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The World Bank pledged $16.6 billion of funding to Ethiopia over three years, providing a fillip to eastern Africa’s biggest economy as it restructures its debt and opens up the nation to foreign investors.

The International Development Association’s assistance includes a $1 billion grant and a $500 million concessional loan to help the Horn of Africa nation strengthen its financial sector and improve fiscal transparency, according to a World Bank statement

 on Tuesday. The announcement came hours after the International Monetary Fund agreed to a $3.4 billion bailout package.

“The World Bank is committed to supporting Ethiopia’s aspiration of becoming a middle-income country,” the lender said. “Subject to the board’s approval of new operations and availability of IDA resources, this implies a total financial package of over $16.6 billion in undisbursed and future commitments available over the next three years.”

Prime Minister Abiy Ahmed has initiated a swathe of economic reforms since coming to power in 2018 to open up Ethiopia’s $164 billion economy that’s been ravaged by wars and weather-related calamities for decades. Africa’s most-populated nation after Nigeria has about $28.4 billion of external debt and has been seeking to restructure its loans since 2021.

“Addressing the distortions created by Ethiopia’s deep structural imbalances will take time and a challenging transition period,” Jacques Nel, an economist at at Oxford Economics Africa, said in an report on Tuesday. “That said, the front-loaded loan facility and accompanying debt-service restructuring will mitigate the spillover effects of the comprehensive reform exercise.”

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The government needed an IMF program in place before it could resume debt-restructuring talks under the Group of 20-backed Common Framework.

Official creditors have committed to restructure loans to Ethiopia in a way that’s consistent with the IMF’s program. In Africa, Ghana and Zambia have also signed up to overhaul their debt using the G20 mechanism.

The support for Ethiopia from the Washington-based lenders came after the central bank freed trading in the nation’s currency — the birr. The step echoed a similar measure by Egypt in March, when it allowed its currency to weaken almost 40%, enabling an $8 billion IMF bailout.

Ethiopia, which defaulted on its eurobond payment in December, is emerging from a two-year civil war in the northern Tigray region that ended in November 2022. It has since pledged to allow foreign banks to acquire local lenders and proposes to open a stock exchange soon.

More on the World Bank Package:

• The IDA will provide about $6 billion in new commitments over the next three fiscal years and support economic reforms through “fast-disbursing budget support”
• The International Finance Corp. is planning about $2.1 billion in investments, while the Multilateral Investment Guarantee Agency expects to grow its engagement
• Currently, Ethiopia receives more than $2 billion of concessional financing annually from the IDA, with roughly half of that amount in grants.