The executive board of the International Monetary Fund (IMF) has approved the third review of Ethiopia's $3.4-billion loan programme, the IMF said on Wednesday, unlocking access to $262.3-million in financing for the East African nation as the country continues debt restructuring talks.

Ethiopia and IMF staff reached a staff-level agreement on May 30, citing "strong results" from the first year of the programme, which aims to stabilise Ethiopia's economy amid ongoing debt restructuring negotiations with official creditors and bondholders.

The approval comes as Ethiopia and its Official Creditor Committee, co-chaired by France and China, finalised a Memorandum of Understanding on debt restructuring.    

The draft agreement, announced in principle in March, aims to restructure $8.4-billion in debt and provide $2.5-billion in debt service relief during the IMF programme period, which runs through 2028.

The debt restructuring process is part of the G20 Common Framework initiative designed to accelerate debt treatments for low-income countries. Ethiopia has been in default since December 2023.

"The authorities have made strong progress in implementing their economic reform agenda in the first year of their Fund-supported programme. Growth has been resilient and inflation has fallen," the IMF said in the statement.

The country also needs to rework its sole $1-billion Eurobond as part of its restructuring.

Bondholders remain at odds with the government and have rejected a haircut - or writedown on the principal - arguing that Ethiopia faces liquidity rather than solvency issues.

The IMF has defended its debt sustainability assessment, noting that Ethiopia must reduce debt service obligations by $3.5-billion to make its debt sustainable.