July 31 2024: The World Bank’s board has approved $1.5 billion in financing, marking its first-ever budget support lending to Ethiopia, as the East African nation advances its debt restructuring efforts.
Africa’s second-most populous country secured a four-year, $3.4 billion program from the International Monetary Fund (IMF) on Monday, shortly after its central bank floated the birr currency, facilitating the debt overhaul.
The World Bank will provide a $1 billion grant and an additional $500 million low-interest credit line, part of the inaugural direct budgetary support facility for Ethiopia, the global lender announced.
“This policy operation supports home-grown reforms that will ultimately help the country transition to a more inclusive economy that allows the private sector to contribute more strongly to growth,” the World Bank stated. The bank plans to “provide around $6 billion in new commitments over the next three fiscal years and support economic reforms through fast-disbursing budget support.”
The funding is part of a $10.7 billion financing package from the IMF, World Bank, and other creditors, according to Ethiopian officials.
The financial support is contingent on the Ethiopian government implementing significant economic reforms, including the liberalization of the foreign currency market.
Early Wednesday, Ethiopia’s birr was down 3% against the dollar, trading at 77.13. The currency saw little change on Tuesday after plunging 30% on the day it was floated on Monday.
Ethiopia initiated its sovereign debt restructuring in 2021 under the G20 Common Framework, designed to provide relief to developing nations, but progress was hampered by a civil war in the northern Tigray region, which concluded the following year. Ethiopia’s debt restructuring follows similar paths taken by Chad and Zambia, which completed their overhauls under the Common Framework. Ghana is also nearing the completion of its own restructuring under the initiative.
Ethiopia’s development partners have welcomed its shift to a market-based foreign exchange rate, though some analysts caution that this move could increase inflation and living costs, particularly for the country’s poorest residents.
Ethiopia, with a population of 126.5 million, faces additional challenges, including the impacts of climate change and the post-war reconstruction of Tigray.
