Ethiopia is facing an “unsustainable” external debt burden, with the government already classified as being in debt distress, according to a joint report by the World Bank and the International Monetary Fund (IMF).
The report, released over the weekend, warns that Ethiopia’s debt situation is largely driven by repeated breaches of export-linked external debt indicators.
The institutions highlighted the default on a $33 million Eurobond interest payment in December 2023 as a key trigger for the current distress.
“In addition to non-payment, the accumulation of short- and medium-term debt service obligations, combined with a sharp decline in external financing during and after the Tigray conflict, has severely constrained the country’s repayment capacity,” the report states.
The assessment underscores Ethiopia’s low debt carrying capacity and stresses that urgent reforms are needed.
“Rapid implementation of the authorities’ reform program and debt relief from external creditors are necessary to alleviate liquidity pressures and restore debt sustainability,” the report says.
Ethiopia reached an agreement in principle with official creditors under the G20 Common Framework in March 2025. A Memorandum of Understanding on debt treatment is expected soon. f
fully implemented, the agreement could close financing gaps and reduce debt distress risks to moderate levels by 2027–28, coinciding with the conclusion of the IMF-supported program.
However, the report cautions that without successful restructuring and economic reforms, Ethiopia will continue to face pressures on both liquidity and solvency, as debt service obligations are set to exceed government revenue and export earnings. The economy remains vulnerable to shocks in export markets and currency depreciation.
The World Bank and IMF also link the debt crisis to broader domestic challenges, including ongoing armed conflicts in Amhara and Oromia, governance shortcomings that have resulted in misallocation of funds to “luxury projects,” and structural economic weaknesses. These factors, they warn, threaten to prolong Ethiopia’s financial instability unless decisive action is taken.
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