As Seen in Ethiopia: The Limitations of Global Debt Restructuring Systems
Leah Druch | Emily Huang
Image Source: https://www.reuters.com/world/africa/ethiopia-says-debt-restructuring-negotiations-final-stage-2025-02-09/
As 2025 comes to an end, Ethiopia’s billion-dollar debt restructuring talks with its creditors have collapsed after months of negotiations, indicating a growing strain between both parties. These discussions highlight how global debt frameworks often leave very little room for developing countries to prioritize their own economic needs, forcing governments to choose between satisfying creditors and addressing the needs of their citizens. Ethiopia’s stalled progress captures a major question faced by many emerging economies: how can a country grow and recover concurrently while also meeting debt payments and reassuring investors and creditors? Ethiopia’s debt restructuring highlights the tension between maintaining investor confidence and helping a country build and strengthen its economy. Moreover, without updated flexibility and transparency in debt programs, developing countries risk staying stuck in cycles of debt and slow growth.
Debt restructuring is the renegotiation of what a country, person, or company owes to its creditors. Usually, this kind of restructuring involves extended payment deadlines, decreased interest rates, or reductions in the total amount owed. The goal of debt restructuring is to assist in making debt more manageable for a borrower; however, when the borrower is a developing country, the process becomes more convoluted as many parties are involved. Many creditors, including global institutions like the International Monetary Fund (IMF) and other governments, can attempt to assist a country with debt restructuring; however, their interests may not match those of the country. In Ethiopia’s case, despite the significant profits available to bondholders in the initial deal, it was still rejected. Cases like these highlight how unequal the power in these relationships can be—creditors garner more influence while the borrowers must negotiate from a more inferior position.
Ethiopia’s financial problems span the past few years. Ethiopia had “defaulted on [its] bond in late 2023 and opted to rework its debt under the G20’s Common Framework initiative…,” a program created to help coordinate debt relief between different types of creditors. At first, markets reacted positively, as Ethiopia’s sole international bond rose by about 2.6 cents on the dollar after news that formal restructuring talks were beginning, which demonstrated that investors were hopeful about a potential deal. The government had initially reached an agreement with creditors in July 2025, providing $3.5 billion in cash flow relief. The next step was to negotiate with private bondholders over the nation’s $1 billion bond. These talks relied mainly on investor confidence, raising a broader question about how much room countries have to navigate within global debt frameworks when creditors are prioritized.
In October of 2024, Ethiopia proposed what seemed like a realistic restructuring plan to creditors. The plan included a reduction in principal paid upfront as well as an offer to repay missed interest payments from December 2023 and 2024 once an agreement would be reached. However, despite the terms and the potential for significant profits for bondholders, the plan was still rejected. This refusal shows the challenges Ethiopia faced when it attempted to convince private investors to take on short-term, small losses, even though those losses would make repayment more sustainable and trustworthy in the long run.
However, the entire deal cannot be analyzed without considering the IMF’s impact. The IMF has played a major role in Ethiopia’s restructuring process through the G20 Common Framework. In a report from May 2025, the IMF emphasized Ethiopia’s commitment to broader economic reforms, including moving towards a more flexible exchange rate, ending central bank financing of the nation’s government, and transitioning to “interest rate-based monetary policy.” These methods are part of a four-year, $3.4 billion arrangement aimed at stabilizing Ethiopia’s economy and improving its debt management. Despite these reforms and the IMF’s support, Ethiopia’s debt burden remains high, and meeting sustainability targets depends on growth. This shows a broader issue within the IMF’s frameworks—that their effectiveness is dependent on the growth and development outcomes of a country, which can remain uncertain in economies that undergo major structural and monetary adjustments. Even with well-designed reforms, the IMF’s programs may provide limited flexibility for countries with emerging economies.
Unfortunately, tensions with investors and creditors have only grown worse over time. According to The Reporter Ethiopia, “bondholders reportedly have reservations about the terms of the restructuring and doubts about the veracity of the country’s recent export achievements,” and Ethiopia had “registered a record-breaking USD 8.3 billion in export revenues in 2024/25.” However, bondholders stated that these figures were not reflected in IMF forecasts, and therefore they were “unwilling to accept terms they see as too lenient.” This disagreement shows a deeper lack of trust between Ethiopia and its creditors and highlights that Ethiopia’s economic performance comes secondary to investor confidence, which can ultimately be damaging to the country’s economic growth and restructuring efforts.
These ongoing challenges between Ethiopia and its creditors make it clear that the nation’s ability to manage its debt is not supported by present-day global frameworks like the G20 framework or the IMF. For Ethiopia, the challenge lies in balancing the wants of creditors and investors with the needs of the nation’s economy and citizens. Ethiopia’s debt restructuring shows how current global debt restructuring systems are not designed to help the country’s economy grow or stabilize but instead to protect the goals of creditors.
Leah Druch is a writer for the Columbia Emerging Markets Review, studying Financial Economics and History. She is interested in the intersection between international law and policy, and their impact on emerging economies. Outside of CEMR, she is involved in the Columbia Undergraduate Law Review and Mock Trial. In her free time, she enjoys dancing, ballet, and baking.