Ethiopia faces unsustainable external debt, World Bank and IMF warn

The World Bank and the International Monetary Fund have warned about Ethiopia's debt distress, labeling it "unsustainable."

The two financial bodies further revealed 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 also revealed that Ethiopia's debt repayment has been made more difficult by the accumulation of both short-term and medium-term debt service payments.

Ethiopia's low debt-carrying capacity classifies it as being in debt distress following the default on the $33 million Eurobond coupon payment.

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 debt treatment is expected to be signed soon. If fully implemented, it would close financing gaps and reduce the risk of debt distress to moderate levels by 2027/28, when the IMF program ends.

The report warns that without successful restructuring and reforms, Ethiopia will face " pressures on both its liquidity and solvency" as debt service obligations continue to exceed export and government revenues.

The authors emphasize that the Ethiopian economy remains highly vulnerable to export-related shocks and depreciation.

This problem is also linked to the country's economic difficulties, including ongoing armed conflicts in regions such as Amhara and Oromia. These governance failures lead to the misallocation of spending on "luxury projects" and domestic challenges.