IMF, WB Warn About Ethiopia’s ‘Unsustainable’ Debt Levels

Report forecasts real GDP growth at 7.4pct average for next decade

Ethiopia’s ability to carry and repay debt has been eroded significantly by falling foreign exchange reserves and protracted breaches of exports-related external debt indicators, according to a Debt Sustainability Analysis (DSA) report published by the IMF and World Bank this month.

Ethiopia’s debt-carrying capacity has been designated as “weak” since the DSA published in October 2022, with the rating driven primarily by low FX reserves. Government officials hope to see ongoing IMF-backed reforms and debt restructuring processes pull the rating back up but, for now, Ethiopia remains unappealing to creditors.

The report notes Ethiopia has been under debt distress since it missed a Eurobond interest payment in December 2023. Ethiopia defaulted on its Eurobond obligations by missing three coupon payments and the principal that came due on December 11, 2024, totaling USD1.1 billion. The authorities have continued restructuring negotiations with bondholders.

The IMF estimates there will be a residual financing gap of USD10.8 billion during the program period, which is scheduled to last until 2028, and forecasts that reserve adequacy will rise to 3.5 months of import coverage by then.

The Fund is expected to contribute USD 3.4 billion to fill the gap, with an additional USD 3.8 billion expected from the World Bank, and USD 3.6 billion in debt relief from private creditors.

The World Bank disbursed USD 1.5 billion in budgetary support in August 2024, immediately following Ethiopia’s forex market liberalization, and is expected to disburse an additional one billion between now and June 2026.

A Memorandum of Understanding with official creditors is expected to be agreed in the near term, according to the document. An agreement in principle (AIP) with the OCC on terms for a debt treatment consistent with program objectives was reached in March 2025, and an AIP with external commercial creditors is expected to follow.

Domestic SOE debt is highly concentrated, reads the document.

By the end of June 2024, the state-owned Commercial Bank of Ethiopia (CBE) held virtually all SOE domestic debt, including debt that was transferred to the Liability Asset Management Corporation (LAMC), which itself was set up to absorb SOE debt.

More than 90 percent of this debt was owed by three troubled SOEs that were not regularly servicing their loans, which were publicly guaranteed. These loans were being systematically renewed and guarantees were not made effective, according to the report.

Ethiopia has agreed not to take on any new non-concessional external debt for the duration of the IMF program, with borrowing for the construction of Koysha Hydroelectric Dam being the only exception. Ethiopia is expected to access credit to back the project, which is estimated to need USD 950 million in funding, this year, according to the report.

The DSA projects Ethiopia’s GDP growth for 2024/25 to be 7.2 percent, “with potential uncertainties linked to the transition to market-determined exchange rate offset by improving agricultural conditions and the easing of import shortages.”

The report estimates average annual  GDP growth over the coming nine years will be 7.4 percent, slower than historical rates of around 10 percent per annum over the two decades prior to 2019.

It notes that finding accurate and reliable data on GDP statistics, particularly those relating to consumption, savings, investment, and agricultural output, remains difficult in Ethiopia.

The DSA estimates export revenues will grow to 12 percent of GDP this year, up from the 9.6 figure the IMF put forward during the second review of its extended credit facility program in Ethiopia.

“Throughout the first nine months of the fiscal year, goods exports have exceeded the prior full-year forecast,” it reads. “FDI has not met initial expectations.”

The report notes that gold exports, in particular, have surged but warns the trend may not be sustainable due to a lack of formal investment in the mining sector and the possibility that hoarded inventory may have come to market due to better price and the reopening of Tigray to trade.

The IMF and World Bank foresee a decline in export volumes in 2025/26.