Fitch Ratings Ethiopia’s credit rating at ‘Restricted Default’ amid debt restructuring Ratings has kept Ethiopia’s long-term foreign currency rating at “Restricted Default.” This means the country is still considered to be in default on some of its foreign debt while it continues working through a major restructuring plan.
Ethiopia has been in default on its only Eurobond since missing a $33 million interest payment in December 2023. The government is now trying to restructure about $15 billion in external debt under the G20’s Common Framework, which it joined in 2021.
In July, Ethiopia reached a preliminary deal with its official creditors that would give it $2.5 billion in debt relief through 2028. The agreement includes a small reduction in the total debt value, a three-year extension on repayment deadlines, and a 34% cut in debt payments during the ongoing IMF support program.
Talks with private creditors are still ongoing. Recent meetings with a group of bondholders ended without a final deal. Those creditors had offered a 15% debt reduction plus a potential bonus payment linked to how well Ethiopia’s exports perform compared to IMF forecasts.
Since mid-2024, Ethiopia has made visible progress on economic reforms. The country allowed its currency to float more freely, which led to a depreciation of more than 60% in the official exchange rate. This move helped narrow the gap between the official and parallel market rates to around 10%. Inflation is expected to fall to about 12% in the 2026 fiscal year, down from nearly 16% in 2025.
Foreign exchange reserves have also improved as more trade and investment funds are moving through legal channels. By the end of fiscal 2025, Ethiopia’s reserves had grown to $4.6 billion, enough to cover around two months of imports, compared with just $1.4 billion a year earlier.
The country’s external accounts are also looking better. The current account deficit dropped sharply to $300 million in 2025 from $6 billion the year before, helped by higher gold and coffee exports.
Economic growth remains strong, with Fitch expecting a 7% expansion in 2025 after 8.1% in 2024. Growth is being driven by good agricultural harvests, a rebound in construction and manufacturing, and rising activity in services like air transport and tourism.
The government’s budget deficit is projected to widen slightly to 1.7% of GDP in 2026, up from about 1.3% in 2025. Overall government debt is expected to peak at 40.4% of GDP in 2025 before easing to around 36.6% by 2027.
