Ethiopia’s external debt-to-GDP ratio projected to double its domestic debt-to-GDP ratio in 2025

Key takeaways:

  • External debt is set to surpass domestic debt by 2025, reaching a peak of 28.3% of GDP, which indicates a major shift in Ethiopia’s debt strategy.
  • Ethiopia’s external debt-to-GDP ratio dropped consistently from 26.8% in 2020 to 13.7% in 2024, but a sharp increase is projected for 2025.
  • Domestic debt peaked at 27.1% in 2021 before declining steadily to 18.7% in 2024, with a further decline expected in 2025 (14.5%).
  • The sharp rise in external debt in 2025 suggests a major policy shift, possibly driven by the need for foreign capital or declining domestic financing options.
  • The decline in domestic debt may indicate reduced government borrowing from local sources, which could have implications for local financial markets and inflation.
  • Foreign debt reliance increases exposure to currency risks and external economic conditions, which could affect Ethiopia’s financial stability in the long run.

Ethiopia’s external debt is projected to surpass domestic debt by 2025. The IMF forecasts that Ethiopia’s external debt-to-GDP ratio will peak at 28.3%, marking a sharp rise from previous years. Meanwhile, domestic debt is expected to continue its downward trajectory, falling to 14.5% of GDP by 2025. This shift signals a growing reliance on external borrowing to finance the country’s economic activities. Between 2020 and 2024, external debt saw a consistent decline from 26.8% to a low of 13.7%, but projections for 2025 indicate a dramatic reversal.

Source:

Ethiopia’s Ministry of Finance Projections by the IMF Country Report

Period:

2020 - 2025
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