Ethiopia - Joint World Bank-IMF Debt Sustainability Analysis

Overview & Synopsis

Ethiopia faces political, economic, and humanitarian challenges. Support from the international community weakened notably during the two-year conflict in Tigray. Bunching of debt service in the near to medium term and adverse developments have led to the realization of debt repayment risks. Ethiopia’s debt is assessed to be unsustainable based on the pre-restructuring debt service schedule, mainly due to protracted breaches of exports-related external debt indicators and is based on a weak Debt Carrying Capacity (DCC). Following a missed Eurobond interest payment in December 2023, the country is in debt distress. Timely implementation of the authorities’ reform agenda and debt relief from external creditors are required to alleviate liquidity pressures and restore debt sustainability. The authorities have committed to achieving a moderate risk of debt distress rating by the end of the approved ECF arrangement. An Official Creditor Committee under the G20 Common Framework (OCC) was formed in September 2021 and agreed to suspend debt service due in 2023 and 2024 on November 9, 2023. A Memorandum of Understanding (MOU) on key terms for debt treatment between the OCC and Ethiopian authorities was agreed in July 2025. All members of the OCC have signed the MOU. The next step is to reach bilateral agreements, aiming to finalize some agreements by end 2025. The authorities are making good faith efforts to reach an agreement with their external commercial creditors on terms comparable to the OCC MOU and consistent with program parameters. An agreement in principle has been reached with one large commercial creditor on terms that are comparable to the OCC MOU and aligned with program parameters. Contact has been initiated with all other private creditors. The illustrative debt treatment reflecting the MOU between the authorities and the OCC for bilateral claims and the agreement in principle (AIP) with the large commercial creditor and the authorities’ latest debt treatment scenario for other commercial creditors, would close the program’s external financing gap and restore a moderate risk of external debt distress by bringing all debt indicators below their respective Debt Sustainability Analysis (DSA) thresholds in 2027/28, when the IMF program ends.