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 but is now resuming. 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, 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. Creditors provided financing assurances for a debt treatment consistent with the International Monetary Fund (IMF) - supported program and agreement with the authorities on a term sheet for debt treatment is on track by the second review. This assessment is based on the assurances provided by the co-chairs by letter to the Ethiopian authorities as well as the OCC meetings held on December 4, which reviewed debt treatment perimeter and the authorities’ request for extension of the debt service suspension. Further OCC meetings on specific debt treatment proposals are expected in December 2024.