The World Bank and International Monetary Fund (IMF) have sounded the alarm over Ethiopia’s debt crisis, warning that the country’s obligations are now “unsustainable.” In a joint debt sustainability analysis released this week, the two institutions said Ethiopia’s financial stress stems from prolonged breaches of export-related debt indicators, mounting short- and medium-term repayment burdens, and its recent default on a $33 million Eurobond coupon payment.
Ethiopia’s limited debt-carrying capacity has placed it formally in debt distress. The IMF and World Bank cautioned that without urgent restructuring and reforms, the country faces growing “pressures on both its liquidity and solvency,” as debt service continues to exceed government revenues and export earnings.
In March 2025, Ethiopia reached an agreement in principle with official creditors under the G20 Common Framework, paving the way for a Memorandum of Understanding on debt treatment expected to be signed in the coming months. If fully implemented, the deal could close financing gaps and ease debt risk to more sustainable levels by 2027/28, when the current IMF program ends.
But the report underscores that Ethiopia’s economy remains extremely fragile. Beyond fiscal troubles, the country is battling political instability and ongoing conflicts in Amhara and Oromia, which have diverted resources into military spending and stalled development. Economists also point to misallocation of public funds into prestige “luxury projects” instead of productive investments. The IMF and World Bank stressed that structural reforms, stronger export growth, and currency stabilization will be critical if Ethiopia is to restore solvency and avoid prolonged economic stagnation.
