How Exposed Is Ethiopia’s Economy to External Debt Shocks?
External debt shocks occur when a country’s ability to service foreign-currency liabilities is disrupted by adverse changes in interest rates, exchange rates, global liquidity conditions, or creditor behavior. For developing economies pursuing capital-intensive growth strategies, such shocks can quickly translate into balance-of-payments crises, fiscal compression, inflationary pressure, and growth slowdowns. Ethiopia presents a particularly instructive case. Over the past two decades, it has financed rapid infrastructure expansion and state-led development largely through external borrowing—much of it concessional, but increasingly exposed to commercial terms and complex creditor structures. While this strategy supported high growth for years, it also embedded structural exposure to external debt shocks , which has become more visible as global financial conditions tighten and domestic constraints intensify. This essay argues that Ethiopia is highly exposed to external debt s...