Based on our discussions over the course of the IMF/WB Spring Meetings, as well as the Fund's recent World Economic Outlook, we present our key takeaways on Ethiopia. For more details, read our in-depth "IMF/WB Spring Meetings, April 2022 – country notes and global themes" report.
We did not host any meetings on Ethiopia, but the IMF’s decision to publish WEO forecasts for the country after choosing not to update its forecasts in October is a notable development. Somewhat surprisingly, the numbers paint a pretty rosy picture, with the medium-term growth outlook revised just 1pp down to 7% and moderately wider twin deficits relative to the April 2021 WEO.
Public debt is now projected to decline even more sharply than it was last April, to below 35% of GDP by 2026. This provides more fodder for arguments that private sector creditors need not be included in the ongoing Common Framework debt restructuring (although the source of the debt decrease seems to be an upward revision to inflation, which is now projected to remain firmly in the double digits and will help inflate away Ethiopia’s domestic debt stock, which comprises c50% of the total).
That said, Ethiopia’s debt crisis was always viewed as one of liquidity rather than solvency, and, on this front, the WEO does not provide any useful updates. Reserves have hit rock bottom, totalling just US$2bn in the end-21 data release, and ETB now trades at a near 50% premium on the parallel market.
Against this backdrop, it is difficult to tell whether the IMF and other official creditors will deem private sector involvement as a necessary component of the restructuring. And, at the same time, there has been little progress on resolving Ethiopia’s conflict and associated humanitarian crisis, and the second phase of Common Framework restructuring remains bogged down amid the official sector’s failure to form a creditor committee.
Although bonds are likely trading below recovery value, the longer this stalemate persists the greater the likelihood that a more aggressive restructuring will be required. And, without a resolution to Ethiopia’s conflict, yields will remain elevated even if the restructuring is completed without the need for private sector involvement. As such, we retain our Hold recommendation on Ethiopian eurobonds.