Ethiopia Suspends Debt Payments, Only Foreign-Owned Finance Group Withdraws

Ethiopia has reached an agreement in principle with bilateral creditors to temporarily suspend debt payments and is set to engage in discussions to restructure its €1 billion eurobond maturing next year.

In a statement emailed on Wednesday, the finance ministry explained that the interim debt-service suspension aims to address the current economic challenges, providing the country with necessary breathing space for the years 2023 and 2024.

The ministry emphasized, “The redemption terms for the suspended amount will maximize debt-service relief during the prospective IMF program years while avoiding a bunching of maturities after the program.”

This comes as the troubled African nation struggle to keep its finances intact. In a setback to Prime Minister Abiy Ahmed’s efforts to attract investors, the only foreign-owned financial services company operating in Ethiopia is withdrawing from East Africa’s largest economy due to foreign exchange constraints.

Ethio Lease, a unit of New York-based African Asset Finance Company, holds the distinction of being the first and only foreign group with a financial services license to operate in Ethiopia. It was also the pioneer in leasing imported equipment, including farm machinery and medical products, in the country with a population of 120 million.

Girma Wake, Ethio Lease’s Addis Ababa-based chair, expressed, “This is a significant loss for Ethiopia.”

The company, granted its license in 2019 as part of economic liberalization reforms, faced challenges amid a brutal civil war in the Tigray region that began two years later. Ethio Lease facilitated local businesses by procuring equipment outside Ethiopia in foreign currency and then leasing it in Ethiopian birr.

The company encountered difficulties in 2021 when the National Bank of Ethiopia altered the regulatory framework, mandating all lease agreements to be in fixed payments denominated in Ethiopian birr. Frans Vanschaik, the CEO of AAFC, stated that efforts to address the situation were unproductive, saying, “We had high hopes that the Ethiopian government would successfully liberalize its financial services sector.”

Ethiopian financial officials asserted they made extensive efforts to resolve the issue with Ethio Lease but faced challenges as AAFC insisted on taking the case to arbitration in The Hague, seeking compensation.

This withdrawal occurs as Addis Ababa aims to attract foreign investors back to the country after the conclusion of the Tigray war, which led to the withdrawal of foreign donors’ support and the loss of Ethiopia’s tariff-free access to US markets. To address its foreign exchange shortage, the government plans to sell state assets, including a stake in state telecoms group Ethio Telecom. In 2021, Addis Ababa raised $850 million through the sale of a license to a consortium led by Kenya’s Safaricom, partly owned by the UK’s Vodafone.

Finance Minister Ahmed Shide stated this year that the liberalization of the foreign exchange system “will be addressed,” acknowledging the challenges faced by foreign companies in repatriating profits and expressing a commitment “to open the banking sector” to foreign players.

It is yet to determine how this will play out for Ethiopia with respect to its relationship to the world. The African nation is set to officially become a member of the BRICS alliance in January 2024, a move that’s supposed to inject economic vigor to the international bloc as it poses itself to be a contender to US-led coalitions.


Information for this briefing was found via Bloomberg, Financial Times, and the sources mentioned. The author has no securities or affiliations related to this organization. Not a recommendation to buy or sell. Always do additional research and consult a professional before purchasing a security. The author holds no licenses.

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