improved since the devaluation of its currency in July 2024, which saw the country’s exports double year-on-year, totaling over $3 billion in the second half of the year. Coffee exports surged by 60%, bringing in nearly $1 billion, while gold exports skyrocketed by more than 700%, reaching $1.3 billion. This boom was partially driven by global price hikes for coffee and a shift in previously smuggled gold moving through official channels.
Despite the clear export gains, the IMF remains cautious, predicting that Ethiopia’s export growth will remain modest in the medium term. However, critics, including UK and African think tanks such as Debt Justice, argue that investors missed a significant opportunity by rejecting Ethiopia’s proposed debt ‘haircut’ last year, which could have allowed bondholders to still make a profit. Tim Jones, policy director at Debt Justice, remarked that the deal presented to investors was “extremely generous,” offering a substantial return despite debt reductions.
In addition to concerns over Ethiopia’s debt restructuring, the bondholder committee has raised objections to the IMF allowing Ethiopia to take on a commercial loan for the completion of its second-largest hydropower dam while still in default on its bond. At nearly $1 billion, this loan exclusion is considered rare for low-income countries and raises transparency issues that the committee believes Ethiopia should address.
