THE FEDERAL DEMOCRATIC REPUBLIC OF ETHIOPIA - Joint Bank-Fund Debt Sustainability Analysis - Debt distress risk assessment and required reforms

Jul 19, 2026

Ethiopia faces political, economic, and humanitarian pressures as international support weakened during the Tigray conflict. Debt distress is assessed as unsustainable due to protracted export-related breaches and a weak Debt Carrying Capacity, with distress confirmed after a missed Eurobond interest payment in December 2023. The analysis covers federal, central bank, bilateral, guaranteed and non-guaranteed public enterprise debt, and applies larger contingent liability shocks. Restoring sustainability requires timely reforms and external creditor debt treatment to bring indicators below DSA thresholds by 2027/28.

LanguageEnglish

CategoryResearch & Report

FormatPDF

Pages31

Reading Time1 h 18 min

Risk assessment and current debt distress

Drivers of unsustainability

Debt coverage and methodological assumptions

Included debt sub-sectors

Contingent liability and market shock assumptions

Debt treatment strategy and next steps

Creditor committee, agreements, and timelines

Public Disclosure Authorized Pub lic Disc losure Authorized Approved by: Manuela Francisco and Hassan Zaman (IDA) , and Costas Christou and Pritha Mitra (IMF) Prepared by the staff of the International Development Association (IDA) and the International Monetary Fund (IMF) | THE FEDERAL DEMOCRATIC REPUBLIC OF ETHIOPIA<br>JOINT BANK-FUND DEBT SUSTAINABILITY ANALYSIS1 | | | --- | --- | | Risk of external debt distress | In debt distress | | Overall risk of debt distress | In debt distress | | Granularity in the risk rating | Unsustainable | | Application of judgment | No | 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) .2 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 1 This preliminary analysis is based on the Joint Bank-Fund Debt Sustainability Framework for Low-Income Countries (LICDSF) that was approved in 2017. 2 The composite indicator based on the October 2025 World Economic Outlook (WEO) and 2024 WB Country Policy and Institutional Assessment (CPIA) data that was published in July 2025 , is currently estimated at 2.53. 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. 1. Debt coverage under this Debt Sustainability Analysis (DSA) is consistent with the LIC– DSF guidance and previous DSAs.3 In particular, the DSA includes Federal government debt, the central bank’s debt to the IMF and two bilateral creditors, guaranteed nonfinancial public enterprises’ debt, and non-guaranteed debt of Ethio-Telecom, a major telecommunication company.4 External debt is defined according to the residency principle. Notwithstanding the comprehensive coverage, staff assumes a larger contingent liability shock of 4.5 percent of GDP than the default level of 2 percent of GDP, to account for additional risks associated with large state-owned enterprises (SOEs) . The financial market shock is assumed at 5 percent of GDP, th

FAQs

Why is Ethiopia assessed to be in debt distress?

Unsustainability stems from protracted breaches of export-related external debt indicators and a weak Debt Carrying Capacity, confirmed after a missed Eurobond interest payment in December 2023.

What actions are required to restore debt sustainability?

Timely implementation of the authorities’ reform agenda and debt relief from external creditors are required to ease liquidity pressures and move toward a moderate risk rating.

What does the analysis cover under the Debt Sustainability Analysis (DSA)?

It includes federal government debt, central bank debt to the IMF and certain bilateral creditors, guaranteed nonfinancial public enterprise debt, and non-guaranteed debt of Ethio-Telecom, using the residency principle for external debt.

Jul 19, 2026

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