Debt Reprive Faces a New Reckoning as War Drives Up the Price of Survival

Apr 27 , 2026. By BEZAWIT HULUAGER ( FORTUNE STAFF WRITER )

Ethiopia entered the current crisis with improved foreign currency reserves, sufficient to cover import bills for 3.3 to 3.5 months. Despite this buffer, fuel procurement remains a "looming risk," with monthly costs reaching 28 billion Br. The federal government faces an additional 600 million to 1.2 billion dollars in costs above standard norms due to disruptions in the energy sector. The Monetary Policy Committee has broken its regular quarterly schedule to reconvene in late April. The urgency came from acknowledged "upside risks to inflation" from oil price volatility and supply chain disruptions.

The federal government's attempt to emerge from debt distress is facing a new external shock, with the International Monetary Fund (IMF) and World Bank preparing a Debt Sustainability Analysis (DSA) to measure how the war in the Middle East is feeding through fuel prices, shipping costs and trade disruptions.

“Precise losses are hard to quantify in real time,” said Tobias Rasmussen, IMF resident representative in Ethiopia, who argued that the route out of debt distress still depends on a credible reform programme. "Ethiopia should preserve exchange-rate flexibility and continue reforms to diversify exports and improve competitiveness so disruptions do not become prolonged distress."

External debt restructuring under the G20 Common Framework is reducing debt-service pressures and freeing resources for social needs. However, Rasmussen presses federal government officials negotiating with international creditors to prioritise durable revenue mobilisation, reduce dependence on borrowing, and create space for priority social and infrastructure spending. The IMF urges policymakers to phase out general subsidies and replace them with targeted support for vulnerable groups, limiting debt buildup without undermining social cohesion.

The current IMF-World Bank analysis designates Ethiopia as having weak debt-carrying capacity due to low reserves. According to Rasmussen, progress will depend on export diversification and reserve accumulation. Completing debt treatment under the Common Framework remains critical to lower debt-service burdens and clear arrears, with “discussions continuing with other external creditors for similar debt treatments.”

According to the IMF Representative, macroeconomic discipline will require tight monetary policy, restrained fiscal deficits, export growth, concessional financing and larger foreign-exchange buffers. Fiscal reforms should raise revenue “to create resilient and sustainable financing for spending priorities,” while structural changes should accelerate exports.

However, recent increases in fuel and fertiliser prices have heightened fiscal pressure on the federal government.

The IMF cut its growth forecast for sub-Saharan Africa to 4.3pc in 2026, down 0.3 percentage points from January, while average inflation is expected to rise to five percent by year-end as aid shortfalls combine with Middle East supply shocks.

The public debt story is less of an escape than a reprieve. External debt grew to  34.46 billion dollars at the end of December last year, up by 1.07pc from June, as fresh disbursements from the IMF and the World Bank’s concessional lending arm outpaced principal repayments. But the more revealing shift was in what that increase represented. Not a sudden loss of control, it was a temporary cushion bought by continued support from official creditors. More money came in from lenders than went out in repayments, giving the federal government room to breathe as it tried to steady an economy still adjusting to a weakening currency and a difficult reform path.

That breathing space rests on a fragile balance. External debt is now shaped by a complicated mix of multilateral lenders still disbursing, bilateral creditors still negotiating, and private creditors whose claims remain too important to ignore. The burden is no longer about how much is owed, but about whether the country can manage a drawn-out negotiation across very different creditor groups while arrears continue to build and restructuring remains unfinished.

Experts say the war makes a strict monetary policy, and any removal of the credit cap or policy-rate revision is unlikely. International aid to Africa dropped, with Ethiopia, Congo and Nigeria each facing losses of 240 million dollars to 780 million dollars, while South Sudan and the Central African Republic risk losing more than 10pc of government revenue, mostly humanitarian funds. The situation in the Middle East has also pushed up oil, gas and fertiliser prices, limiting fuel in Ethiopia, Kenya, Congo, Malawi, Sierra Leone and Zambia, while raising pump prices in Mali, Nigeria and Zimbabwe.

Abebe Aemroselassie, IMF's director for Africa, said in Washington that sub-Saharan Africa grew 4.5pc in 2025, one of its fastest rates in decades, but the latest war in the Middle East had disrupted the energy sector. Average inflation fell to 3.4pc at the end of 2025 from 4.8pc a year earlier. For 2026, Abebe warned that logistics, trade, tourism and remittances will be disrupted, while fiscal conditions will tighten for fuel-importing countries. He urged governments to shield vulnerable groups through targeted and time-bound support.

"Oil exporters should treat windfalls as temporary and rebuild buffers," he said. "Oil importers should protect social and development spending and mobilise more domestic revenue."

According to Abebe, the IMF is already in talks with governments seeking extra financing, but there is no blanket emergency window for every country.

“We stand ready to respond quickly," he told Fortune. "Right now, there are no such discussions."

Abebe told an online briefing last week, on the sidelines of the IMF/World Bank summit held in Washington D.C., IMF's commitment to support countries across the continent with financing, policy advice, and capacity development "as they navigate this difficult period."

Mered B. Fikireyohannes, a macroeconomic expert and investment advisor and the CEO of Pragma Investment Advisory, saw Ethiopia entering the crisis with improved foreign currency reserves sufficient to cover import bills of 3.3 to 3.5 months. But fuel procurement is the looming risk. Merid estimates that the federal government buys 3.8 million tonnes of fuel at a cost of 28 billion Br a month and is now facing an additional 600 million dollars to 1.2 billion dollars above norms. He warned that inflation would rise again as higher fuel costs and the removal of subsidies spread through the economy.

Two weeks ago, the Monetary Policy Committee acknowledged that the war in the Middle East would push up oil prices and disrupt supply chains, creating upside risks to inflation. It stated the need to maintain a “tight monetary policy stance” and reconvene by late April rather than wait for its regular quarterly schedule.

While backing the Monetary Policy Committee’s tight policy stance, Mered urged policymakers to avoid monetary financing. Fuel-subsidy pressure has nearly doubled, from a budgeted 120 billion Br to about 270 billion Br, a 170pc increase.

"The Ministry of Finance and the Central Bank should revise every forecast for the coming fiscal year," said Mered. "The fifth IMF review should be negotiated on entirely different parameters.”

Officials at the Ministry of Finance, speaking on condition of anonymity, told Fortune they expect a revised programme for Ethiopia and other countries exposed to imported fuel, subsidies and the Middle East war.

Mered argued that the federal government "can't and shouldn't pass" the full cost of fuel to consumers already squeezed by the cost of living. Instead, he insisted on pressing a renegotiated IMF financing package to cover the budget hole created by what he described as a 1.5 billion-dollar fuel-subsidy gap. He also urged officials to “double down” on fuel-saving measures and modernise domestic debt management by issuing market-oriented voluntary bonds with maturities of two to 10 years.

For Mered, part of the distortion in the economy comes from a fragmented foreign-exchange market, which leaves the government dealing with foreign-exchange rates used by the Central Bank, commercial banks, forex bureaus and the parallel market. A study commissioned by the Commercial Bank of Ethiopia (CBE) found that only 22pc of foreign exchange passes through the official market.

Mered urged policymakers to ensure a more competitive rate, arguing that it could raise remittance inflows by one billion to two billion dollars and narrow the gap between official and parallel rates.

PUBLISHED ON Apr 27,2026 [ VOL 27 , NO 1355]