The World Bank and the International Monetary Fund (IMF) in a joint report warned that Ethiopia is facing “unsustainable” external debt, stating that the government is already in debt distress.
In a report issued over the weekend, the World Bank and IMF reaffirmed that “Ethiopia faces political, economic, and humanitarian challenges and its debt is assessed to be unsustainable, mainly due to protracted breaches of exports-related external debt indicators.
The report said following a missed Eurobond interest payment in December 2023, the country is in debt distress and highlights Ethiopia’s weak Debt Carrying Capacity (DCC) and classifies it in debt distress after the $33 million Eurobond coupon default.
The assessment highlighted that Ethiopia’s repayment risks are aggravated by “bunching of debt service in the near to medium term” and by the sharp decline in external financing during and after the Tigray war.
The authors stressed that “timely implementation of the authorities’ reform agenda and debt relief from external creditors are required to alleviate liquidity pressures and restore debt sustainability.”
According to the joint analysis, the Ethiopian government reached an agreement in principle with its official creditors in March 2025 under the G20 Common Framework. A memorandum of understanding on the debt treatment is expected soon, which, if fully implemented, would close financing gaps and reduce the risk of debt distress to moderate levels by 2027/28, when the IMF program ends.
The report warned that without successful restructuring and reforms, Ethiopia faces “both liquidity and solvency pressures,” as debt service obligations continue to outpace export revenues and government revenues. The authors said the Ethiopian economy remains highly vulnerable to export and depreciation shocks.
The problem is also related to the nation’s economic challenges including ongoing armed conflicts in regions like Amhara and Oromia, governance flaws leading to misallocation in spending on “vanity projects”, and domestic hardships.
MG/as/APA