Ethiopia has reached a landmark agreement with its official creditors to restructure $8.4 billion in public debt, marking a critical step in the country’s efforts to stabilize its economy and restore financial credibility after years of turbulence.

The Ministry of Finance announced the deal on Friday, revealing that it includes $2.5 billion in debt service relief through 2028. This forms part of a broader debt treatment initiative backed by the International Monetary Fund (IMF), which has called for $3.5 billion in total external debt relief to support Ethiopia’s ongoing economic reform program.

The restructuring effort is being coordinated under the G20 Common Framework, with China and France leading negotiations on behalf of the creditor committee. The deal follows the IMF’s approval of a $3.4 billion loan to Ethiopia in late 2023, intended to support macroeconomic stability, rebuild reserves, and strengthen debt sustainability.

Ethiopia’s debt burden has grown significantly over the past decade due to large-scale infrastructure spending, rising import costs, and disruptions caused by the COVID-19 pandemic and a two-year civil war. These pressures have drained the country’s foreign currency reserves, triggered inflation, and led to sovereign credit downgrades from major rating agencies.

The agreement with official creditors is seen as a major breakthrough that could unlock further support from multilateral institutions and encourage renewed investor interest. It also sends a signal of Ethiopia’s commitment to honoring its debt obligations and engaging constructively with the international financial community.

However, the treatment of private creditors—particularly holders of Ethiopia’s $1 billion Eurobond—remains unresolved. The government defaulted on a $33 million coupon payment in December 2023, making it the latest in a wave of emerging market sovereign defaults. Since then, bondholders have sought clarity on the restructuring process, amid uncertainty over whether they will face comparable terms.

The government has pledged to hold inclusive negotiations with all creditors, and officials confirmed that the agreement with the official creditor committee will be formalized in a Memorandum of Understanding. Once signed, the terms will be implemented through bilateral agreements with each participating country.

Analysts view the deal as a key milestone in Ethiopia’s economic recovery. If successful, it could serve as a model for other countries navigating the Common Framework process, many of which have faced delays and uncertainty in restructuring talks.

While challenges remain—including persistent inflation, high unemployment, and ongoing political tensions—the debt deal provides Ethiopia with some breathing room to focus on domestic reforms and long-term development goals.