World Bank Approves $1.5 Billion in Financing to Aid Ethiopia's Debt Restructuring

The World Bank has approved a $1.5 billion financing package for Ethiopia, which is working on debt restructuring and economic reforms. Ethiopia also secured a $3.4 billion program from the IMF. The funds will support budgetary needs and economic changes as Ethiopia navigates challenges including inflation, climate change, and post-war reconstruction.

The World Bank announced on Tuesday that its board has approved $1.5 billion in financing for Ethiopia, facilitating the Horn of Africa country's long-running debt restructuring efforts.

Ethiopia, Africa's second-most populous nation, secured a four-year, $3.4 billion program from the International Monetary Fund (IMF) on Monday. This move comes hours after the central bank floated its birr currency, indicating progression in its debt overhaul. According to the World Bank's statement, the financial aid includes a $1 billion grant and $500 million in low-interest credit and is part of the first-ever budgetary support provided to Ethiopia by the global lender.

The World Bank stated its intention to offer around $6 billion in new commitments over the next three fiscal years, bolstering economic reforms through swift budget support. This initiative is part of a $10.7 billion financing package from the IMF, World Bank, and other creditors outlined by Ethiopian officials.

Ethiopia initiated the restructuring of its sovereign debt in 2021 under the G20 Common Framework, designed to aid developing nations but saw progress hindered by a civil war in the northern Tigray region, which concluded last year. Signs of momentum in Ethiopia's debt restructuring emerged following the completion of similar efforts by Chad and Zambia under the Common Framework. Ghana is nearing the end of its own restructuring process under the same initiative.

While Ethiopia's development partners supported the shift to a market-based foreign exchange rate, some analysts warned that this could lead to higher inflation and elevated living costs, particularly for the country's poorest residents. Additionally, Ethiopia contends with challenges such as climate change impacts and post-war reconstruction in Tigray.

(With inputs from agencies.)