In recent times, social unrest coupled with several shocks have led to Ethiopia’s macroeconomic pressures, with the public investment-led growth model reaching its limit. Strained liquidity has led to a deterioration of both the fiscal space and external balance (exacerbated by the recent default on a USD 33 million coupon payment). The maturity of the associated USD 1 billion Eurobond at the end of 2024, now presents a risk of a debt crisis due to the economy’s inadequate foreign reserve position.

The conclusion of a USD 3.4 billion extended credit facility (ECF) programme with the IMF has now enabled debt restructuring, where the government aims to reach an agreement as per the Common Framework (CF) debt treatment. This may lead to stability on both the fiscal and external sides. However, this also adds layers of complexity. For example, reforms under the IMF programme, including the unification of the exchange rate could worsen social risks due to higher inflation, where food security is already a concern.

On the positive side, we note the implementation of the Homegrown Economic Reform Agenda (HGER) which aims to achieve sustained high growth of the previous decade by facilitating a shift towards a more private-sector-driven economy.