Ethiopia has reached an agreement in principle with creditors for an $8.4 billion restructuring of its debt, the finance ministry said on Friday.

The East African nation is saddled with around $30 billion in external debt and has been in negotiations since 2021 with its creditors to write off part of the repayments.

Ethiopia, whose economy was badly hit by the Covid-19 pandemic, the Russia-Ukraine war and a devastating civil war in 2020-22, defaulted on some of its debt payments at the end of 2023.

The new in-principle agreement "marks a significant milestone in our efforts to normalise our relations with international partners and deliver economic stability to the Ethiopian people", said Finance Minister Ahmed Shide in a statement posted on Facebook.

‘Major victory’

The restructuring was negotiated under the G20 "Common Framework", a mechanism introduced by the world's richest countries in 2020 to help struggling countries cancel some of their debts under strict conditions.

Four countries have so far been engaged in the process: Chad, Ethiopia, Ghana and Zambia.

"This is a major victory for the Ethiopian government," economic analyst Samson Berhane told AFP.

"With the majority of Ethiopia's debt maturing this year, this measure will save significant foreign exchange reserves and prevent its balance of payments deficit from widening further," he added.

Liberalisation drive

Prime Minister Abiy Ahmed has pushed ambitious liberalising reforms in the state-controlled economy since taking office in 2018.

In July, the International Monetary Fund approved a $3.4 billion aid programme after Ethiopia agreed to liberalise its currency.

The country still faces high inflation, expected to be 23.3 percent in 2025.