IMF PROGRAM REVIEW

Debt Peaks, Then Bends: Inside Ethiopia’s Fifth IMF Review

A one-year debt spike, a stalled Eurobond track, and a war-driven cash advance define the IMF’s latest verdict on Ethiopia’s reform program.

The IMF Executive Board completed the fifth review of Ethiopia’s four-year Extended Credit Facility arrangement on July 1, unlocking roughly $464 million and pushing cumulative disbursements under the $3.4 billion program to about $2.65 billion. Behind the disbursement figure sits a debt story that dominates the underlying staff report: Ethiopia’s public debt ratio jumped by 15 percentage points in a single fiscal year, and the country’s path back to sustainability now hinges on restructuring talks that remain unresolved with one major creditor group.

A One-Year Spike

Public and publicly guaranteed debt rose from 35.5 percent of GDP in FY2023/24 to 50.5 percent in FY2024/25, IMF data show. The Fund attributes the jump largely to the recapitalization of the Commercial Bank of Ethiopia and the reclassification of several state liabilities onto the government’s books, rather than to fresh borrowing. External debt alone nearly doubled, from 15.8 percent of GDP to 31.8 percent.

The Fund projects the ratio will taper from here: 45.3 percent this fiscal year, 40.8 percent in FY2026/27, and down to 28.6 percent by FY2030/31. But that trajectory is not a forecast in the ordinary sense. Until Ethiopia’s debt restructuring is finalized, the Fund’s own pre-restructuring debt sustainability analysis still rates the debt unsustainable and in distress, with prolonged breaches on debt-service-to-exports and debt-service-to-revenue indicators. The declining path in the Fund’s tables reflects a post-restructuring, illustrative scenario, not the current state of affairs.

Where the Restructuring Stands

Progress with official bilateral creditors is furthest along. Three members of the Official Creditor Committee have signed bilateral restructuring agreements, with three more expected shortly. Ethiopia is also converting a portion of its restructured bilateral debt to China from dollars into renminbi, a currency-risk hedge the authorities say they may extend depending on how bilateral trade with China evolves. An agreement in principle has been reached with two creditors outside the official committee.

On the commercial side, the government has reached an agreement in principle with three major commercial creditors holding roughly 40 percent of Ethiopia’s total external commercial debt, on terms comparable to the official creditors’ memorandum of understanding.

Eurobond holders are the outstanding gap. Ethiopian authorities say they remain committed to negotiating comparable terms with bondholders, but the Ad Hoc Committee representing them signaled in early June that some members intend to pursue legal action given the lack of progress in talks. That is a live risk the Fund’s financing assumptions do not fully absorb: the program is described as fully financed over the next twelve months, but the medium-term picture depends on the Eurobond track eventually converging with the pattern set by official and commercial creditors.

A War-Driven Complication

The review also responds to a fresh shock. The IMF is rephasing about $200 million of disbursements forward, moving funds originally scheduled for later reviews into the fifth review, to help Ethiopia cope with the fallout of the Middle East war, chiefly a spike in imported fuel costs after one of the country’s two fuel suppliers declared force majeure. Spot-market diesel and jet fuel purchases briefly cost the equivalent of roughly $270 and $300 a barrel, respectively, in April, before easing back through May. The rephasing does not change total program access, but it front-loads liquidity at a moment when reserve coverage, at 2.1 months of imports, remains thin by international standards.

Reading the Trajectory With Caution

The debt numbers warrant some caution before treating the post-2025/26 decline as settled. The Fund’s own projections are labeled illustrative, built on creditor agreements that are signed, in principle, or still under negotiation. Notably, the Fund’s capacity-to-repay analysis for its own exposure shows Ethiopia’s debt service to the IMF itself is not expected to peak until 2033/34. That means obligations to the Fund will keep rising for years even as the broader public debt ratio is projected to fall. Whether that decline materializes on schedule depends less on Ethiopia’s policy execution, which the Fund rates as broadly on track, than on creditors Addis Ababa does not control, particularly whether Eurobond holders eventually settle rather than litigate.