Ethiopia’s government is engaging with bondholders on potential paths to restructuring its sole international bond, the head of the International Monetary Fund’s mission to the country said on Thursday.

Ethiopia, which defaulted on the bond in 2023, has been in a standoff with a group of investors holding its $1 billion Eurobond (XS1151974877=TE).

The government has asked for haircuts, while bondholders say the country faces a liquidity problem, which does not warrant writedowns, rather than a solvency issue.

“The authorities and the bondholders are sharing scenarios and sharing views on what different debt treatments could be considered and seeking reactions from the bondholders on their proposals,” Alvaro Piris Chavarri, the mission chief, told a media briefing.

“Now that we have the agreement with the official creditors, the scenarios that will be discussed will reflect comparable terms to that,” he said, without commenting on whether the exchanges amount to formal restructuring talks.

There was no immediate comment by the government or bondholders.

The dispute with bondholders revolves around whether Ethiopia’s export figures indicate an insolvency problem or a liquidity issue, which could determine whether the investors will accept a writedown.

Strong export earnings growth could support the bondholders’ case that Ethiopia faces a liquidity issue.

That would enable them to push for repayments on the bond to be stretched out, rather than taking losses on the principal of their investments, also known as haircuts, if an assessment of insolvency carries the day.

The IMF has been projecting lower export earnings than the government but Chavarri downplayed any differences.

“There is scope for further upside here, but there’s also scope for downside surprises in the balance of payments more generally,” he said.

The risks stem from lower-than-expected overseas aid flows and foreign direct investments, he said.

“I would be a little bit cautious. And I think our forecast overall is very balanced between upside and downside risks,” he said.