World Bank approves $1 billion in financing for Ethiopia

(Reuters) – The World Bank said on Tuesday its board had approved a $1 billion credit for Ethiopia, as the Horn of Africa country tries to push ahead with a long-running debt restructuring.

Africa’s second-most populous country after Nigeria secured a four-year, $3.4 billion programme from the International Monetary Fund on Monday, hours after the country’s central bank floated its birr currency, paving the way for its debt overhaul to move forward.

The World Bank’s International Development Association (IDA) will also grant a $500 million concessional credit to Ethiopia, the global lender said in a statement.    “IDA expects to provide around $6 billion in new commitments over the next three fiscal years and support economic reforms through fast-disbursing budget support”, the World Bank said. The funding is part of a $10.7 billion financing package by the IMF, World Bank and other creditors, according to Ethiopian officials.

Ethiopia sought to restructure its sovereign debt in 2021, under the G20 Common Framework initiative to offer relief to developing nations, but progress was slowed by a civil war in the northern region of Tigray that ended the following year.

Signs of fresh momentum in Ethiopia’s winding debt restructuring path followed the completion of debt overhauls by Chad and Zambia under the Common Framework. Ghana is at the tail end of its own debt restructuring under the initiative.

Ethiopia’s development partners have welcomed the move to a market-based foreign exchange rate, but some analysts have said the move could drive up inflation and the cost of living, especially for its poorest residents.

The country also faces a number of other challenges, including the impact of climate change and the post-war reconstruction of Tigray.