Ethiopia has signed a bilateral debt restructuring agreement with Italy, marking a significant step forward in its efforts to restore debt sustainability under the G20 Common Framework.
The deal is the second agreement Addis Ababa has reached with members of its Official Creditors Committee, following a memorandum of understanding signed in July 2025 that confirmed an agreement in principle and unlocked more than US$3.5 billion in debt relief. The restructuring forms part of a broader international effort to support Ethiopia as it navigates mounting fiscal pressures and works to stabilise its economy.
Italian Economy and Finance Minister Giancarlo Giorgetti said the agreement is aligned with Ethiopia’s ongoing macroeconomic reform programme. He added that the deal also falls under Italy’s Mattei Plan for Africa, a strategic initiative aimed at strengthening economic partnerships across the continent, with Ethiopia identified as a key partner.
Ethiopia first sought external debt restructuring in 2021, as rising debt levels and tightening global financial conditions increased pressure on its public finances. The situation worsened in December 2023 when the country defaulted on its sole euro-denominated bond, underscoring the urgency of securing relief from creditors.
According to the International Monetary Fund, Ethiopia’s public debt stood at approximately 50.3 percent of gross domestic product in the 2024/2025 fiscal year. While this level is not among the highest globally, the country’s limited foreign exchange reserves and high financing needs have made debt servicing increasingly difficult.
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Despite these challenges, Ethiopia has maintained strong economic growth. The economy expanded by an estimated 8.1 percent in the 2023/2024 fiscal year, driven by public investment and activity in key sectors such as agriculture and services. However, this growth has been accompanied by significant macroeconomic imbalances.
Inflation remains elevated, reaching around 17.5 percent as of September 2024, eroding purchasing power and complicating monetary policy. At the same time, persistent foreign currency shortages have constrained imports, disrupted supply chains and weighed on business activity. These pressures have highlighted structural vulnerabilities in the economy, including a narrow export base and reliance on external financing.
To address these issues, Addis Ababa has been implementing a series of reforms supported by the IMF since 2024. These measures are aimed at stabilising the macroeconomic environment, improving fiscal discipline, enhancing exchange rate flexibility and strengthening the country’s external position.
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The agreement with Italy is expected to support these reform efforts by easing near-term debt servicing pressures and creating fiscal space for priority spending. Analysts say it also sends a positive signal to other creditors, potentially paving the way for additional restructuring agreements under the G20 Common Framework.
The framework, introduced to help low-income countries facing debt distress, has been criticised in the past for slow progress. However, Ethiopia’s recent agreements suggest that momentum may be building, particularly as creditors seek to coordinate more effectively.
For Ethiopia, securing comprehensive debt relief remains critical to sustaining economic growth and restoring investor confidence. While challenges persist, officials hope that continued progress under the restructuring process, combined with ongoing reforms, will place the economy on a more stable and sustainable path in the years ahead.
