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There is Now a Significant Risk that Ethiopia Will Default on its Sovereign Debt

Since the onset of the coronavirus pandemic in early 2020, multiple factors have converged to weaken the East African economy. The pandemic weighed on Ethiopia’s exports and significantly reduced remittances – a World Bank report estimates that remittances to Sub-Sahara Africa fell by 9% in 2020 and 6% in 2021. Ethiopia’s civil war, which began in November 2020, destroyed swathes of factories and industry in the Tigray region and cost Ethiopia approximately $20m in monthly export revenues. Inflation in Ethiopia is currently running at over 30%. Ethiopia’s widening current account deficit, sparked largely by the conflict in Tigray, has contributed to the serious problem of dwindling foreign exchange reserves. The National Bank banned the use of foreign currency in local transactions, while reducing the number of days that a returning resident can keep foreign cash from ninety to thirty days. The Bank also relaxed restrictions on how much foreign currency can be brought into the country. Despite these moves from the central bank, there is a growing sense in Ethiopia that the country will soon be in need of a bailout from the International Monetary Fund (IMF).