Unlock the Editor’s Digest without cost
Roula Khalaf, Editor of the FT, selects her favorite tales on this weekly e-newsletter.
Buyers in Ethiopia’s defaulted greenback bond have accused the IMF of exaggerating how a lot debt reduction the nation wants, arguing {that a} surge in gold and occasional exports have restored the funds of east Africa’s most populous nation to a sounder footing.
A committee of holders of the $1bn debt stated the fund was undermining talks to finish a 2023 default after it “considerably undervalued” a rebound in exports since Ethiopia devalued its forex in opposition to the greenback final 12 months, in keeping with an announcement seen by the Monetary Occasions.
The committee accused the fund of trying to “reverse-engineer” debt reduction as a part of a $3.4bn bailout and in addition stated it was reserving authorized rights over the debt after it rejected a proposal by Ethiopia to write down down the bond final 12 months.
The dispute displays one of many largest faultlines to resolving a wave of sovereign defaults from Sri Lanka to Zambia in recent times, as buyers have more and more criticised how the IMF oversees key debt reduction targets. Whereas the fund is rarely instantly concerned in debt restructuring talks between governments and bondholders, its financial forecasts strongly affect negotiations.
The IMF stated final month that “Ethiopia’s debt continues to be unsustainable and in misery”, a view the committee disputes.
The IMF’s projections for Ethiopia “artificially indicate a solvency difficulty which requires Ethiopia to hunt higher concessions from its stakeholders with a purpose to meet the IMF’s lending standards than, in our view, are literally required to realize debt sustainability”, the committee stated.
The committee, which owns 40 per cent of the Ethiopian bond, consists of hedge funds Farallon Capital Administration and VR Capital, folks accustomed to the matter stated.
The IMF didn’t instantly reply to a request for remark. The fund conditioned final 12 months’s bailout on the devaluation of Ethiopia’s forex, the birr, and is backing different reforms. Kristalina Georgieva, IMF managing director, visited Addis Ababa earlier this month.
In October, the bondholder committee turned down a proposal to chop the debt’s face worth by 18 per cent, after the legacy of a two-year civil warfare led Ethiopia to skip curiosity funds in 2023.
Most of Ethiopia’s roughly $30bn exterior debt is owed to multilateral collectors, or particular person international locations similar to China, which might be seen as much less prepared to just accept outright losses. However the IMF’s bailout is requiring debt to be diminished relative to exports.
Throughout Georgieva’s go to, Ahmed Shide, Ethiopia’s finance minister, stated the nation was in “the ultimate stage of negotiations” with its collectors. The fund has stated that the nation is getting nearer to a take care of its bilateral lenders.
After the birr’s peg to the greenback was dropped in July, exports doubled 12 months on 12 months to greater than $3bn within the second half of 2024, whereas imports fell barely to $8.6bn over the identical interval, Ethiopia’s central financial institution stated final week.
Espresso exports from Africa’s largest producer rose by 60 per cent to just about $1bn, whereas gold exports surged greater than 700 per cent to $1.3bn.
In an replace final month, IMF employees acknowledged that Ethiopia’s exports can be “barely stronger” within the close to time period, however added that medium-term projections of exports of products and companies would keep unchanged, at about 9 to 10 per cent of GDP.
The increase in espresso exports adopted a pointy rise in international costs in addition to the forex shift, whereas the rise in gold exports had mirrored “beforehand smuggled manufacturing transferring to official channels,” it added.
UK and African think-tanks Debt Justice, the Horn Financial and Social Coverage Institute, and Afrodad argued in a latest paper that bondholders might have made returns of a 3rd in the event that they accepted Ethiopia’s so-called haircut final 12 months.
This was primarily based on the idea of buyers shopping for the bonds at their common worth of 67 cents on the greenback between 2022 and 2024.
“Bondholders rejected a particularly beneficiant deal. It allowed them to nonetheless make a revenue and required bilateral collectors to be repaid considerably much less for debt sustainability targets to be met,” Tim Jones, coverage director at Debt Justice, stated.
“Bondholders are proper to criticise the IMF’s export forecasts for Ethiopia, nevertheless it must be as a result of they’re extraordinarily optimistic” in contrast with the historic common, Jones added.
The bondholder committee has additionally taken difficulty with the IMF permitting Ethiopia to barter a mortgage on industrial phrases to finish the nation’s second-largest hydropower dam whereas it’s nonetheless in default on the bond.
At practically $1bn, the scale of the IMF’s allowance for the mortgage to be excluded from a bailout restriction on industrial borrowing is “uncommon within the context of low-income international locations”, and Ethiopia ought to disclose the phrases of the dam financing, the committee stated.
