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Ethiopia’s Plan to Seek Debt Relief Causes Turmoil Amongst Investors

Ethiopia has announced plans to seek a restructuring of its sovereign debt under a new G20 common framework.

In November, G20 nations came to a common approach for the first time, to restructure government debts to help ease the strain of the coronavirus pandemic on some developing countries.

Ethiopia, which is already benefiting from the suspension of interest payments to its official sector creditors until the end of June, an initiative between the G20 and the Paris Club, is still seeking available debt treatment options under the G20 common framework that was issued in November.

Consequences of Ethiopia seeking a debt relief

The news has left investors worried, as they wonder whether they would be left to take a hit in the event of restructuring as debtor countries are expected to seek an IMF programme to get their economies back on track and negotiate a debt reduction from both public and private creditors.

Consequently, government bonds recorded a new daily low on Friday amidst worries that private-sector holders will be forced to take a loss and trigger a default in the leading credit rating agencies’ eyes.

Analyst also said that Ethiopia’s request for debt relief is likely to put other developing countries eligible for the G20’s Debt Service Suspension Initiative (DSSI) under bond market pressure.

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