Ethiopia has reached a preliminary agreement with major bondholders to restructure its $1 billion Eurobond, marking a significant milestone in one of Africa’s most closely watched sovereign debt workouts.

The Ministry of Finance said negotiations held between June 5 and June 28 resulted in an “agreement in principle” with a key bondholder committee over the country’s only international bond, which matured in 2024.

At the center of the proposal is a financial instrument known as a New Money Warrant, designed to provide investors with additional upside should Ethiopia’s economic recovery outperform expectations while helping the government meet its debt sustainability goals.

IMF and official creditors back proposal

According to Ethiopian authorities, the structure of the new instrument has been shared with the International Monetary Fund and the co-chairs of Ethiopia’s Official Creditor Committee, both of which signaled their support for the arrangement.

The IMF concluded that the proposal aligns with Ethiopia’s debt sustainability framework and macroeconomic reform program, an important condition for advancing negotiations under the G20 Common Framework for debt treatment.

The endorsement removes a major hurdle in discussions that have progressed slowly since Ethiopia requested debt restructuring in 2021 and subsequently defaulted on the bond in late 2023.

From landmark bond issue to sovereign default

Ethiopia entered international capital markets in 2014 with a landmark $1 billion Eurobond carrying a 6.625% coupon rate. The issuance, which attracted strong demand from global investors and was arranged by J.P. Morgan and Deutsche Bank, helped finance the country’s ambitious industrial park expansion strategy.

However, mounting foreign exchange shortages, conflict-related spending pressures and rising debt servicing costs weakened the country’s repayment capacity.

The government eventually missed a $33 million coupon payment in 2023, triggering a sovereign default and pushing Addis Ababa into lengthy restructuring negotiations with private and official creditors.

A key test for Africa’s debt landscape

A successful restructuring agreement would position Ethiopia among the first African nations to conclude a complex sovereign debt workout under the G20 Common Framework.

For investors and policymakers alike, the outcome could become a benchmark for future debt negotiations across emerging and frontier markets as governments seek ways to balance fiscal reforms with economic growth.