The World Bank's board has approved $1.5 billion in financing for its first-ever budget support lending to Ethiopia, the lender said late on Tuesday as the East African nation tries to push ahead with a long-running debt restructuring.
Africa's second-most populous country secured a four-year, $3.4 billion programme from the International Monetary Fund on Monday, hours after its central bank floated its birr currency, paving the way for its debt overhaul to move forward.
The World Bank will provide a grant of $1 billion and another $500 million in a low-interest credit line, part of the first-ever direct budgetary support facility provided to Ethiopia, the global lender said.
"This policy operation supports home-grown reforms that will ultimately help the country transition to a more inclusive economy that allows the private sector to contribute more strongly to growth," the World Bank said.
The bank plans to "provide around $6 billion in new commitments over the next three fiscal years and support economic reforms through fast-disbursing budget support," it said.
The funding is part of a $10.7 billion financing package by the IMF, World Bank and other creditors, according to Ethiopian officials.
The financial support, however, was conditional on the government implementing significant economic reforms, including the liberalisation of the foreign currency market.
Ethiopia's birr was down 3% against the dollar early on Wednesday, trading at 77.13. It was little changed on Tuesday after tumbling 30% on the day it was floated on Monday.
Ethiopia sought to restructure its sovereign debt in 2021, under the G20 Common Framework initiative to offer relief to developing nations, but progress was slowed by a civil war in the northern region of Tigray that ended the following year.
Ethiopia's winding debt restructuring mirrors that of Chad and Zambia which completed their debt overhauls under the Common Framework. Ghana, another African country saddled with high debt, is nearing the finish line of its own restructuring under the initiative.
Ethiopia's development partners have welcomed its move to a market-based foreign exchange rate, but some analysts have said the move could drive up inflation and the cost of living, especially for its poorest residents.
The country of 126.5 million people also faces a number of other challenges, including the impact of climate change and the post-war reconstruction of Tigray.
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