Debt restructuring in Ethiopia may soon see progress, with the country’s creditors awaiting the International Monetary Fund (IMF)’s second review under the four-year Extended Credit Facility (ECF) program. This critical development is expected to pave the way for the implementation of Ethiopia’s much-anticipated debt treatment plans.
IMF Review to Unlock Debt Restructuring Plans
The IMF recently announced a staff-level agreement with Ethiopian authorities tied to the second review under the ECF program, initiated in August. A comprehensive report detailing the review is expected next month, marking a significant milestone in Ethiopia’s economic reform journey.
Officials from the National Bank of Ethiopia (NBE) highlighted during a discussion with the Ethiopian Chamber of Commerce and Sectoral Associations that creditors are carefully evaluating Ethiopia’s eligibility for debt extensions.
“Debt restructuring is central to our reform plans,” said Habtamu Workneh, head of the bank transformation directorate at the NBE. “We anticipate rescheduling will begin shortly after the release of the report. Official creditors are closely monitoring this process.”
Debt Treatment Plans in Focus
According to Habtamu, most treatment plans emphasize extending debt maturity dates. To date, the IMF-backed arrangement has already funneled $2.5 billion into Ethiopia’s economy this fiscal year. Debt restructuring discussions with Eurobond holders have also progressed, with Ethiopian authorities submitting a proposal in July following prior engagements in December 2023 and May 2024. A global investors callback was organized on October 1 to provide updates on these developments.
External Debt Management
Recent statements from Fitsum Assefa (PhD), Ethiopia’s Minister of Planning and Development, indicate significant changes in the country’s borrowing practices. The government has reportedly ceased taking commercial loans and direct borrowing from the central bank. Additionally, Ethiopia’s external debt-to-GDP ratio is said to have dropped to 13.7 percent. However, some experts attribute this decline to potentially overstated GDP growth figures.
The IMF’s Debt Sustainability Analysis, published in July, reported that Ethiopia’s external debt-to-GDP ratio was 18 percent as of June 2023, with external debt comprising 45 percent of total public and publicly guaranteed debt.
Financing Challenges
Despite progress, Ethiopia faces ongoing challenges, including securing $1 billion to complete the Koysha Hydroelectric Dam project, which is currently two-thirds finished. The lack of financing has stalled this critical infrastructure initiative.
Looking Ahead
As December unfolds, the anticipated IMF review could mark a turning point in Ethiopia’s debt restructuring efforts, offering a clearer path to economic stability and growth.
