The World Bank has approved $1.5 billion in financing for Ethiopia for the first time ever, in the form of a grant and a low-interest line of credit, it said in a statement.
The bank said it would lend Ethiopia to support the budget, as the East African nation tries to move forward with restructuring its long-term debt.
International Monetary Fund
Africa's second-most populous nation secured a four-year, $3.4 billion programme from the International Monetary Fund on Monday, hours after its central bank floated its currency, the birr, paving the way for its debt reform to move forward.
The World Bank said it would provide a $1 billion grant and another $500 million in the form of a low-interest line of credit, part of the first direct budget support facility to be extended to Ethiopia.
“This political process supports domestic reforms that will ultimately help the country move to a more inclusive system, allowing the private sector to contribute more strongly to growth,” the bank said.
According to Ethiopian officials, the financing is part of a $10.7 billion package from the International Monetary Fund, the World Bank and other creditors that is conditional on the government implementing major economic reforms, including liberalizing the foreign exchange market.
The Ethiopian birr fell 3% against the dollar early Wednesday, trading at 77.13 birr per dollar, little changed on Tuesday after falling 30% the day Ethiopia sought to restructure its sovereign debt in 2021 under the G20 Common Framework initiative to provide relief to developing countries, but progress was slowed by a civil war in the northern Tigray region, which ended the following year.
debt restructuring
Ethiopia’s debt restructuring follows the debt restructuring of Chad and Zambia, which have completed their debt reforms under the Common Framework Agreement, and Ghana, another highly indebted African country, is nearing the completion of its restructuring under the initiative.
Ethiopia's development partners have welcomed its move to a market-based foreign exchange rate, but some analysts say the move could lead to higher inflation and higher living costs, especially for the country's poor.
The country of 126.5 million people faces other challenges, including the impact of climate change and the post-war reconstruction of Tigray.