Addis Ababa, 5 November 2025 – PRESS AFRICA – Ethiopia's latest economic review shows a marked improvement in its external debt profile, but also a strong vulnerability that continues to weigh on its development path.

An encouraging decline, but fragility persists

According to a recently published report by the International Monetary Fund (IMF), Ethiopia's public and publicly guaranteed debt stood at 34.8% of GDP at the end of June 2024, compared with 40.2% a year earlier and 48.9% at the end of 2021/22. More precisely, external public debt as a share of GDP stood at 15.0% on the same date, down from 18.1% the previous year.

Another key indicator: the "present value of external public debt / GDP" ratio is estimated at 19.1% for 2023, and could climb back to 21.8% in 2025. These figures suggest that Ethiopia is managing to moderate its external financial dependence, that is, its capacity to finance its needs through external debt, in an economic context marked by challenges.

Why this dependence?

Several factors explain this dynamic. The country has historically relied on external borrowing (bilateral, multilateral, Eurobonds) to finance its investment and infrastructure programmes. According to the African Development Bank (AfDB), between 2007 and 2023 Ethiopia's external debt rose from $2.3 billion (10% of GDP) to $27.8 billion (17.1% of GDP), a nearly twelvefold increase.

The country faces strong constraints on domestic resources (tax mobilisation, national savings) and must meet high investment needs. Exposure to currency risk is high: a significant share of the debt is denominated in foreign currencies, which makes Ethiopia sensitive to the depreciation of its currency and to international conditions.

Warning thresholds breached

Despite the improvement in the debt-to-GDP ratio, some indicators show that Ethiopia remains at high risk. The "external debt / exports" ratio is estimated at 179.8% according to a report for 2024, well above the 150% threshold used in sustainability analyses.

The "external debt service / exports" ratio was estimated at 11.3% for 2023/24, above the 10% threshold. Debt service (interest plus principal) remains highly exposed to weak export earnings and shrinking foreign-currency resources.

These elements show that, although "dependence" in the sense of the debt-to-GDP ratio is lower, the country remains highly vulnerable to external shocks (currency, interest rates, exports) that can place heavy constraints on its finances.

The weighing factors

  • Currency depreciation and exchange-rate risk: The floating of the birr, combined with high inflation, increases the burden of external debt in local currency.
  • Weak export earnings: Ethiopia depends heavily on a few products (notably coffee) and suffers from a chronic trade deficit, which reduces its ability to repay its debt in foreign currency.
  • High investment needs: The country is seeking to close its infrastructure and development gap through borrowing, which heightens its sensitivity to financing conditions.
  • Debt suspension/renegotiation: Ethiopia has entered the restructuring framework provided by the Paris Club/G20, which has temporarily slowed new external disbursements.

What are the prospects?

In the short and medium term, several scenarios emerge. If the situation remains stable, the decline in the share of external debt in GDP could continue, improving the external dependence profile.

However, a reversal is possible: the IMF forecasts that the external debt-to-GDP ratio could climb back to 21.8% in 2025, owing to large principal repayments (about $3 billion) and lower disbursements.

It will be crucial to strengthen export earnings, stabilise the exchange rate and limit new non-concessional borrowing to avoid a fresh rebound in dependence.

The implementation of an economic reform programme (revenue mobilisation, investment efficiency, improved governance) will be decisive in reducing not only the ratio but also the associated risk.

Ethiopia is managing to reduce its external financial dependence as a proportion of GDP, but the picture remains marked by structural fragilities. Even if the overall indicator is improving, the ratios tied to exports and debt service signal that the nation remains exposed to an external shock. The real question is therefore not just "how much?", but "under what conditions?".

Writer: Saïd TESSILIMI